Question 40

Jaunty Coffee Co. plans to open a chain of coffeehouses.

Raising capital of $4 million could enable Jaunty Coffee Co. to expand its operations by opening a chain of coffeehouses, thereby diversifying its revenue streams and increasing brand presence.

A) It wants to reduce its level of unprocessed coffee bean inventory.

While reducing unprocessed coffee bean inventory could be a valid business strategy, raising $4 million specifically for this purpose is unlikely, as it does not directly require such a large capital investment. Inventory management typically involves operational adjustments rather than significant capital outlays.

B) It wants to open a chain of coffeehouses.

This is a plausible reason for Jaunty Coffee Co. to raise capital. Opening a chain of coffeehouses would require substantial funding for leasing locations, renovating spaces, and purchasing equipment, making the $4 million capital raise appropriate for such an expansion strategy.

C) It wants to reduce the supply of coffee beans to a certain country.

Reducing the supply of coffee beans to a certain country does not necessitate raising capital. This action could be achieved through operational decisions rather than financial investment, and it does not align with the typical goals of expanding a business.

D) It wants to sell its underutilized trucks for the transportation of coffee.

Selling underutilized trucks would generate revenue but would not require raising $4 million in capital. This option suggests a divestment strategy rather than an investment in growth, contradicting the intent of raising capital.

Conclusion

The rationale for Jaunty Coffee Co. raising capital is most clearly aligned with the intention to open a chain of coffeehouses, as it involves significant upfront costs and potential for growth. Other options either do not require substantial funding or do not support the company’s growth objectives, making option B the most appropriate choice.