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Glenorna Coffee, a manufacturer and exporter of coffee powder, had been in the business of instant coffee and roasted ground blends for 34 years. It sourced coffee from India and had buyers across the globe. In 2013, the owner of Glenorna had to decide whether or not to pursue backward integration and buy coffee gardens. He had called upon the company’s accountant to find out whether it was viable to venture into the acquisition of coffee plantations or if the firm should remain with its existing business operations. With backward integration, Glenorna had a better chance of entering the specialty coffee business. If purchasing plantations was profitable, why had competitors such as Nestlé continued to source beans from the open market? Should Glenorna acquire plantations and venture into the specialty coffee business?
The case embarks upon a financial assessment of capital expenditures associated with various options. It emphasizes the suitability of return on investment (ROI), net present value (NPV), internal rate of return (IRR), payback period and economic value added (EVA) as appropriate performance measurement tools. The case establishes that apart from financial determinants, there are also certain strategic factors that must be considered when making an ultimate decision.
The case can be used in a course on corporate finance, strategic corporate finance or strategic cost management, as it is rich from a financial and strategic perspective. Specific topics like cost of capital, capital budgeting decisions and sensitivity analysis can be introduced to students through this case.
Accommodation & Food Services
India, Medium, 2013
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