Decision-making techniques

Northwind owns 22 mid-priced hotels in northern England. Its objective is to grow revenue by 30% in five years. It is considering refurbishing its Edinburgh hotel at a cost of £2.0 million. Forecast net cash flows are:

Year	1	2	3	4	5
Net cash flow (£m)	0.5	0.6	0.7	0.8	0.8

An alternative is a new marketing campaign. Option A (social media) costs £1.5m with a 60% chance of £3m extra profit and 40% chance of £1m. Option B (TV) costs £1.6m with a 50% chance of £4m and 50% chance of £0.5m. Northwind has also received an offer to take over Stayra, a chain of 12 budget hotels with a strong online booking brand but a very different, informal culture. Staff at Stayra are worried about job losses.

Context: The UK coffee shop market has more than 25 000 outlets. Large branded chains dominate high streets and motorway services, while independents compete on atmosphere, quality and local identity. Costs have risen sharply: coffee beans, energy, rents and the National Living Wage. Consumers increasingly expect plant-based milks, reusable cups and evidence of ethical sourcing. Many coffee shops have moved into delivery apps and loyalty schemes. Extract E — Beanstalk Coffee: Beanstalk runs 14 cafés in the Midlands. Across the chain it has 600 seats; on average 420 are occupied during opening hours. It employs an average of 140 staff, of whom 35 left during the last year. The National Living Wage rose by 6.7% this year. The owners are considering franchising to expand to 60 outlets in five years. Beanstalk positions itself as a 'neighbourhood café' with locally baked food and community events. Extract F — Grindhouse Ltd: Grindhouse imports green coffee beans from cooperatives in Colombia, roasts them in Manchester and sells to independent cafés in the UK and Europe and online to consumers in 18 countries. Its latest balance sheet shows current assets of £900 000 (including inventories of £300 000) and current liabilities of £600 000. Purchases are paid for in US dollars. The directors are considering opening a roasting plant in Colombia to supply growing markets in the Americas.