IB Business Management HL 2  

You are the COO of our mask company and the CEO has asked you some questions about our processes. Please answer these questions:

• Going forward (after the crisis), should we employ JIT or JIC inventory control? Why?

• Can you draw a stock control chart to show what likely happened from January to April of this year?

• What is our capacity utilization likely at right now? What is the disadvantage of this?

Read the following case and answer the questions.

Greener Company

The CEO of Ferguson Inc. wants its executives to make the organization more environmentally friendly by encouraging employees to reduce waste in the workplace. Government legislation is coming that will require all companies of this size to have a program in place and the company’s customers also expect it. The CEO wants to significantly reduce paper usage, garbage and other waste throughout the company’s many widespread offices.

Unfortunately, a survey indicates that employees do not value environmental objectives and do not know how to “reduce, reuse, recycle.” As the executive responsible for this change, you have been asked to develop a strategy that might bring about meaningful behavioural change towards this environmental goal. What would you do?

Questions

1. Based on the case above, and according to Lewin’s Model for Managing Change - what are 2 Forces for the status quo (or restraining forces)?                          /2

2. Using Lewin’s Model for Managing Change, how would you go about implementing and managing the change at Ferguson Inc. – answer a. and b.                               

1. Explain each phase – Unfreezing, Moving and Refreezing  

2. and list one action that you would implement for each phase to accomplish your change.

You have recently assumed the role of CFO at your company. The company's CEO is looking to expand its operations by investing in new property, plant, and equipment. You are asked to do some capital budgeting analysis that will determine whether the company should invest in these new plant assets.

-The firm is looking to expand its operations by 10% of the firm's net property, plant, and equipment= 2018 = $61,797 million, increase 10% = $6,179.7 million to total $67,976.7 million

-The estimated life of this new property, plant, and equipment will be 12 years. The salvage value of the equipment will be 5% of the cost.

-EBIT = 18% of the project's cost

-The hurdle rate for this project will be the WACC = 8.5%

Calculate the discounted payback period.

You are the CEO of a small Canadian online company selling organic energy bars that just started expanding into the United States. You are working on your strategic implementation plan. Please fill in the template below with examples that make sense in your current situation. Your budget is $2M.

Strategy Implementation Plan

Date Created:                                                                                 Date Reviewed/Updated: not yet

John Tuckland, the CEO of the Storedalsgatan (STI), believes that the company can significantly increase its operating profit by implementing supply chain management. STI manufactures a variety of consumer electronic products, from hair dryers to humidifiers to massagers, for the world market.

John believes that STI has already integrated its internal processes and is ready to proceed with external integration. However, he is uncertain as to which direction to take. Should the company work on integrating the suppliers or the distributors first? Currently, STI uses approximately 1250 different components and/or raw materials in manufacturing its product line. Those components and raw materials are purchased from approximately 275 different suppliers around the world. In terms of distribution, STI currently sends its finished products to a central warehouse that supplies 10 regional distribution centers (RDC); 6 are domestic and 4 are located outside of the United States. Each RDC supplies an average of 12 local distributors that each supply an average of 25 retailers.

John is looking for some advice.

1. Briefly describe STI's supply chain.

2. What are the advantages that STI can gain by implementing supply chain management?

3. What would you recommend STI attempt next? Should it work on integrating the suppliers or the distributors first? Or should it work on both simultaneously?

4. What are your recommendations with regard to the external distributors?

1. On January 1, 2020, Misnomer Company purchased the land with valuable natural ore deposits for P10,000,000. The residual value of the land was P2,000,000. At the time of purchase, a geological survey estimated a recoverable output of P4,000,000 tons. Early in 2020, roads were constructed on the land to aid in the extraction and transportation of the mined ore at a cost of P1,600,000. In 2020, 500,000 tons were mined and sold. A new survey at the end of 2021 estimated 4,200,000 tons of ore available for mining. In 2021, 800,000 tons were mined and sold. Prepare journal entries for 2020 and 2021 based on the transactions.

Ealing Company began operations as a new subsidiary of Fundamental Company, a U.S. Corporation, on January 2, 2018, by issuing common stock for 180,000 foreign currency units (FCU). Ealing immediately borrowed 35,000 FCU with a 10-year, 10% note, interest payable annually on January 1. On the same date, Ealing bought a building for 200,000 FCU. The building was to be depreciated for 20 years on a straight-line basis with a residual value of 40,000 FCU. During the year, the building was rented for 9,000 FCU per month. At year's end, all rent had been collected. On May 1 a repair on the building of 15,000 FCU was completed and paid for. Land for a parking lot was acquired for 30,000 FCU in cash on June 1. A dividend of 20,000 FCU was declared and paid on December 1. Exchange rates for the year were as follows: January 2, 2018 1 FCU = $.30 May 1, 2018 1 FCU = .37 June 1, 2018 1 FCU = .38 November 1, 2018 1 FCU = .41 December 1, 2018 1 FCU = .39 December 31, 2018 1 FCU = .35 average for 2018 1 FCU = .36 Fundamental company determined that the FCU was the functional currency and translation using the current rate method was appropriate for consolidation. Calculate the translation adjustment for 2018. (You might remember that the translation adjustment uses the net assets approach, not the net monetary assets approach.).

Ealing Company began operations as a new subsidiary of Fundamental Company, a U.S. Corporation, on January 2, 2018, by issuing common stock for 180,000 foreign currency units (FCU). Ealing immediately borrowed 35,000 FCU with a 10-year, 10% note, interest payable annually on January 1. On the same date, Ealing bought a building for 200,000 FCU. The building was to be depreciated for 20 years on a straight-line basis with a residual value of 40,000 FCU.
During the year, the building was rented for 9,000 FCU per month. At year's end, all rent had been collected.
On May 1 a repair on the building of 15,000 FCU was completed and paid for. Land for a parking lot was acquired for 30,000 FCU in cash on June 1.
A dividend of 20,000 FCU was declared and paid on December 1.

Exchange rates for the year were as follows:
January 2, 2018 1 FCU = $.30

May 1, 2018 1 FCU = .37

June 1, 2018 1 FCU = .38

November 1, 2018 1 FCU = .41

December 1, 2018 1 FCU = .39

December 31, 2018 1 FCU = .35

average for 2018 1 FCU = .36

Fundamental company determined that the FCU was the functional currency and translation using the current rate method was appropriate for consolidation. Calculate the translation adjustment for 2018. (You might remember that the translation adjustment uses the net assets approach, not the net monetary assets approach.)

By April 2009, Henri Termeer had been the Chairman and CEO of Genzyme for more than 20 years. Under his watch, Genzyme had grown to be one of the top-five U.S biotechnology firms. It first established its footprint in the treatment of rare genetic disorders, but its subsequent growth was the result of acquiring nascent biotechnology companies. Genzyme reached record revenues of $4.6 billion in 2008 and was expected to generate an increasing level of free cash flow in coming years. However operational problems in one manufacturing plant had led to a warning letter in late February 2009 from the U.S. Food and Drug Administration (FDA), which, combined with news on impending health care reform, had pushed Genzyme’s stock price from a high of $70.42 down to a low of $56.38.

Genzyme was being targeted by Relational Investors (RI), an “activist” investment fund that had a 2.6% stake in the company at the end of March 2009. RI had a history of engagements with the boards of numerous companies that, in several instances, resulted in the CEO’s forced resignation. Ralph Whitworth, RI cofounder and principal, met with Termeer and delivered a presentation, arguing that Genzyme was trading at a discount. He offered recommendations on how Genzyme could address this: (1) improve capital allocation decisions; (2) implement a share-buyback or dividend program; (3) improve board composition by adding more members with financial expertise; and (4) focus executive compensation on performance metrics.

(i) Why is Mr. Whitworth arguing that Genzyme needs to implement a share repurchase program?

(ii) What problem would a share repurchase solve?

(iii) Wouldn’t it be easier for Genzyme to simply announce a dividend to achieve the same objective of returning cash flow to the shareholders?