Paul’s Food truck: Expansion
Paul and his new business are taking off. He is doing great
and cannot keep up with the growing demand for his products. His solution, is
expansion, more food trucks.
In order to expand, Paul will need investors. Paul is
considering three options:
1) Common Stock, $400,000 return in a good market; 100 %
loss in a bad market
2) Preferred Stock, $200,000 return in a good market; 50%
loss in a bad market
3) Corporate Bonds, $50,000 return in a good market,
investors would be guaranteed $35,000 back in a bad market.
To limit the number of investors, Paul is going to sell the
investments in blocks of $50,000 and the investor will need a net worth of
$200,000. The current forecast is for inflation to be 2.5% per year for the
next 5 years.
Paul is considering approaching his friends and past
co-workers first before making the offer to the general public.
Paul’s friends and past co-workers
Doug Rough, a good friend of Paul’s. He is still currently
working and looking for an investment. But, he is not sure of the success of
the food truck expansion. He is seeing only a 20% chance of success.
Charlie Mark’s, a lodge brother of Paul’s, loves Paul’s
cooking and thinks the expansion will be a great success.
Dan Moore, is retired. He is Paul’s father-in-law. He is
very conservative and does not like risk at all. He will be investing in the
food truck expansion.
Lisa Pennington, a neighbor of Paul’s is considering
investing. She thinks the expansion has a great chance of success. Lisa is very
conservative and tries to avoid risk in her investments.
Carrie Welch, is Paul’s sister. She is on the fence as to
the success and failure of the expansion. She is considering investing.
Required:
1) Develop a chart for Paul showing the investment choices.
Paul would like to use the chart as part of his presentation to each potential
investor.
2) Also, for each of the potential investors what
recommendation would Paul make as an investment in his food truck expansion.
Provide detailed explanations and reasoning for each investor.
3) How is decision analysis the best tool for Paul to use?
How is the decision analysis chart a very good tool for Paul to use?
