Working Hours at Zumaju Corp.

Zumaju Corp. is a newly established high-tech company, Currently it employs 80 workers, most of whom are male, under 30 years of age and nearly having at least a bachelor's degree. Employees who come late to work are a constant problem. All kinds of excuses are offered, the most common being the heavy traffic in the area near the office which is located in the centre of the city. Sometimes, the staff say they are late because they have to send their children to daycare facilities which do not open before 8.00 a.m., which mean they find it difficult to get to work by 8.30 a.m., the official starting time. There are also employees who often have to work at night because their customers are in countries with a major time difference to Malaysia. They complain that it is not fair that they should be expected to start work at 8.30 a.m. like everyone else. They are now threatening to leave, which is cause for concern as with their high level of skills they would be difficult to replace.

Last year, a local university which has a city branch very close to the premises of Zumaju Corp. started a Masters in Science programme on a part-time basis with specializations in information technology and business for science graduates. Several of the Zumaju workers are keen to enrol but are worried about clashes between classes and work-time.

Staff dissatisfaction in the company is increasing. The Director responsible for human resource is wondering whether a major review of working hours would help stem the potential outflow of talented workers

Case Questions:

1. What are the working hour options available to the company?

2. What steps should the company take to find out whether changing the working hours would solve the problem the company is facing?

Each pair of students need to prepare 1 written report (minimum 1,000 words) and present within 15 minutes the findings in class according to the following contents:

1. Introduction of the case study

2. Identification and elaboration of the problem (together with questions from the case)

3. Suggested solutions to the problem together with answering the questions from the case

4. Discussion on the suggestion

5. Conclusion

Please reply to DIscussion 1 and Discussion 2 in your own words:

Discussion 1: Virgin Atlantic Airways positions itself as a very high-quality airline. Their mission to deliver high quality and exception service is, in my opinion, not reflected on its website. The website depicts Virgin Atlantic as a fun, cool airline to fly with. Much of this vibe is from a direct influence from Virgin Records. David Aaker, author of Strategic Market Management goes on to describe Virgin as “a feisty, fun-loving, rule-breaker” (2014, p. 158).

Virgin Atlantic Airways is known for being a first mover in innovation. Virgin was the first airline to offer individual TV screens for its passengers (Virgin Atlantic Airways, 2018). In 2008, Virgin was the first airline to power a commercial jet solely on biofuel (Virgin Atlantic Airways, 2018). Despite Virgin’s features, it is committed to keeping its prices reasonable.

Virgin Atlantic Airways brand-building program is unique. Richard Branson, founder of Virgin Records and Virgin Atlantic Airways, has continuous used the money received from Virgin Records for signing popular artists and used it to build Virgin Atlantic Airways (Virgin Atlantic Airways, 2018). This influence of money from a previous business is why more brands cannot emulated Virgin’s brand-building programs.

Discussion 2: Virgin Atlantic Airlines brand identity is associated with “its image of service quality, value for money, being the underdog, and having an edgy personality” (Aaker, 2014, pg. 158).

No, all potential dimensions are consistent within their brand identity. They are a company who through their consistent innovation and caring attitude coupled with the exceptional ways they find to deliver their customer service have stayed completely inline with their brand identy.

The identity has been brought to life through the personality that the brand has emulated. Virgin Atlantic has a personality that “spans some extremes, from competent to a feisty, fun-loving, rule-breaker” (Aaker, 2014, pg. 158).

Virgin Atlantic has many proof points. Virgin Atlantic goes above and beyond at providing superior service to its customers to include “sleeper seats, in-flight massages, limo service, individual TVs” (Aaker, 2014, pg. 158). They provide more value for your money by offering a little more bang for your buck, “Virgin’s Upper Class is priced at the business class level, mid-class offered at full-fare economy prices…” (Aaker, 2014, pg. 158). As the underdog, they join markets who have large brands that have been around for quite some time. They position themselves as a company who “cares, innovates, and delivers an attractive, viable alternative to customers” (Aaker, 2014, pg. 158). Much of their “edgy” personality has been accredited to founder and owner Richard Branson and his own colorful personality.

More brands should emulate Virgin’s brand-building programs. That may be easier said then achieved. The company’s brand identity seems to stem heavily from Richard Branson who has successfully immersed his own values and personality into the core culture of the company. This would be a difficult thing for other brands to copy if they do not have similar attributes within their company’s wheelhouse.

You were ecstatic when you heard the news that your cousins Archie came into a large inheritance last year and invested the entire amount in the common stock of commonwealth Brewery, a large manufacturing of liquid drinking products. Subsequently he has been very interested in the company and watches it closely. Recently, the Nassau Guardian carried a story about major strategic changes at the company including massive layoffs and business realignments. Archie was devastated and was dumb-founded. He does not understand how the firm could have made such changes without the knowledge and approval of its stockholders. Write a brief letter to Archie explaining how things really work.

I was able to get questions 1 - 4 answer and only need question 5 and its sub-parts.

Asymmetric Information and Separating Equilibrium

A population has two equal-sized members of "healthy" and "unhealthy" individuals. Members of each type have the same, identical, utility function: U = 20Y0.5 (i.e. 20 x Y raised to the 0.5 power), where Y is annual income.

Assume each individual, in either group, has disposable income (after normal expenses) of $19,000 a year. If in need of major medical care (and does not have insurance), each individual will have $15,000 in medical expenses. A "healthy" individual has a 6% probability, while an "unhealthy" individual has a 18% probability, of requiring major medical care.

Use the information above to answer the questions (1 through 5) below.

NOTE: An actuarially fair insurance premium (AFIP) is always calculated as: AFIP = (Medical expenses covered) x (Probability of occurring).

1. Calculate the AFIP of the full-coverage policy for a "healthy" individual.

2. Calculate the AFIP of the full-coverage policy for an "unhealthy" individual.  

3. Calculate the AFIP of a deductible policy for a "healthy" individual, for which the deductible is equal to $12,000.

4. Calculate the AFIP of a deductible policy for an "unhealthy" individual, for which the deductible is equal to $12,000.

5. Suppose health status ("healthy" or "unhealthy") represents asymmetric information: Each individual knows her or his health status, but insurance companies do not.  

Now, suppose an insurance company offers only two types of policies: 1) a full-coverage policy with premium equal to the most expensive (regardless of insurance type) of the two full-coverage policies.

a. In the boxes below, calculate expected utility for a "healthy" individual, for each scenario:

No Insurance:

Most Expensive Full-Coverage Policy (Option 1):

Least Expensive Deductible Policy (Option 2):

b. In the boxes below, calculate expected utility for an "unhealthy" individual, for each scenario:

No Insurance:

Most Expensive Full-Coverage Policy (Option 1):

Least Expensive Deductible Policy (Option 2):

c. Based on your answers in 5a. and 5b., which option would a representative member of each group (i.e. "healthy" and "unhealthy") choose?

d. In the box below, enter the insurance company's expected economic profit from selling the desired policy (from the individual's perspective) to a member of each group.

Expected Profit from "Healthy":

Expected Profit from "Unhealthy":

Amara Ltd was founded on 1st January 2019. Amara sells bed frames to customers. The company has adopted a periodic inventory system together with the average cost cost-flow assumption (AVCO) to determine the Cost of Goods Sold for the year. The company’s inventory transactions for its first year of operation to December 31st, 2019 are as follows:

Required:

(a) What amount will Amara Ltd report as its Inventory balance in the Current Asset section of its Balance Sheet? What amount will Amara report as Cost of Goods Sold for the year ended 2019 financial year? (Show all workings)

(b) If Amara Ltd had adopted First-In First-Out (FIFO) as its cost flow assumption on 1st January 2019, what Cost of Goods Sold figure would have been reported in its Statement of Financial Performance for the 2019 financial year? (Show all workings)

(c) Management is aware of another cost-flow assumption; Last-In First-Out (LIFO). Which of the three cost-flow assumptions; AVCO, FIFO or LIFO will yield the highest Gross Profit Margin for the 2019 year if 80% of Sales are on credit?

There is no specific methods required.

Founded in 1983, Beverly Hills Fan Company is located in Woodland Hills, California. With 23 employees and sales of less than $10 million, the company is relatively small. Management feels that there is potential for growth in the upscale market for ceiling fans and lighting. They are particularly optimistic about growth in Mexican and Canadian markets. Presented below is information from the president’s letter in the company’s annual report. “An aggressive product development program was initiated during the past year resulting in new ceiling fan models planned for introduction this year. Award winning industrial designer Ron Rezek created several new fan models for the Beverly Hills Fan and L.A. Fan lines, including a new Showroom Collection, designed specifically for the architectural and designer markets. Each of these models has received critical acclaim, and order commitments for this year have been outstanding. Additionally, our Custom Color and special fans continued to enjoy increasing popularity and sales gains as more and more customers desire fans that match their specific interior decors. Currently, Beverly Hills Fan Company offers a product line of over 100 models of contemporary, traditional, and transitional ceiling fans.” Instructions: What points did the company management need to consider before deciding to offer the special-order fans customers? How would incremental analysis be employed to assist in this decision?

Stephenson Real Estate Company was founded 25 years ago by the current CEO, Robert Stephenson. The company purchases real estate, including land and buildings, and rents the properties to tenants. The company has shown a profit every year for the past 18 years, and the shareholders are satisfied with the company’s management. Prior to founding Stephenson Real Estate, Robert was the founder and CEO of a failed alpaca farming operation. The resulting bankruptcy made him extremely averse to debt financing. As a result, the company is entirely equity financed, with 9 million shares of common stock outstanding. The stock currently trades at $37.80 per share. Stephenson is evaluating a plan to purchase a huge tract of land in the southeastern United States for $95 million. The land will subsequently be leased to tenant farmers. This purchase is expected to increase Stephenson’s annual pre-tax earnings (EBIT) by $18.75 million in perpetuity. Jennifer Weyand, the company’s new CFO, has been put in charge of the project. Jennifer has determined that the company’s current cost of capital is 10.20%. She feels that the company would be more valuable if it included debt in its capital structure, so she is evaluating whether the company should issue debt to entirely finance the project. Based on some conversations with investment banks, she thinks that the company can issue bonds at par (face value) with a 6 percent coupon rate. From her analysis, she also believes that a capital structure in the range of 70 percent equity/30 percent debt would be optimal. If the company goes beyond 30 percent debt, its bonds would carry a lower rating and a much higher coupon because of the possibility of financial distress and the associated costs would rise sharply. Stephenson has a 40 percent corporate tax rate.

1) What after-tax cash flow must Stephenson be currently producing per year, assuming that its current cash flows remain constant each year?

2) Construct Stephenson’s market value balance sheet before it announces the purchase. Market value balance sheet Debt Existing Assets Equity Total assets Total Debt + Equity

3) Suppose Stephenson decided to issue equity to finance the purchase.

a) What is the net present value of the land acquisition project?

b) Construct Stephenson’s market value balance sheet after it announces that the firm will finance the purchase using equity. (Assume that the value of the firm will immediately change to reflect the NPV of the new project.)

Market value balance sheet:

Old assets=

Debt=

NPV of project=

Equity=

Total assets=

Total Debt + Equity =

c) What would be the new price per share of the firm’s stock? How many shares will Stephenson need to issue to finance the purchase?

d) Construct Stephenson’s market value balance sheet after the equity issue, but before the purchase has been made. How many shares of common stock does Stephenson have outstanding? What is the price per share of the firm’s stock?

Market Value Balance Sheet:

Cash=

Old assets=

Debt=

NPV of project=

Equity=

Total assets=

Total Debt + Equity=

e) What is Stephenson’s weighted average cost of capital after the acquisition? What after-tax cash flow will be produced annually after the acquisition? What is the present value of this stream of after-tax cash flow? What is the stock price after the acquisition? Does this agree with your previous calculations?

4) Suppose Stephenson decides to issue debt to finance the purchase. a) What will be the market value of the Stephenson company be if the purchase is financed with debt?

b) Construct Stephenson’s market value balance sheet after both the debt issue and the land purchase. What is the price per share of the firm’s stock? Market Value Balance Sheet Value unlevered Debt Tax shield Equity Total assets Total Debt + Equity

c) What is Stephenson’s cost of equity if it goes forward with the debt issue? (Do not round your answer.)

d) What is Stephenson’s weighted average cost of capital if it goes forward with the debt issue? (Do not round your answer.)

e) What total after-tax cash flow is being generated by Stephenson after the acquisition?

f) What is the present value of this after-tax cash flow? What is the market value of equity? What is the stock price? Does this agree with your work from parts (a) and (b)?

5) Which method of financing maximizes the per-share price of Stephenson’s equity?

6) Does the resultant capital structure (with the land acquisition financed by debt) satisfy Jennifer’s concerns about the negative effects of moving beyond the optimal capital structure?

Jen and Larry’s Frozen Yogurt Company

     In 2019, Jennifer (Jen) Liu and Larry Mestas founded Jean and Larry’s Frozen Yogurt Company, which was based on the idea of applying the microbrew or microbatch strategy to the production and sale of frozen yogurt. Jen and Larry began producing small quantities of unique flavors and blends in limited editions. Revenues were $600,000 in 2019 and were estimated to be $1.2 million in 2020.

     Because Jen and Larry were selling premium frozen yogurt containing premium ingredients, each small cup of yogurt sold for $3, and the cost of producing the frozen yogurt averaged $1.50 per cup. Administrative expenses, including Jen and Larry’s salary and expenses for an accountant and two other administrative staff, were estimated at $180,000 in 2020. Marketing expenses, largely in the form of behind-the-counter workers, in-store posters, and advertising in local newspapers, were projected to be $200,000 in 2020.

     An investment in bricks and mortar was necessary to make and sell the yogurt. Initial specialty equipment and the renovation of an old warehouse building in lower downtown (known as LoDo) occurred at the beginning of 2019. Additional equipment needed to make the amount of yogurt forecasted to be sold in 2020 was purchased at the beginning of 2020. As a result, depreciation expenses were expected to be $50,000 in 2020. Interest expenses were estimated at $15,000 in 2020. The average tax rate was expected to be 25% of taxable income.

1. Refer to the Mini Case above involving Jen and Larry’s Frozen Yogurt Company.
   1. Calculate the dollar amount of NOPAT if Jen and Larry’s venture achieves the forecasted $1.2 million in sales in 2020. What would NOPAT be as a percent of sales?
   2. Calculate the NOPAT breakeven point for 2020 in terms of NOPAT breakeven revenues for Jen and Larry’s venture. How many cups of frozen yogurt would have to be sold to reach NOPAT breakeven?