Cool Moose Creamery’s owner, Perantinose, is consideringexpanding its business operations by providing soft serve ice-cream. Perantinose is the student of final year at Richard Ivey School of Business and he is considering evaluating whether it is beneficial for him to adopt Cool Moose Creamery a full time business or not.
The main target segments of Perantinose are those where there is no other ice-cream provider or few competitors are present. The current targeted location of Perantinose is Alliston where he wanted to increase its product line by adding soft serve ice-cream in Cool Moose Creamery’s product offerings.
Adding soft serve ice-cream requires installation of soft serve ice-cream machine, which involves significant initial investment and subsequent maintenance cost. Perantinose is considering two alternative machines; one is with single head machine and other is triple head machine.
Dairy Queen is the largest competitor of Cool Moose Creamery as it offerssimilar kind of ice-cream with great excellence. Therefore,Perantinose is consideringlaunching triple head machine with three different flavors. However, both machineshave different risk and rewards, different initial investment and different associated revenues and costs. Perantinose could purchase both new and used machines for this purpose.
It is expected that the new machinery is costly and significant risk is involved in installing new machinery.It is clear by performing NPV and IRR analysis by incorporating cash inflows and outflows over four scenarios. Financial analysis is performed for both used and new machine and for both single head and triple head machines separately.
By taking the associated revenues and costs under each scenario, it is expected that the used machine with single head is generating greater net present value and greater internal rate of return. On the other hand,other three scenarios are generating negative net present value and lower internal rate of return. The reason behind this is that using single head machines requires low initial investment however;it attracts similar number of customers. It is expected that greater additional maintenance could be incurred by using used machine however; the question arises if Cool Moose Creamery did not attract required number of customers due to the presence of Dairy Queen as the market leader.
Therefore, it will be beneficial for Perantinose to invest in a used machine in order to check customers’ responses.If it is more than expected, then the investment could be made in triple head machine in order to generate long term benefits and in order to attain grater market share.
Moreover, there turn on investment is highest under used single head machine as compared to other used and new machines. In addition to this, the payback period of used single head machine is expected to be less than one year, which means investing in used single head machine will generate quicker positive cash flows as compared to other machines where the payback period is longer than this as the payback period of new single head machine is more than eight years.Furthermore, the period of new triple head machine is more than 9 years and used triple head machine’s payback period could not be identified due to negative cash flows. Therefore, it is recommended that Perantinose should invest in used single head machine in order to reduce risk, positive customers’ responses and in order to generate greater revenue, which could provide Cool Moose Creamery a competitive advantage over its competitors…………………..
This is just a sample partial work. Please place the order on the website to get your own originally done case solution