Mike Cichanowski founded Wenonah Canoe and later purchased Current Designs, a company that designs and manufactures kayaks. The kayak-manufacturing facility is located just a few minutes from the canoe company’s headquarters in Winona, Minnesota.

Current Designs makes kayaks using two different processes. The rotational molding process uses high temperature to melt polyethylene powder in a closed rotating metal mold to produce a complete kayak hull and deck in a single piece. These kayaks are less labor-intensive and less expensive for the company to produce and sell.

Its other kayaks use the vacuum-bagged composite lamination process (which we will refer to as the composite process). Layers of fiberglass or Kevlar^® are carefully placed by hand in a mold and are bonded with resin. Then, a high-pressure vacuum is used to eliminate any excess resin that would otherwise add weight and reduce strength of the finished kayak. These kayaks require a great deal of skilled labor as each boat is individually finished. The exquisite finish of the vacuum-bagged composite kayaks gave rise to Current Designs’ tag line, “A work of art, made for life.”

Current Designs has the following managers:

(c) When Diane Buswell, controller for Current Designs, reviewed the accounting records for a recent period, she noted the cost items and amounts shown below (amounts are assumed). Enter the amount for each item in the appropriate cost category. Then sum the amounts in each cost category column.

Starware Software was founded last year to develop software for gaming applications. The founder initially invested $ 800,000 and received 8 million shares of stock. Starware now needs to raise a second round of​ capital, and it has identified a venture capitalist who is interested in investing. This venture capitalist will invest $ 1.00 million and wants to own 20 % of the company after the investment is completed.

a. How many shares must the venture capitalist receive to end up with 20 % of the​ company? What is the implied price per share of this funding​ round?

b. What will the value of the whole firm be after this investment​ (the post-money​ valuation)?

a. How many shares must the venture capitalist receive to end up with 20 % of the​ company? What is the implied price per share of this funding​ round?

The venture capitalist will receive _____ million shares. ​ (Round to three decimal​ places.)

The implied price per share is ​$____per share.  ​(Round to the nearest​ cent.)

b. What will the value of the whole firm be after this investment​ (the post-money​ valuation)? The value of the firm will be ​$____million. ​ (Round to three decimal​ places.)

summarize

Behaviorist theory, which is basicalIy a psychological theory in its essence, founded by J.B. Watson, is actualIy a theory of native lan- guage learning, advanced in part as a reaction to traditional grammar. The supporters of this theory are Leonard Bloomfield, O.N. Mowrer, B.F. Skinner, and A.W. Staats. Behaviorism was advanced in America

as a new approach to psychology in the early decades of the 20th-cen- tury by making a particular emphasis on the importance of verbal be- havior, and received a considerable trust from the educational world of 1950s.

The m~jor principle of the behaviorist theory rests on the analyses of human behavior in observable stimulus-response interaction and the association between them. E.L.T. Thorndike was the first behaviorist to explore the area that learning is the establishment of associations on particular process of behavior and consequences of that behavioL Ba- sically, "the behaviorist theory of stimulus-response learning, particu-. larly as developed in the operant conditioning model of Skinner, con- siders all learning to be the establishment of habits as a result of rein- foreement and reward" (Wilga Rivers, 1968, 73). This is very reminis- cent of Pavlov's experiment which indicates that stimulus aLL(~response work together. According to this category, the babies obtain native language habits via varied babblings which resemble the appropriate words repeated by a person or object near him. Since for his babblings

and mutterings he is rewarded, this very reward reinforces further articulations of the same sort into grouping of syllables and words in a similar situation. In this way, he goes on emitting sounds, groups of sounds, and as he grows up he combines the sentences via generalisations and analogy (as in *goed for went, *doed, for did, so on), which in some complicated cases, condition him to commit errors by articulating in permissible structures in speech. By the age of five or six, or babblings and mutterings grow into socialized speech but little by little theyare internalized as implicit speech, and thus many of their uttarences be- com e instinguishable from the adults. This, then, obviously, means that behavio?rist theory is a theory of stimulus-response psychology.

"Through a trial-and-error process, in which acceptable uttarences are reinforced by comprehension and approval, and un acceptable ut- tarences are inhibited by the lack of reward, he gradually learns to make finer and finer discriminations until his uttarences aproximate more and more dosely the speech of the community in which he is growing up

(Wilga M. Rivers, 1968; 73). To put it in other words, children develop anatural affinity to learn the language oftheir social surroundings whose importance both over language learning and teaching must never be underestimated. In this respect behaviorist theory stresses the fact that "human and animallearning is a process of habit formation. A highly complex learning task, according to this theory may be learned by being broken' down into smaIl habits. These are formed correct or incorrect responses, are rewarded or,punish€d, respectiveli'. (Hubbard Jones

1. Lancaster Real Estate Company was founded 25 years ago by the current CEO, Robert Lancaster. The company purchases real estate, including land and buildings, and rents the property 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 Lancaster 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 8 million shares of common stock outstanding. The stock currently trades at $37.80 per share.

Lancaster is evaluating a plan to purchase a huge tract of land in the southeastern United States for $85 million. The land will subsequently be leased to tenant farmers. This purchase is expected to increase Lancaster’s annual pretax earnings by $14.125 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 10.2 percent. 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 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 the possibility of financial distress and the associated costs would rise sharply. Lancaster has a 23 percent corporate tax rate (state and federal).

If Lancaster wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain.

Johnson Real Estate Company was founded 25 years ago by the current CEO, David Johnson. The company purchases real estate, including land and buildings, and rents the property 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 Johnson Real Estate, David was the founder and CEO of a failed camel farming operation. The resulting bankruptcy made him extremely averse to debt financing. As a result, the company is entirely equity financed, with 8 million shares of common stock outstanding. The stock currently trades at $37.80 per share. Johnson is evaluating a plan to purchase a huge tract of land in the southeastern United States for $85 million. The land will subsequently be leased to tenant farmers. This purchase is expected to increase Johnson's annual pretax earnings by $14.125 million in perpetuity. Abigail Burton, the company’s new CFO, has been put in charge of the project. Abigail has determined that the company’s current cost of capital is 10.2 percent. 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 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 the possibility of financial distress and the associated costs would rise sharply. Johnson has a 23 percent corporate tax rate (state and federal). If Johnson wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain.

In 1989, Mr Chan Wing On and Mr. Yuen Chi Ming among others founded their first restaurant under the “Tai Hing” brand in Sai Wan Ho, Hong Kong. Through years of development and integrating traditional and innovative business philosophies, Tai Hing Group Holdings (太興集團控股有限公司) gradually expanded from a humble siu mei style restaurant to one of the largest multi-brand casual dining restaurant operators in Hong Kong and established a chain of over 200 restaurants across Hong Kong, Mainland China, Macau and Taiwan. By adopting a multi-brand business model when expanding the market, in addition to the flagship “Tai Hing” brand restaurant, the group has grown their brand portfolio through a mixture of in-house development, acquisitions and licensing including the Taiwanese themed “TeaWood”, “Trusty Congee King”, “Men Wah Bing Teng”, “Phở Lê”, “Tokyo Tsukiji”, “Fish & Farmer”, “ Rice Rule” , “Hot Pot Couple” , “King Fong Bing Teng”and "Asam Chicken Rice". With its core values of “People Oriented”, “Value Every Customer”, “Focus on Quality”, and “Create New Chances” and its implementation of a stringent “5-S” management system aimed to Structuralize, Systemize, Sanitize, Standardize, and Self-discipline, Tai Hing has been the recipient of numerous awards as recognized by professional judges and the general public for its quality products, friendly services, and comfortable dining environment.

        To facilitate and streamline food production across its restaurants in Hong Kong, Tai Hing Group owns its own independent production and logistic center that sets a highly standardized production process and allows employees to provide close control over product development and production process to achieve the highest quality in its food products. In 2008, Tai Hing Group established a large food factory in Fo Tan in 2008 that boasts an area of approximately 158,414 square feet and currently supports all of their restaurants in Hong Kong.

        In 2016, to improve the standardization and effectiveness of the operations in Mainland China, the Group commenced construction of the Mainland China Food Factory, which commenced operation in October 2018 and houses an approximate gross floor area of 253,430 square feet. It mainly produces cured meat, frozen products and canned milk tea. It is estimated that the Mainland China Food Factory is able to support approximately 200 restaurants in Mainland China and the production of certain products for its restaurants in Hong Kong.

        The Group’s Food Factories enables the centralization of the food ingredients and supplies purchasing, food processing, quality control of raw materials, semi-processed or processed food ingredients, as well as packaging, warehousing and distribution functions. Additionally, as food safety and quality are the Group’s highest priorities, the Group applies the food safety and quality management principles embodied in various quality standards issued by the ISO in the Food Factories quality control system, and has quality assurance personnel implementing quality control policies and procedures. For example, the siu mei production unit of Tai Hing Group’s Hong Kong Food Factory has obtained ISO 22000 accreditation for food safety and quality management system in 2013. The Group’s quality control team oversees quality control at each stage of food processing in accordance with the formulated food processing procedures and HACCP (Hazard Analysis Critical Control Point) standard to ensure food safety.

        In local Hong Kong, although customers typically have a high demand for good quality casual dining experiences, Tai Hing’s Hong Kong business has been challenging since late May of 2019 due to political unrest and the subsequent emergence of Covid-19. Weak market sentiment impacted the quick service restaurant business and casual dining brands, particularly the dinner segment and weekend sales, as well as outlets located in shopping and commercial areas. In the year ended December 31 of 2019, although Tai Hing’s revenue increased by approximately 4.0% to HK$ 3,252.3 million (2018: HK$ 3,126.1 million), due to increased staff costs, depreciation and amortization, and other increased costs and expenses, the net profit for the year ended 31 December 2019 was only HK$76.9 million (2018: HK$304.9 million).

        According to figures published by the Census and Statistics Department, the value of total restaurant receipts in July to September decreased HK$3500 million compared to the same quarter in 2018. Although the fast food restaurant sector still recorded incremental growth, the economic hardships inflicted by the coronavirus pandemic predict tough times ahead for the casual dining industry. Given customers’ increasing sensitivity to price, the Tai Hing Group will be very cautious on price adjustment.

        The Tai Hing Group expects market sentiment may take some time to improve, especially in a highly competitive restaurant industry in Hong Kong. Whilst taking a prudent approach in managing cash flow, controlling costs and improving productivity, they will continue to focus on customer service and dining experience, as well as product quality, which will drive same store sales growth. Hong Kong is the Group’s key market, and Tai Hing Group is committed to striving to incorporate innovative methods to support its industry’s development by actively exploring opportunities to adopt automated food processing machines in restaurants, creating a safer and healthier working environment, and increasing operational efficiency to ensure consistency in dish portion and quality.

Question: Given the background and position of Tai Hing Group, use your knowledge of different types of strategies to make 3 strategic recommendations for Tai Hing Group Holdings to achieve strategic competitiveness. Support your recommendations with well-developed arguments and appropriate examples.

When Howard Schultz founded Starbucks in 1987, he wanted to create a company that would genuinely care for the well-being of its employees. He had been very influenced by his memories of his father, noting that his father “struggled a great deal and never made more than $20,000 a year, and his work was never valued, emotionally or physically, by his employer … This was an injustice … I want our employees to know we value them.” He also believed that happy employees are the key to competitiveness and growth. As he stated: “We can’t achieve our strategic objectives without a work force of people who are immersed in the same commitment as management. Our only sustainable advantage is the quality of our work force. We’re building a national retail company by creating pride in–and stake in–the outcome of our labor.”

Schulz set out to accomplish his goals by creating an empowering corporate culture, exceptional employee benefits, and employee stock ownership programs. While Starbucks enforces almost fanatical standards of coffee quality and customer service, the culture at Starbucks towards employees is laid back and supportive. Employees are empowered to make decisions without constant referral to management, and are encouraged to think of themselves as partners in the business. Starbucks wants employees to use their best judgment in making decisions and will stand behind them. This is reinforced through generous compensation and benefits packages.

In 2000, Schultz announced that he was resigning as CEO and left the firm to pursue other ventures (though he remained chairman of the board of directors). However, after Starbucks began to suffer from slumping net income and decreasing share price, Schultz returned to the helm in 2008. Rather than cutting costs and reducing the work force, Schulz announced his “Transformation Agenda”–a controversial plan to invest in Starbucks’ employees, environment, and community. His plan included:

Competitive employee compensation plans that include equity-based compensation for nonexecutive partners. In 2013, $230 million was paid out in equity awards. In 2015, Starbucks gave all baristas and supervisors a pay raise and increased starting pay rates across the United States. In 2018, Starbucks’s U.S. baristas earned between $7 and $15 an hour (with an average of $9 an hour), plus an average of $742 a year in cash bonus, $286 in stock bonus, $442 in profit sharing, and $1,095 in tips.

Industry-leading health care benefits and 401K benefits for both part-time and full-time workers. Other companies that offer health benefits to part-time workers typically only do so for employees who work at least 30 hours a week. Starbucks broke with industry norms by creating benefits for employees who work at least 20 hours a week.

Tuition reimbursement for students. In June 2014, Starbucks unveiled a “College Achievement Plan” wherein employees who work more than 20 hours a week can work towards a bachelor’s degree through an online program from Arizona State University.

An ethical sourcing plan. Starbucks’ coffee must be purchased from suppliers that adhere to Starbucks’ “C.A.F.E.” standards. These standards include practices related to product quality, economic accountability, and transparency (e.g., suppliers must provide evidence to demonstrate that the price Starbucks pays reaches the farmer), social responsibility (e.g., third-party verifiers provide audits to ensure that suppliers are using safe, fair, and humane working and living conditions, including minimum-wage requirements and the prohibition of child and forced labor), and environmental leadership (e.g., measures to manage waste, protect water quality, and reduce use of agrochemicals).

In founding Starbucks, Schultz's stated primary focus was which of the following groups of stakeholders?

Airbnb, a popular home-sharing website founded in San Francisco in 2008, offers millions of homes for
short-term rental in more than 190 countries. This company has revolutionized the sharing economy in
the same way that ride-sharing services such as Uber and Lyft have, and according to the company, the
site’s drive to connect hosts and potential renters has been able to contribute to the quality of life of
both homeowners and travelers. According to Airbnb’s press releases and information campaigns, their
services can reduce housing costs for travelers on a budget and can provide unique experiences for
adventurous travelers who wish to have the flexibility to experience a city like a local. The organization
also claims that most of its users are homeowners looking to supplement their incomes by renting out
rooms in their homes or by occasionally renting out their whole homes. According to a statement, most
of the listings on the site are rented out fewer than 50 nights per year.

Despite the carefully crafted messages Airbnb has presented to the public, in 2016 the company came
under intense scrutiny when independent analyses by researchers and journalists revealed something
startling: While some Airbnb hosts did in fact use the services only occasionally, a significant number of
hosts were using the services as though they were hotels. These hosts purchased a large number of
properties and continuously rented them, a practice that affected the availability of affordable housing in
cities and, because these hosts were not officially registered as hoteliers, made it possible for Airbnb
hosts to avoid paying the taxes and abiding by the laws that hotels are subject to.

Title II of the Civil Rights Act of 1964 mandates that hotels and other public accommodations must not
discriminate based on race, national origin, sex, or religion, and Title VIII of the Civil Rights Act of 1968
(also known as the Fair Housing Act [FHA]) prohibits discrimination specifically in housing. However,
Airbnb’s unique structure allows it to circumvent those laws. The company also claims that while it
encourages hosts to comply with local and federal laws, it is absolved from responsibility if any of its
hosts break these laws. In 2017, researcher Ben Edelman conducted a field experiment and found that
Airbnb users looking to rent homes were 16% less likely to have their requests to book accepted if they
had traditionally African American sounding names like Tamika, Darnell, and Rasheed.

These findings, coupled with a viral social media campaign, #AirbnbWhileBlack, in which users claimed
they were denied housing requests based on their race, prompted the state of California’s Department
of Fair Employment and Housing (DFEH) to file a complaint against the company. In an effort to resolve the complaint, Airbnb reported banning any hosts who were found to have engaged in discriminatory
practices, and they hired former U.S. Attorney General Eric Holder and former ACLU official Laura
Murphy to investigate any claims of discrimination within the company.31 In 2016, Airbnb released a
statement outlining changes to company practices and policies to combat discrimination, and while they
initially resisted demands by the DFEH to conduct an audit of their practices, the company eventually
agreed to an audit of roughly 6,000 of the hosts in California who have the highest volume of properties
listed on the site.

Sources: AirBnB Press Room, accessed December 24, 2018, https://press.atairbnb.com/about-us/;
“Airbnb's data shows that Airbnb helps the middle class. But does it?”, The Guardian, accessed December
23, 2018, https://www.theguardian.com/technology/2016/jul/27/airbnb-panel-democratic-nationalconvention-
survey ; and Quittner, Jeremy, “Airbnb and Discrimination: Why It’s All So Confusing”,
Fortune, June 23, 2016, http://fortune.com/2016/06/23/airbnb-discrimination-laws/ (Links to an external site.).

Discussion Questions
1. What are some efforts companies in the sharing economy can take before problems of
discrimination threaten to disrupt operations?
2. Should Airbnb be held responsible for discriminatory actions of its hosts?

SCENARIO:

Eva Melon, the CEO and majority shareholder of OuterSpace Corp. (OSC) (incorporated in Delaware) founded the company to develop the technology needed to make commercial space flights available to the average citizen. She believed that space could be made available for colonization and that the energy and resources needed to sustain life in outer space could be harvested from other planets, such as Mars. Eva spent most of her substantial fortune investing in renewable energy and philanthropic endeavors aimed at making life more comfortable through technological breakthroughs. Because Eva’s mother was from the United States and Eva’s father was from France, she held citizenship in both countries. She frequently traveled back and forth operating OSC from her homes in both countries.

Eva’s most recent project for OSC involved the design and construction of a space vehicle. While Eva had initially planned on manufacturing the vehicle in the United States, she projected that she could save approximately $10 million dollars by manufacturing the vehicle in China. However, she wanted to launch the vehicle from a spaceport either in Russia or the United States. Several test flights were slated on the project’s schedule for the years 2020 and 2021 which included a standard flight into low earth orbit, a docking with the international space station, and finally, a trip to Mars for natural resource sample collection. If successful in all the test flights, OSC planned on launching short commercial trips to space for individuals in 2023 and “colonization” flights to Mars some time thereafter.

To help secure funding for the research and development of the project, OSC also developed and produced solar panels for sale to the public, which were very similar to the ones that they would be using on their space vehicles for energy while in space. The panels were highly successful not only because of their technological brilliance, but also thanks to the public’s fascination with Eva, who was portrayed in the media as the “architect of the future.” OSC’s solar panels dominated the solar panel market, effectively shutting down other solar panel companies both domestically and abroad. Upset by the shift in the market, a competing foreign company, SolarX, filed a suit against OSC in federal court for violations of Section 1 of the Sherman Act.

Undeterred, OSC entered into agreement with a Chinese company to begin the manufacture of the space vehicle. However, upon learning of the agreement, the United States government immediately notified OSC that they were in violation of the U.S. Department of State’s International Traffic in Arms Regulation laws and that OSC must cease all transfer of technology and data related to the manufacturing of the vehicle. Concurrently, the Chinese government, in learning of the agreement and realizing the benefit of the technology to its national government, seized control of the manufacturing facility. OSC immediately filed suit in the United States against the manufacturing facility and Chinese government. It also brought an injunction against the U.S. government to prevent the enforcement of any federal regulation prohibiting OSC from using the Chinese company to manufacture space vehicles.

Knowing how long the lawsuits would take and wanting to stay on schedule, OSC opened a manufacturing facility in France to continue the construction of the space vehicle through a wholly-owned subsidiary of OSC (rather than an outside company).

The publicity surrounding OSC’s struggle to get its vehicle built and operational was overwhelmingly in support of OSC. As a result, OSC hinted at solidifying its decision to launch the vehicle from the United States, at a spaceport which it would build in Texas, for use in all its testing operations.

ETHICS QUESTION:

1. In 5-10 sentences, answer the following question. Assume OSC grants an exclusive interview to a 24-hour news channel about the economic status of the company hours after the seizure of the manufacturing facility in China. Chen Li is the marketing director for OSC and is assigned to the interview. Li does not know if the news station yet knows about the seizure, but knows he will be asked about the financial state of the company. He confirms that the confiscation has actually cost the company millions, which will impact the company's finances significantly but has been told by Eva "not to spook investors because we will recover." When asked by the interviewer, "Where is the company financially today, and what can we expect in terms of company growth over the next year?" Li responds, "OSC's management is as strong as ever and we expect revenues to climb in the future." Li never mentions the losses incurred by the seizure. Is this an ethical answer and should Li have disclosed the company's losses? Is corporate marketing "spin" an ethical business practice?