Discuss Milestone 2 Investing in Capacity

Milestone 2: Investing in CapacityCaseCoffee and snack shops are a popular and growing industry in the United States. It is forecasted that they will continue to grow at rates faster than general economic growth; in 2019, this market was valued at almost 60 billion dollars (Ibis World, 2019). Desserts and other luxury snack items are sometimes marketed as a branded “experience,” like high-end specialty snack items. To understand how a product can be sold as an experience, you might think of “Eloise at the Plaza,” the “American Girl Tea Shop” in New York City, an “Escape Room” or Murder Mystery Nights. Demand for luxury snack items sold as branded experiences increases with disposable income, or the income that consumers have left over after necessarycosts, like shelter and transportation, are covered. Luxury snack items addressing food allergies and intolerances are also often sold in unique branded environments. Lactose-free ice cream is one such product.Competition in the market for luxury snack items is fierce, and franchisees selling these items frequently see the establishment of close competitors in nearby locations. The success of one establishment may lead to a mushrooming of similar establishments nearby.Snack Box (a fictitious company) allows franchisees to market a set of branded items under conditions governing the nature of the establishment selling the products. Franchise agreements also dictate behavior of employees presenting items to the public within franchises. As a parent firm, Snack Box oversees multiple franchised locations and operators. Brands managed by Snack Box include frozen ices and custards, pretzels, waffles and crepes, moxtails, and related food items. To ensure uniformity across locations, Snack Box requires that all employees are similarly trained.Note: A franchise allows a franchisee access to a firm’s proprietary knowledge, processes, and trademarks or brands. The franchisee pays the franchisor or parent firm an initial start-up fee plus annual licensing fees. In addition, franchisees pay the parent firm a percentage of revenue outlined in each franchising agreement.Assume you are the owner and Chief Financial Officer of Snack Box. You plan to purchase an “off the shelf”content management system (CMS, or a software application or set of related programs used to create and manage digital content). The evaluation of the CMS will meet some business requirements of Snack Box:•Improve employee training and satisfy client training needs: The CMS includes a library of existing human resources training, compliance, and professional development courses or modules. Training is interactive, social, and gamified to provide an incentive to complete the required training. Selected training systems allow authoring and modificationof existing courses to meet the needs of various franchisees, products, locations, and compliance requirements. The CMS should have the ability to host multiple differently branded websites for the delivery of training information. You expect to increase the effectiveness of each location as a result.•Meet the unique financial needs of the parent firm. The CMS needs to be used across a portfolio of franchise operations offering specialty food items, including custom brewery products and ciders, crepes, waffles and breakfast dinners.Snack Box has reviewed project-specific and firm-wide approaches to determining a weighted average cost of capital to utilize in valuing this project. It has determined that this project has lower firm-specific risk than other

projects in which the firm is involved. You have developed the following capital budgeting criteria based on expected project cash flows, as follows:You have determined that the interest rate (risk) assigned to this project is 11% and the maximum allowablepayback (PB) and discounted payback (DPB) periods for Snack Box are 3 and 3.5 years, respectively. You have determined that the CMS will increase franchise fees and revenues with normal project cash flows shown as follows:Project Cash Flows ChartTime in Years012345Cash Flow$235,000$65,800 $84,000$141,000$122,000$81,200 Applying Net Present Value (NPV), Payback Period (PB), Discounted Payback Period (DPB), and Internal Rate of Return (IRR) as capital budgeting decision methods and discounting at a rate of 11%, you have evaluated NPV, PB, DPB and IRR. You have found that these decision rules call for acceptance or rejection of the project as follows:As part of your assignment, you will need to interpret the results for the various capital budgeting criteria that have been provided below. Specific questions will be provided in the project requirement section that follows.Payback PeriodChartTime in

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