Microsoft Word - FIN 449 Exam.docx Take home Exam FIN 449 A totally fictional coffee company Camila’s Coffee, a local Bellingham coffee roasting business, is celebrating its 5th year anniversary in...

Submit a report (approximately 2 pages) and your spreadsheet. There is the case and some questions that help when writing up the analysis in the Case and questions file. Also attached is the spreadsheet with multiple appendicesin which analysis must be done and included in the write-up.


Microsoft Word - FIN 449 Exam.docx Take home Exam FIN 449 A totally fictional coffee company Camila’s Coffee, a local Bellingham coffee roasting business, is celebrating its 5th year anniversary in 2021. Camila has been importing beans and selling them to small grocery stores and cafes. Coffee sales to grocery stores are sold at a wholesale price ($6.30 a bag) while sales to cafes are at retail price ($9). Her part-time assistant and coffee roasting specialist, Jeffrey, suggested she expand her coffee choices to include fair-trade, shade grown coffee to appeal to customers who want coffee from farms that pay workers well and protect the environment. Jeffrey points out fair trade coffee can be sold at a higher price and he believes Camila can sell the coffee at a price lower than the competing companies such as the local Tony’s Coffee.[footnoteRef:1] [1: Tony’s Coffee is a real Bellingham business. ] Camila has a strong customer base and does not want to lose customers by charging higher prices on all coffee beans. The fair-trade coffee would need to be sold at a higher price due to the cost of the beans. Camila considers maintaining her current coffee sales but adding the premium coffee as an additional choice. To expand the business Camila will need to purchase a coffee roaster to handle the additional coffee bean sales. Camila quickly investigates the cost of a new roaster and estimates it will cost $20,000. Camila estimates the price of the fair trade unroasted (green) beans would be higher, but does not anticipate other variable costs to change. Camila makes a few estimates of prices and variable costs of the fair trade coffee shown in Appendix 2. Camila cannot think of any additional fixed costs associated with the project. Jeffrey is an hourly worker and is willing to work extra hours on coffee roasting (a variable cost). Camila has concerns. The equity in the store was funded by her savings and she has no additional personal savings to invest. Camila’s Coffee has an existing amortized loan that will be paid off by the end of the year, and she was hoping the business would be debt free. Camila believes the business could get a bank loan on the roaster, but banks charge interest and she is already carrying a loan. Fortunately, Camila’s Coffee does not need to pay dividends to satisfy equity holders, as Camila is the only equity holder. Camila calls the bank she uses and describes her project. The bank believes she could get a five year amortized loan at an interest rate of 4.8% but Camila needs to make an appointment and bring in both recent and future expected financial statements. Alternatively, Camila thinks it might be best to use cash to buy the roaster so she will not have any financial costs; however, she knows she needs to maintain a positive cash balance. Camila’s Coffee’s last two years of financial statements are in Exhibit 1. Details on coffee quantities, prices and costs for both existing and fair-trade coffee are shown in Appendix 2. Appendix 2 also has details of the existing and potential new loan. Complete estimates for the new coffee project are shown in Exhibit 3. Camila was discussing the idea of a fair-trade coffee with her friend, Julia, who got very excited and said it was a great idea. In addition, Julia thought Camila should consider open a retail coffee shop as they so popular in Bellingham. Camila believes without the new project her unit sales will increase no more than 5%. While the pandemic has greatly hurt retail businesses, store sales of coffee have increased and quantity of coffee beans sales stayed constant in 2020 although the dollar sales decreased (Appendix 2A). Camila feels very Take home Exam FIN 449 Camila’s Coffee A totally fictional coffee company fortunate that her business was not greatly affected by the pandemic although revenues were down. The business is also not seasonal so steady each month. Camila does not know what to do as she does not really want to take out another loan. She decided to visit the community small business consulting center where you work. This center is a service for community small businesses and does not charge for advice. Camila wants advice on her company’s future and specifically this project. You are assigned this project as you understand business financials. Camila asked you to call her by her first name as she feels more comfortable if you are on a first name basis. Given your background you know you need to first assess the current financials of Camila’s Coffee. You also need to assess the financial viability of the fair-trade coffee project. Unfortunately, Camila’s estimates are very vague, and she does not have any idea about required rates so you will need to estimate a cost of capital. Besides the project evaluation, you also need to make future projections of income and cash to provide to the bank and make sure that Camila’s Coffee can handle the new project. Camila asks you to see if she can enter this new product line without borrowing money. She also asks if you think her company has the money to increase her salary; she began the business paying herself $30,000 a year and has been working full time at the business for four years. She also takes no dividends from business. Finally, you want to give realistic advice on possible future endeavors for Camila’s Coffee with your knowledge given Bellingham is full of coffee shops and one very strong competitor is Tony’s Coffee which sells to both individuals and shops and also has a coffee shop Tony’s Coffeehouse in Bellingham. Notes: 1. Address your report to Camila. 2. Camila is not a finance person so do not assume she is correct in her assumptions. However, she is the owner so you need to address any concerns. It is fine to address that some estimates of the future might not be realistic. 3. All Appendices are in the Excel spreadsheet. Add your financial analysis to this spreadsheet. 4. You do not have complete information on the future so you will need to make logical estimates. 5. Cash flow for a small business is crucial! 6. You should analyze both the existing company and growth (with the proposed new project or others). 7. You should end with concrete evaluation of the business and recommendations. 8. There are no right answers to this case! I expect each one to be different. You do need to address the issues brought up in the case. 9. If you are uncertain about pieces of the case, make assumptions. If you find an inconsistency or something does not make sense to you about the case, feel free to email me questions as I wrote this case and it is the first time it has been assigned.