CASEIt was a regular working day in April $2021,$ when four business partners gathered together for strategy session for their organization: Food for Thought $($FFT$).$Background:FFT operated a chain of Quick Service Restaurants $($QSR$)$ in business localities in the GTA, Mississauga, Brampton, Oakville, Kitchener, Waterloo, and Cambridge. Their first outlet opened in $2007$ in Vaughn and then continued to expand to other areas.FFT outlets offered food and beverages for takeout and delivery only. There was no dine in option available. The rapid expansion of food delivery service provided a strong headwind for FFT$.$ Since their outlets did not require a prominent location, the leasing costs were minimized.The above factors contributed to the success and growth of FFT until Covid struck in early $2020.$ Most the revenue generated by FFT was from lunch items, afternoon snacks and early evening dinners consumed by clients working in their offices. With $90\%$ of client working from home, the demand for such services almost disappeared overnight. FFT had to downsize its operations, close outlets, and lay off nearly $60\%$ of its workforce.Positive news began to appear in April $2021$ with the arrival of vaccines in Canada. Both the Federal and Provincial governments expressed confidence of vaccinating a majority of the population by Fall $2021$ and allow restaurant businesses to function normally by November $2021.$About business partnersJ.D$.$ Davis $($J$.$D$.)$ is the Senior Vice President$-$ Marketing. Aisha Kumar $($Aisha$)$ was the Corporate Chef of FFT$.$ Jose Urquidy $($Jose$)$ was the Chief Financial Officer of FFT$.$ Ha$-$joon Kim $($Ha$-$joon$)$ was the Senior Vice President$-$Operations Reshaping business strategyThe four business partners set up their meeting with a view to re$-$orient their business strategy in the context of changes coming to how work would look like when the economy reopened after the pandemic. The goal was to develop a business model which would be relevant with the hybrid work model which was likely to be the norm once post pandemic recovery takes shape.J$.$D$.$ began the meeting with a discussion of what work would look like in the post$-$pandemic era. A typical client of FFT was between $2548$ years of age and worked in an office setting. Due to their clients workload and schedule, they preferred to buy food from a Quick Service Restaurant so that they could consume the food as and when their work schedule allowed for. With the hybrid work model, they would be attending office two or three days a week and work from home for the remainder. The food consumption pattern would shift from consumption only in the office $($pre$-$pandemic$),$ to consumption both at office and home $($post$-$pandemic$).$ The question therefore was: how can FFT adapt to this change in consumer behaviour?Aisha thanked J$.$D$.$ for her insight and began her discussion. She pointed out at this time, there was a very short time lag between food being prepared at FFT and being consumed by the client. The time lag possibly was no more than two hours. As a result, consumers were able to eat freshly prepared food which was packed to retain the attributes of the cooked meal till it reached the consumer. She expressed opinion that the food production process needed a transformation. In addition to the food being prepared and delivered to the client for consumption, there would have to be a secondary process where food would be prepared and packed. The packed food would retain its original attributes for $48$ hours. Therefore, a client could order two versions of the same meal the first, which could be consumed in the office within the next two hours and the second, the packed version, which can be taken home, kept in the refrigerator, and consumed on the following day. Ha$-$joon wanted to point out that while the revenue generated by FFT was from $(1)$ lunch items, $(2)$ afternoon snacks and $(3)$ early evening dinners, the third segment, early evening dinners, had been showing a loss, due to the relatively lower sales, costlier ingredients, and the need for specialized equipment. The group wondered if dropping this segment, early evening dinners, would be advisable and could be an important part of this new strategy.At this point, Jose took over and pointed out that to implement this strategy, the following steps would be necessary:A new facility, where food preparation and food packaging would take placeBenchmarking studies to analyze performance of similar companiesStatic Budget Variance Analysis to compare the budget versus actual income statement for the most recent periodDetermining whether dropping a segment, early evening dinners, would be advisable.As a next step, they decided to retain the services of Conestoga Consulting $($CC$),$ a reputable consulting agency. The scope of work for CC would be to develop financial projections based on the above issues and provide a recommendation as to the best way forward for FFT$.$ Initial meeting with Conestoga Consulting:A group of five consultants met with the four business partners to develop a plan of action. It was decided that the consulting group will develop financial projections as requested and provide a report to FFT in two weeks.Objective: Should FFT lease or construct their own production facilityOption $1$: ConstructCosts to incur:Buying land, construct building and getting ready for use $($FFT has these funds available in their bank account today so no mortgage is needed$)$$ $1,100,000$Taxes, insurance, and repairs $($per year$)$$$90,000$Intended years of use$15$Projected market value in $15$ years$ $1,400,000$Option $2$: Lease Intended years of use$15$Deposit required today $($this deposit will be returned to FFT when the lease contract is complete is $15$ years$)$$ $90,000$Annual lease payment$ $120,000$Property taxes $($annual$)$ to be paid by FFT$ $20,000$Insurance $($annual$)$ to be paid by FFT$ $16,000$Required rate of return $10\%$Calculate the NPV analysis$\mathrm{.}2.$ Objective: To conduct ratio analysis of a comparable company $($Waterloo Corporation$)$ and compare with that of the industry.FFT Corporation Comparative Statements of Financial Position $31-$Dec$-20$ Assets$20202019$ Cash $ $50,000$ $ $25,000$ Accounts receivable $65,00090,000$ Merchandise inventory $30,00060,000$ Prepaid Expenses $55,00040,000$ Property, plant, and equipment $300,000250,000$ Total assets $ $500,000$ $ $465,000$ Liabilities and shareholders' equity Accounts payable $ $25,000$ $ $30,000$ Short$-$term bank loan payable $50,00065,000$ Bonds payable $250,000160,000$ Common shares $150,00095,000$ Retained earnings $125,00075,000$ Total liabilities and shareholders' equity $ $600,000$ $ $425,000$ FFT Corporation Income Statement Year Ended December $31,2020$ Net sales $ $350,000$ Cost of goods sold $210,000$ Gross profit $140,000$ Expenses Operating expenses $ $40,000$ Administration expense $22,000$ Rent expense $15,000$ Total expenses $77,000$ Profit before income tax $63,000$ Income tax expense $20,000$ Profit $ $43,000$ Additional information for $2020$: $1$Cash dividends declared and paid. $ $28,0002$Net cash provided by operating activities in $2020$ $ $72,000$ iiUsing the financial statements and the additional information, calculate the following ratios for $2020.($ii$)$ Compare the companys ratios to the industry ratios found in brackets above. The benchmarks are indicated within brackets besides each ratio.oCurrent ratio $(3$ to $1)$ oQuick ratio $(2$ to $1)$oInventory turnover $(3$ times$)$oReceivables turnover $(8$ times$)$ oTimes interest earned $(8$ times$)$ oDebt to assets ratio $(2\mathrm{.}5$ to $1)$oDebt to equity ratio $(3$ to $1)$oProfit margin $(14\%)$ oGross profit margin $(38\%)$oDays in inventory $(110$ days$)$oDays in receivables $(58$ days$)$ oReturn on assets $(12\%)$ oReturn on equity $(14\%)$oCash current debt coverage ratio $(1$ time$)3.$ Preparing a static budget variance analysis $($compare the actual income statement with the budgeted income statement$)$ and show all variances and indicate Favourable or Unfavourable for each variance and determine the variance amounts for each account along with whether each variance is U$/$F$.$FFT CorporationIncome StatementYear Ended December $31,2020$ Net sales $ $350,000$ Cost of goods sold $210,000$ Gross profit $140,000$ ExpensesOperating expenses $ $40,000$ Administration expense $22,000$ Rent expense $15,000$ Total expenses $77,000$ Profit before income tax $63,000$ Income tax expense $20,000$ Profit $ $43,000$ Additional information for $2020$:Cash dividends declared and paid. $ $28,000$ Net cash provided by operating activities in $2020$ $ $72,000$ FFT Corporation Budgeted Income Statement Year Ended December $31,2020$ Net sales $ $340,000$ Cost of goods sold $220,000$ Gross profit $120,000$ Expenses Operating expenses $ $44,000$ Administration expense $24,000$ Rent expense $15,500$ Total expenses $83,500$ Profit before income tax $36,500$ Income tax expense $14,000$ Profit $ $22,500$