you need to present the calculative component of your assignment work and demonstrate that you have mastered the required skill in collecting, analysing and calculating key information for the purposes of decision making. You are not making the final recommendations here, but you are exploring the components of each decision.

Note: Read and use the case study below to complete all parts of assessment 1.

Background

Gina, a university student, successfully operates a mobile coffee business from a caravan and seeks to expand her venture. Raymond, a potential investor, has expressed interest in a partnership with her. They are turning to you for guidance on crucial decisions related to their business expansion.

Expansion Options: Gina faces a pivotal decision about how to expand her coffee business. Three options are on the table:

1. Option 1: Procuring 10 mobile coffee bikes and 4 event caravans to create a truly mobile business emphasizing sustainability and quality.
2. Option 2: Opting for an extensive expansion with 20 mobile coffee bikes, aiming to dominate the market with high-quality coffee.
3. Option 3: Striking a balance by incorporating 5 mobile coffee bikes and 10 event caravans, targeting both events and commuter routes.

Gina and Raymond grapple with uncertainty about the best option and need advice.

Pricing Strategies: Determining the right price for their coffee is another challenge. Their unique brewing process adds cost while enhancing quality. Three pricing strategies are under consideration:

1. Strategy 1: Charging a regular market price, even if it entails absorbing the additional cost.
2. Strategy 2: Opting for a slightly higher price to convey the exceptional quality of their coffee.
3. Strategy 3: Offering a lower price due to fewer expenses compared to a traditional caf.

Striking a balance between profit and customer appeal is a concern, compelling them to seek guidance.

Food Addition: Raymond suggests incorporating food, mainly baked goods, into the coffee business. They can source these items at $1 each and intend to sell them for $5. While Raymond believes it's a wise move, Gina is unsure whether it aligns with her coffee-focused business.

Ownership Structure: The final challenge pertains to determining the right ownership structure for their business. Raymond, as the financial investor, and Gina, with her coffee expertise, are mulling over three options:

1. Option 1: Establishing a company in which Raymond owns 75%, Gina holds 25%, and Gina receives a salary.
2. Option 2: Opting for equal partnership, with both sharing profits and losses.
3. Option 3: Forming a company where Gina secures 80% ownership, Raymond invests $1 million, and the rest is provided as a loan with interest.

KEY STRATEGIC

The key strategic issues in this case involve deciding on the best expansion strategy, pricing their coffee right, considering whether to offer food, and determining the right ownership structure. To guide Gina and Raymond effectively, they should conduct market research, use a pricing strategy that balances quality and competition, evaluate the impact of adding food, and choose an ownership structure that aligns with their long-term goals and contributions.

Additionally, it's crucial to analyse their competitors, understand the regulations for their business, consider the interests of various stakeholders, assess the overall coffee market in Canberra, and evaluate their own skills and potential need for external expertise. Addressing these issues and conducting these analyses will provide a solid foundation for making informed decisions.

Ginas Coffee Business Additional Information We thank you for your varied, useful and interesting questions. We are not able to answer all of them (in part, as this is a made-up case study based loosely on a real scenario), but also, because some of the questions are not relevant, per se, to the decisions that you are being asked to think about. Remember that in Part 2 of the Case Study, you need to provide your evidence/calculations in support of Decision 1, 2 and 3 (the mix of bikes and/or caravans; the price of a cup of coffee purchased from a mobile coffee bike; and whether to add food to the mobile coffee bikes. You should demonstrate your evidence and also explain/narrate what you have considered and taken into account in coming to your decision. You make your final recommendations in Case Study part 3 (noting you have to give advice on decision 4 and you will choose either to make a recommendation for Decision 1, 2 or 3) We would ask you to accept a couple of assumptions. First, it is important to assume that Ginas Coffee (and any additional offerings such as food) is and will be regulatorily-compliant both in terms of operating as a food business and in relation to food safety standards. However, you are right to raise this as a legitimate concern. Second, we will assume that Ginas has conducted a market research plan and there is strong evidence that there is a market for both the mobile coffee and the coffee caravan operations. Please also note that there is a marketing plan in mind (alongside a business case). Third, Gina has run the Caravan coffee business for the last 5 years (while completing studies). Gina has taken the basic idea of the AeroPress and has invented a larger scale version of this, which enables a large amount of coffee to be brewed to a very high quality, but to remain fresh. Gina has a patent pending on her development. Fourth, Gina has some accounting records, but has not had to produce financial statements, as she is not registered as a company and has paid personal income tax on income based on income and expenses. Finally, Gina has no plans to move to traditional caf style formats. She believes in going to the market, not expecting the market to come to you. She sees her long-term future in the business. She understands Canberra, but sees scope for expansion within the next 5-10 years to other significant urban markets. Specific information: Events - Caravans It is estimated that there are approximately 500 event days per year in Canberra and within surrounding regions (a 100 km radius from the ACT) and that up to 5 events can exist on one day. These events can be quite spread out geographically across Canberra and surrounding regions.

Impacts of Bad Weather (both extreme heat, extreme wet and other unexpected events) The mobile coffee bikes are able to work in the vast majority of atmospheric/weather conditions. The assumption is, though, that there will be 10 days per year where mobile bikes will not be able to operate. Gina and Raymonds potential roles Gina wishes to be more involved in the operational side of the business. Gina believes she will likely still be involved in running either a bike or a caravan, but will also be visiting multiple sites per day to work alongside and support the staff. Gina would likely hold the title of Chief Operating Officer. Raymond is not planning to be involved in the daily operation of the business. Should the business register as a company, Raymond would be a shareholder and would hold a directorship. However, please note that we are not asking you to determine best business structure (sole trader, company, partnership etc that is for later in your degrees). Raymond is simply convinced by Ginas vision and believes in its potential. He will happily advise Gina on operational matters should that arise. Committed Cost Gina inherited a large warehouse in Fyshwick, ACT. The value of the warehouse is approximately $2,000,000. Part of the cost of setting up the business is that Gina would sell this to the business, with the ideal aim of taking half of its value as a cash payment and half as shares. Note that the warehouse is already equipped with solar panels and there are a significant number of solar batteries on premises. On a day where there is not a lot of sunlight, these batteries can be used to charge the bikes. Equally, to outfit all staff in appropriate attire for both the bikes and the caravans, there is a one-off uniform cost of $350,000 to purchase sufficient branded uniforms and kit for Canberras weather extremes. Gina and Raymond have indicated that they need to hire several administrative staff in addition to their sales force [this includes both part-time and full-time staff member. The annual cost for all administration staff is $370,000. This includes in-house marketing, administration support, licensing arrangements, payroll, superannuation and tax, HR, purchases and other support services. The group of administration staff amounts to 5 full-time equivalent employees. One of the staff members would be the General Manager. Licensing and Event Fees Each mobile coffee bike would pay a license fee, either to the local Government or to a local building owner to set up their coffee bike. Some of these locations will be inside buildings, some outside significant sites. In the cost breakdown, you will see a licensing fee per bike per year. Equally, in the cost breakdown, there is an estimation of the annual fee for registration at events across Canberra and surrounding regions. Cost of a cup of coffee Gina advises that the average price for a cup of coffee sold from caravans is $6.00. She has not determined an average price for a cup of coffee sold from mobile bikes. She seeks your advice as to what should be the average price. Please assume that all data supplied is average costing data, such as cups, coffee, flavourings etc

Operating days per year Mobile Coffee Bikes Monday-Friday each week (except for public holidays) Caravans Assume that each Caravan would service 100 event days per year Food Assume that there is no additional cost for carrying food on the mobile coffee bikes, except for the $1.00 per item and one additional cost serviettes and paper bags cost $0.02 per item. However, note that the contract for food would specify a minimum commitment to purchase of 50 items per bike per day of operation. Gina advises that any unsold food would be donated to a local homeless shelter. The selling price is as stated: $5 per item. Market research conservatively suggests 35 items per bike per day. One-off Training Costs Each staff member hired will be specifically trained in running a coffee bike and also a caravan (should the business continue with coffee caravans). This training is a one-off expense of $300 per staff member. Staff Staffing costs are presented below, including both wages and security. Assume that the employment base includes both part-time and full-time workers (and that all payments comply with Australian law, such as superannuation costs). The operating model would allow support for peak coffee times (with a sense that most coffee is sold between 7.00 am and 3.00 pm) and would allow breaks and bathroom breaks, for instance). Gina and Raymonds business acumen Raymond has significant history in setting up new innovative, technology-based businesses. He turned down the opportunity to appear on Shark Tank, so excited, was he, of the potential within Ginas business. Gina is about to Graduate with a Bachelor of Commerce (Accounting) and a Bachelor of Laws degree. Gina has previous management experience in food retail prior to entering university and in addition to running the event caravan business.

Mobile Coffee Bike Cost Costs are provided either as fixed costs or variable costs. The variable costs are per cup of coffee. Each coffee bike can service 300 coffee cups per day, but the market testing suggests that on average each bike would serve 260 coffee cups per day. Variable costs are averaged for each cup of coffee (as some customers do not have milk for example). Cost of a Mobile Coffee Bike A$8,000. Storage Costs $7000 per bike per year Coffee Cost $0.50 per cup Milk Costs (averaged per cup) (this includes milk alternatives) $0.20 per cup Flavourings/Sugar $0.02 per cup Labour (per cup) $0.86 per cup Take-away cups and lids (averaged for size) $0.15 per cup Cleaning and maintenance costs $1500 per bike per year Advertising/Brand development $150 per bike per year Licensing $1200 per bike per year Salaries for Security $1,200 per bike per year Insurance costs $45 per bike per year Please also note that the cost of coffee is forecast to rise by 25 per cent within the next year and will likely stay at that increased price for the foreseeable future. This is due to the impacts on coffee crops and coffee quality due to climate change. Caravan Coffee Costs Costs are provided either as fixed costs or variable costs. The variable costs are per cup of coffee. Each caravan can service 1500 coffee cups per event day, but the market testing suggests that on average each caravan, per event would serve 1060 coffee cups per event day. Variable costs are averaged for each cup of coffee (as some customers do not have milk for example). Assume that for each caravan, there would be 100 event days per year per caravan (sporting events, festivals, holidays, celebrations, etc) Cost of a Coffee Caravan A$35,000 Storage Costs $15,000 per caravan per year Coffee Cost $0.50 per cup Milk Costs (averaged per cup) $0.20 per cup Flavourings/Sugar $0.02 per cup Labour (per cup) $1.08 per cup Take-away cups and lids (averaged for size) $0.15 per cup Cleaning and maintenance costs $2,500 per caravan per year Advertising/Brand development $150 per caravan per year Licensing and Event Fees $5,000 per caravan per year Salaries for Security $2,000 per caravan per year Insurance and Registration costs $2,000 per caravan per year Leasing Costs - Vehicles for Towing (including fuel) $10,000 per caravan per year

Expected returns Raymond is happy to offer the loan, should that be considered at a 5 per cent interest rate. There are special tax opportunities for foundation loans and he also expects the prevailing cash rate to reduce in the next 18 months. In terms of the expected return of 7 per cent, Raymond is realistic enough to recognise that this is not guaranteed. He has indicated that he would continue the investment for at least 5 years, provided that a debt-to-equity ratio of no more than 60 per cent was maintained (this is covered in module 9 but what this means is that debt cannot exceed 60 per cent of equity i.e. Debt of 1,000,000 would be fine if equity was above $1,666,667. Raymond is convinced by the product and the market.