3.8 Investment appraisal questions for IB Business Management

Laneway Coffee Co.

[1] Laneway Coffee Co. (LCC) is a partnership that runs three cafés in Melbourne, Australia. The partners, Kavitha Ramaswamy and Tom Hendry, opened the first café in 2017. LCC is known for friendly service, homemade pastries and coffee from a small roaster in Victoria, Bean Street Roasters, which has supplied LCC since it opened.

[2] Coffee prices have risen sharply. Bean Street Roasters increased its prices twice in 2025, and LCC’s profit margin fell. Tom wants LCC to roast its own beans. A second-hand roasting machine and the changes to the back of one café would cost AUD 180 000. Tom estimates that roasting in-house would save AUD 45 000 in the first year, while staff learn to use the machine, and AUD 60 000 a year after that.

[3] Kavitha is less sure. Roasting coffee well is a skill that takes years to learn, and customers often praise the taste of LCC’s coffee. The roaster would also produce smoke and noise in a residential street, and neighbours have complained about deliveries before. Kavitha would rather negotiate a long-term contract with Bean Street Roasters at a fixed price.

[4] Tom believes that roasting in-house would be a creative way to build the brand: LCC could sell its own bags of coffee in the cafés and online, and run coffee-tasting evenings. To pay for the roaster, the partners would need to use most of LCC’s cash reserves, which they had planned to use to open a fourth café in 2027.

Sunbird Laundromats is a chain of nine self-service laundries in Durban, South Africa, owned by Thandiwe Mkhize. Electricity is Sunbird’s largest cost after rent, and power cuts force the laundries to close for several hours a week. Thandiwe plans to install solar panels and batteries at all nine sites for R1 200 000. She expects electricity savings of R320 000 a year, and the panels have a life of 15 years.

Salmonberry Point Lodge (SPL)

Read the resources and answer the questions that follow.

Salmonberry Point Lodge (SPL) is a wilderness lodge on the central coast of British Columbia, Canada. It is owned by the economic development corporation of a First Nation of about 900 members, and run as a social enterprise: its surplus is paid into a Nation fund for language and culture programmes, housing and jobs for young people. Guests fly in by floatplane and stay three to five nights between May and October to watch grizzly bears in a river estuary, visit ancient village sites and learn about the Nation’s history from local guides.

Image: a wooden lodge with a carved and painted entrance post stands at the edge of a misty inlet. In the foreground a guide in a red jacket points across the water at a grizzly bear catching salmon. Caption: “Salmonberry Point – see the coast through our eyes”.

Resource 1 – Newspaper article from *Coastal Business Weekly*

Indigenous-owned lodges show that tourism can pay – and protect

Ten years ago the inlet’s main employer was a logging company. Today the Nation’s lodge employs 37 of its own members, most of them under 30, and young guides are learning the Nation’s language so that they can teach it to visitors. “Every dollar a guest spends stays in our community,” says Lena Hunt, chief executive of the development corporation.

Table 1: Selected information for SPL

Resource 2 – Social media posts from Dana, an SPL guide and Nation member

I grew up hearing that our language would die with my grandmother. This summer I guided guests from 14 countries and told them the names of every river in our language. The lodge paid for my lessons. Proud. [1/2]

But last August there were four boats in the estuary at the same time and the bears left the river for two days. Now people are talking about cruise ships. The bears were here before any of us. #ProtectTheInlet [2/2]

Resource 3 – Internal email from SPL’s general manager to the development corporation’s board

From: Mark Feldman, General Manager

To: Lena Hunt and board members

Subject: Two offers we must decide on

Offer 1: Pacific Meridian Cruises wants to stop at the inlet 36 times a season with about 320 passengers each time. It would pay SPL CAD 110 per passenger for a three-hour visit. We would need a new dock costing CAD 1.6 million; the cruise line would lend us half of this, interest-free, repaid from future fees. The lodge cannot take 320 people to the bears, so visits would be to the village, the big house and a salmon barbecue.

Offer 2: Coastal Timberlands will pay the Nation CAD 250 000 a year for ten years for permission to build a logging road across our territory to a valley next to the estuary. It promises not to log within 2 km of the river.

Both would add a lot of income. Both will be controversial. I need the board’s direction before the cruise line’s deadline at the end of next month.

CONFIDENTIAL: this email and any attachments are intended only for the named recipients.

Resource 4 – Extract from a report by a university bear researcher

Grizzly bears feeding in the estuary leave when boats, noise or people come too close. To avoid disturbance, no more than 24 visitors should be at the viewing platform during each tide period, with two periods a day during the 120-day season. Logging roads open forests to hunters and vehicles and have reduced bear numbers in nearby valleys.

Resource 5 – Survey of Nation members (210 replies)

Resource 6 – The general manager’s figures for the cruise offer

Stolarnia Wiśniewski is a furniture maker in Poznań, Poland, owned by Marek and Ewa Wiśniewski. They want to buy a computer-controlled (CNC) cutting machine and are comparing two models over a planned life of eight years. Their accountant has calculated that Model X has an average rate of return (ARR) of 14 % and Model Y an ARR of 12 %, and has advised them to buy Model X. Most of Model X’s returns are forecast for years 5 to 8, after an expected rise in demand for made-to-order kitchens.

Explain two disadvantages for Stolarnia Wiśniewski of using ARR to choose between the two machines.

Kino Lumen

Kino Lumen is a chain of 11 cinemas in Poland. It plans to open one new multiplex in 2027 and has two possible sites: a retail park on the edge of Wrocław (Site A) or a historic building in the centre of Kraków (Site B).

The finance director, Agnieszka Wójcik, has forecast the net cash flows of each site (Table 1) using footfall counts, local population data and the results of existing cinemas. The chief executive, Tomasz Zieliński, who founded the chain 20 years ago, prefers Site B. He says: “I have walked that street many times. I can feel that a cinema there will become a landmark. The spreadsheets cannot see that.”

Table 1: Forecast cost and net cash flows of the two sites (PLN 000)

Cooperativa Gráfica Riachuelo (CGR)

Read the resources and answer the questions that follow.

Cooperativa Gráfica Riachuelo (CGR) is a printing works in Avellaneda, near Buenos Aires, Argentina. In 2002, during an economic crisis, its owners closed the plant and left without paying three months of wages. Forty-six workers occupied the building, restarted the presses and formed a worker co-operative – one of Argentina’s “recovered companies”. Today CGR has 58 members, who all receive the same pay. Every important decision is taken by a monthly assembly of all members, and an elected council of five members handles day-to-day matters. CGR prints books, magazines and packaging.

Image: a large printing press with freshly printed book covers coming off the rollers. Painted on the factory wall above it: “Ocupar, resistir, producir” (occupy, resist, produce) and “Cooperativa Gráfica Riachuelo – since 2002”.

Resource 1 – News article from *Economía Sur*

Recovered factories at 25: still standing, but falling behind?

More than 400 recovered companies still operate in Argentina, and few have closed. But many are losing customers to faster private competitors. At CGR, printers say they lose work because quotes take too long: “By the time the assembly agrees a price, the customer has gone elsewhere – and with inflation the price is already wrong.”

Table 1: CGR’s performance

Resource 2 – Social media posts from two CGR members

Lautaro, 27, machine operator: Four hours of assembly yesterday to choose a paper supplier. We lost the school-diary job last month because nobody could sign the quote. I believe in the co-op, but we need someone who can decide. #CooperativaRiachuelo [1/2]

Norma, 61, founding member (reply): Lautaro, in 2002 the bosses decided everything and then ran away. The assembly is what saved our jobs. Speed is not worth losing our voice. Bring your ideas to the assembly! [2/2]

Resource 3 – Internal email from Héctor Sosa, CGR president, to the members’ council

From: Héctor Sosa, President

To: Members’ council

Subject: Editorial Sur Austral contract – decision needed

Editorial Sur Austral has offered a three-year contract to print school textbooks worth USD 420 000 a year. We would need a new digital press costing USD 280 000, and the publisher wants delivery within ten days of each order. Our accountant expects the contract to give a contribution of about 30 % of its value. The publisher needs our answer in two weeks; the next assembly is in four.

This is not the first time. Two proposals have been made for discussion:

1. Hire an external general manager (about USD 3 000 a month) with authority over daily operations and prices, reporting to the assembly.

2. Give an elected executive committee of five members authority to decide on purchases and contracts up to USD 50 000, while the assembly keeps strategic decisions, pay and admission of members.

CONFIDENTIAL: this email and any attachments are intended only for the named recipients.

Resource 4 – Survey of CGR members (52 replies)

Resource 5 – Extract from an interview with a co-operative business adviser

“Democratic control does not mean that everybody decides everything. Successful co-operatives separate governance – the assembly sets strategy and elects leaders – from management, which must act quickly. The danger of hiring an outside manager is that members start to see him as a new boss. The danger of doing nothing is that, with inflation, a quote that takes nine days is a quote at a loss.”

Resource 6 – Notes from CGR’s accountant

• Paper suppliers now change prices every week and hold quotes for only 48 hours.

• Two of CGR’s three presses are more than 25 years old; spare parts must be imported.

• CGR has USD 95 000 in savings. A co-operative bank would lend the rest of the cost of a press over four years.

• Ten members will reach retirement age in the next three years; four of them are the only people who can repair the old presses.