The problem of many developing businesses has always been attributed to insufficient or lack of capital to run these enterprises. But on taking an MBA course at the University of Ghana Business School, you have come to realize that most businesses in Ghana and Africa fail not because of capital adequacy issues but rather, human resources management issues. What significant expectations would you give to all HR managers as needed competences to be equipped with if you are the consultant general to businesses in Ghana? Discuss these factors or requirements (in not more than One and half pages).
In: Psychology
The University is predicting at least a 15% reduction in its revenues in the Fall 2020 semester due to reduced demand for university education caused by a global pandemic. Assume a decreasing return to scale technology and a competitive market. Also, assume that the market was in the long run equilibrium prior to the pandemic outbreak.
Discuss the short run and long run implications of this reduction for:
1. the choice of the output by the university
2. capital and labour choices by the university
In: Economics
Gravity Payments
In April 2015, Dan Price, the 30-year-old chief executive officer (CEO), and founder of Gravity Payments, announced an increase in every employee’s wage to US$70,000. Every employee, including the lowest-paid clerk and newly hired staff, would receive a minimum annual salary of $70,000 over the next three years. The announcement stunned the employees and triggered a wave of high-fiving and clapping. With this decision, one young entrepreneur in Seattle, Washington, became an instant hero when he issued a direct and adventurous challenge to the long-standing problem of U.S. income inequality. However, at the same time, he was experiencing unexpected challenges from different people only a few months after his bold move.
Income inequality has been racing in the wrong direction. I want to fight for the idea that if someone is intelligent, hard-working and does a good job, then they are entitled to live a middle-class lifestyle.
COMPANY OVERVIEW
Gravity Payments was a private credit card processing and financial services company. It was founded in February 2004 by brothers, Dan and Lucas Price.
Gravity Payments provided a variety of processing and financial services, including credit card processing, POS (point of Sales) systems, mobile payments, working capital financing, and gift and loyalty cards. The company’s customers were mostly small and medium-sized businesses. By 2009, the company became the largest credit card processor in the state of Washington, serving more than 15 percent of small businesses in the Seattle area. The company’s success was mainly due to its low-cost strategy and word of mouth publicity. The company charged less than half of the industry-average processing rate.
Gravity Payments had had a philanthropic mandate since its beginning, and launched the “Gravity Gives” program in March, 2008. Through this program, 2 percent of the company’s revenue had been donated to charities, including World Vision, the Fred Hutchinson Cancer Research Center and Northwest Harvest. Price believed strongly in fighting poverty on both a global and locale scale.
THE DECISION
It was the right thing to do. I want everybody that I’m partnered with at Gravity to really live the fullest, best life they can… I think that’s the [income level] where you can start to check off those life’s goal boxes – saving for college, buying a home, some of the basics, starting a family. I want everyone to have those basic opportunities.
Announcement of the $70,000 Minimum Salary
In April 2015, Price set a new minimum salary of $70,000 for all of his 120 employees at Gravity Payments. The idea struck him when one of his friends shared her worries about trying to pay her bills and student loans on an annual income of $40,000. Some of Price’s own employees earned that amount or less.
Price decided upon the amount of $70,000 based upon a 2010 study conducted at Princeton University by economist, Angus Deaton and psychologist, Daniel Kahneman, a Nobel Laureate. According to the study, those who made less that $75,000 were likely to experience emotional pain and job dissatisfaction. However, even if people made more than $75,000, they did not feel any greater level of happiness. Simply put, the study suggested that emotional well-being increased with economic compensation, but only up to the amount of about $75,000. The study concluded that “low income exacerbates the emotional pain associated with such misfortunes as divorce, ill health, and being alone. We conclude that high income buys life satisfaction but not happiness, and that low income is associated with both with low life evaluation and low emotional well-being.”
Before Price initiated the salary increase, the average salary at Gravity Payments was about $48,000, with the lowest salary at around $34,000. Due to Price’s decision, about 30 employees had their paycheques nearly double overnight, and others also received raises to reach the $70,000 level. Ryan Pirkle, the spokesman for Gravity Payments, mentioned that this new minimum wage policy would increase the salary of about 70 employees. The ground-breaking move was met with applause and shouts of joy by many employees. Kevin, a customer operations associate, said in an interview with the media, “I was there at the meeting… honestly, I could not believe what I heard, and I think that’s what a lot of people felt. I kind of felt that we needed to get that repeated.” Phillip Akhavan, a staff member in the merchant relations team, who earned an annual salary of $43,000, also said, “My jaw just dropped… This is going to make a difference to everyone around me.” Jaime June, in the marking department, said, “Dan is just an incredible man in general. He has a really amazing moral compass.”
The new salary would change employees’ lives. Maria Harley, vice-president of operations said, “I’ve heard things from, ‘I can finally afford to move out of my parent’s home,’ [to] ‘I can finally afford to have a baby,’ we have some people that are parents and really want a good education for their children and feel like they can finally afford that.”
Huge publicity from all major national media had generated clear public-relations benefits for the company. After Gravity Payments became a front-page media story, it received more than 5,000 resumes in just one day. Before the announcement, Gravity Payments added 200 clients per month on average. In June 2015, the number grew to 350.
The Downside of the $70,000 Minimum Salary Plan
There’s no perfect way to do this and no way to handle complex workplace issues that doesn’t have any downsides or trade-offs. I came up with the best solution I could… I know the decision to pay everyone a living wage is controversial.
The implementation of this wage increase was not easy. In order to pay for the increases in employees’ salaries, Price cut his own remuneration from $1 million to $70,000. Also, about 75 to 80 percent of the company’s $2.2 million profits had to be uses.
Many questions were raised. Was this a social experiment? Was it a public relations stunt? Or was Price just a nice guy? In addition, not everyone was pleased with his move. Other local business owners and some entrepreneurial CEOs in the same, close-knit, entrepreneurial network complained that his decision made them look stingy. Steve Duffield, CEO of DACO Corp., who had met Price through the Entrepreneurs’ Organization in the Seattle area, said, “I worry how that’s going to impact other businesses. We can’t afford to do that. For most businesses, employees are the biggest expense and they need to manage those costs in order to survive.”
Some customers were against the “socialist” gesture and stopped their business with Gravity Payments. Others customers withdrew their business due to an anticipation of a fee increase, in spite of the repeated assurances from the company that this would not happen.
Complaints even came from Price’s own employees. While 30 or so employees would see their pay nearly double overnight, and about 70 employees also go raises, the remaining 50 were already paid more than $70,000. In fact, according to the New York Times, the company’s two best employees left the company because of Price’s decision. For example, Maisey McMaster, who joined Gravity Payments five years earlier and had worked long hours that left little time for her family, was one of them. She said, “He gave raises to people who have the least skills and are the least equipped to do the job, and the ones who were taking on the most didn’t get much of a bump.” McMaster talked to Price after contemplating a fairer proposal. From her view, a fairer proposal was offering small raises with the opportunity to gain a future increase with more experience. “He treated me as if I was being selfish and only thinking about myself,” she said. “That really hurt me. I was talking about not only me, but about everyone in my position.”
Grant Moral, a web developer whose salary increased from $41,000 to $50,000 (due to the first stage of pay increase), also expressed concerns, even though he would receive a substantial pay increase from this plan. He opted to leave the company. “I had a lot of mixed emotions. Now the people who were just clocking in and out were making the same as me. It shackles high performers to less motivated team members.” He added, “I was kind of uncomfortable and didn’t like having my wage advertised so publicly and so blatantly. It changed perspectives and expectations of you, whether it’s the amount you tip on a cup of coffee that day or family and friends now calling you for a loan.” From McMaster and Moran’s points of view, it was not fair to double the paycheque of someone with the lowest skills, while the longest-serving and highest-skilled employees received a small or no salary increase.
Furthermore, even employees who were exhilarated by the raises had new concerns and indicated they were facing a lot of pressure. “Am I doing my job well enough to deserve this? I didn’t earn it,” said Stephanie Brooks, 23, who joined the company as an administrative assistant two months before the decision.
Question:
In: Operations Management
Gravity Payments
In April 2015, Dan Price, the 30-year-old chief executive officer (CEO), and founder of Gravity Payments, announced an increase in every employee’s wage to US$70,000. Every employee, including the lowest-paid clerk and newly hired staff, would receive a minimum annual salary of $70,000 over the next three years. The announcement stunned the employees and triggered a wave of high-fiving and clapping. With this decision, one young entrepreneur in Seattle, Washington, became an instant hero when he issued a direct and adventurous challenge to the long-standing problem of U.S. income inequality. However, at the same time, he was experiencing unexpected challenges from different people only a few months after his bold move.
Income inequality has been racing in the wrong direction. I want to fight for the idea that if someone is intelligent, hard-working and does a good job, then they are entitled to live a middle-class lifestyle.
COMPANY OVERVIEW
Gravity Payments was a private credit card processing and financial services company. It was founded in February 2004 by brothers, Dan and Lucas Price.
Gravity Payments provided a variety of processing and financial services, including credit card processing, POS (point of Sales) systems, mobile payments, working capital financing, and gift and loyalty cards. The company’s customers were mostly small and medium-sized businesses. By 2009, the company became the largest credit card processor in the state of Washington, serving more than 15 percent of small businesses in the Seattle area. The company’s success was mainly due to its low-cost strategy and word of mouth publicity. The company charged less than half of the industry-average processing rate.
Gravity Payments had had a philanthropic mandate since its beginning, and launched the “Gravity Gives” program in March, 2008. Through this program, 2 percent of the company’s revenue had been donated to charities, including World Vision, the Fred Hutchinson Cancer Research Center and Northwest Harvest. Price believed strongly in fighting poverty on both a global and locale scale.
THE DECISION
It was the right thing to do. I want everybody that I’m partnered with at Gravity to really live the fullest, best life they can… I think that’s the [income level] where you can start to check off those life’s goal boxes – saving for college, buying a home, some of the basics, starting a family. I want everyone to have those basic opportunities.
Announcement of the $70,000 Minimum Salary
In April 2015, Price set a new minimum salary of $70,000 for all of his 120 employees at Gravity Payments. The idea struck him when one of his friends shared her worries about trying to pay her bills and student loans on an annual income of $40,000. Some of Price’s own employees earned that amount or less.
Price decided upon the amount of $70,000 based upon a 2010 study conducted at Princeton University by economist, Angus Deaton and psychologist, Daniel Kahneman, a Nobel Laureate. According to the study, those who made less that $75,000 were likely to experience emotional pain and job dissatisfaction. However, even if people made more than $75,000, they did not feel any greater level of happiness. Simply put, the study suggested that emotional well-being increased with economic compensation, but only up to the amount of about $75,000. The study concluded that “low income exacerbates the emotional pain associated with such misfortunes as divorce, ill health, and being alone. We conclude that high income buys life satisfaction but not happiness, and that low income is associated with both with low life evaluation and low emotional well-being.”
Before Price initiated the salary increase, the average salary at Gravity Payments was about $48,000, with the lowest salary at around $34,000. Due to Price’s decision, about 30 employees had their paycheques nearly double overnight, and others also received raises to reach the $70,000 level. Ryan Pirkle, the spokesman for Gravity Payments, mentioned that this new minimum wage policy would increase the salary of about 70 employees. The ground-breaking move was met with applause and shouts of joy by many employees. Kevin, a customer operations associate, said in an interview with the media, “I was there at the meeting… honestly, I could not believe what I heard, and I think that’s what a lot of people felt. I kind of felt that we needed to get that repeated.” Phillip Akhavan, a staff member in the merchant relations team, who earned an annual salary of $43,000, also said, “My jaw just dropped… This is going to make a difference to everyone around me.” Jaime June, in the marking department, said, “Dan is just an incredible man in general. He has a really amazing moral compass.”
The new salary would change employees’ lives. Maria Harley, vice-president of operations said, “I’ve heard things from, ‘I can finally afford to move out of my parent’s home,’ [to] ‘I can finally afford to have a baby,’ we have some people that are parents and really want a good education for their children and feel like they can finally afford that.”
Huge publicity from all major national media had generated clear public-relations benefits for the company. After Gravity Payments became a front-page media story, it received more than 5,000 resumes in just one day. Before the announcement, Gravity Payments added 200 clients per month on average. In June 2015, the number grew to 350.
The Downside of the $70,000 Minimum Salary Plan
There’s no perfect way to do this and no way to handle complex workplace issues that doesn’t have any downsides or trade-offs. I came up with the best solution I could… I know the decision to pay everyone a living wage is controversial.
The implementation of this wage increase was not easy. In order to pay for the increases in employees’ salaries, Price cut his own remuneration from $1 million to $70,000. Also, about 75 to 80 percent of the company’s $2.2 million profits had to be uses.
Many questions were raised. Was this a social experiment? Was it a public relations stunt? Or was Price just a nice guy? In addition, not everyone was pleased with his move. Other local business owners and some entrepreneurial CEOs in the same, close-knit, entrepreneurial network complained that his decision made them look stingy. Steve Duffield, CEO of DACO Corp., who had met Price through the Entrepreneurs’ Organization in the Seattle area, said, “I worry how that’s going to impact other businesses. We can’t afford to do that. For most businesses, employees are the biggest expense and they need to manage those costs in order to survive.”
Some customers were against the “socialist” gesture and stopped their business with Gravity Payments. Others customers withdrew their business due to an anticipation of a fee increase, in spite of the repeated assurances from the company that this would not happen.
Complaints even came from Price’s own employees. While 30 or so employees would see their pay nearly double overnight, and about 70 employees also go raises, the remaining 50 were already paid more than $70,000. In fact, according to the New York Times, the company’s two best employees left the company because of Price’s decision. For example, Maisey McMaster, who joined Gravity Payments five years earlier and had worked long hours that left little time for her family, was one of them. She said, “He gave raises to people who have the least skills and are the least equipped to do the job, and the ones who were taking on the most didn’t get much of a bump.” McMaster talked to Price after contemplating a fairer proposal. From her view, a fairer proposal was offering small raises with the opportunity to gain a future increase with more experience. “He treated me as if I was being selfish and only thinking about myself,” she said. “That really hurt me. I was talking about not only me, but about everyone in my position.”
Grant Moral, a web developer whose salary increased from $41,000 to $50,000 (due to the first stage of pay increase), also expressed concerns, even though he would receive a substantial pay increase from this plan. He opted to leave the company. “I had a lot of mixed emotions. Now the people who were just clocking in and out were making the same as me. It shackles high performers to less motivated team members.” He added, “I was kind of uncomfortable and didn’t like having my wage advertised so publicly and so blatantly. It changed perspectives and expectations of you, whether it’s the amount you tip on a cup of coffee that day or family and friends now calling you for a loan.” From McMaster and Moran’s points of view, it was not fair to double the paycheque of someone with the lowest skills, while the longest-serving and highest-skilled employees received a small or no salary increase.
Furthermore, even employees who were exhilarated by the raises had new concerns and indicated they were facing a lot of pressure. “Am I doing my job well enough to deserve this? I didn’t earn it,” said Stephanie Brooks, 23, who joined the company as an administrative assistant two months before the decision.
Questions
In: Operations Management
Question 1: You are borrowing USD 1000 for one year, at a coupon rate of 7.7%. You will get the money today, and will repay all principal and interest one year from today. If the current CAD per USD spot rate is 0.95, the CAD inflation rate is 3%, and the USD inflation rate is 1.6%, what is the CAD cost of debt for this loan?
Question 2: The current MXN/CHF spot exchange rate is 26.5. The MXN inflation rate is 6.9%, and the CHF inflation rate is 0.7%. If you are a Mexican firm with a MXN cost of capital for foreign projects of 9%, what is the PV (in MXN) of a payment of 2M CHF 4 years from today?
Question 3: You are the CEO of an American company considering investing in Brazil. Your BRL cost of capital is 19.4%, and your USD cost of capital is 11.8%. The project you are considering will cost 20M BRL to set up, and will produce free cash flows of 2.9M BRL per year in perpetuity, starting one year from today. Brazil and the US have the same inflation rate, and the current spot exchange rate is USD 0.17 per BRL. What is the NPV of this project (in the appropriate currency) from the project viewpoint?
Question 4: You are the CEO of an American company considering investing in Brazil. Your BRL cost of capital is 16.9%, and your USD cost of capital is 15.9%. The project you are considering will cost 21M BRL to set up, and will produce free cash flows of 2.7M BRL per year in perpetuity, starting one year from today. Brazil and the US have the same inflation rate, and the current spot exchange rate is USD 0.24 per BRL. What is the NPV of this project (in the appropriate currency) from the parent viewpoint?
In: Finance
Janice Underwood, an MBA student in Southeastern University , has been hired as a night manager of Campus Deli and Sub Shop (CDSS), which is located adjacent to the campus. Sales were $ 875,000 last year; variable costs were 60 % of sales; and fixed costs were $ 50,000. Therefore, EBIT totalled $ 300,000. Since the university ‘s enrollment is capped, the store’s EBIT is expected to be constant over time. Since no expansion capital is required, CDSS pays out all earnings as dividends.
CDSS is currently all equity financed, and its 100,000 shares outstanding sell at a price of $ 10 per share. The firm’s tax rate is 34 %. Underwood believes that the firm will be better off if some debt financing is used.She needs some justification for her suggestion. She developed the following estimates of the costs of debt and equity at different debt levels ( in thousands of dollars ):
Amount borrowed cost of debt cost of equity
$ 0 _ 15.0%
200 10.0% 15.5
400 11.0 16.5
500 13.0 18.0
600 16.0 20.0
If the firm were recapitalized, the borrowed funds would be used to repurchase stock. Stockholders ,in return, would use the funds provided by the repurchase to buy equities in other fast food companies similar to CDSS. Underwood needs help in answering the following questions:
1.Calculate CDSS’s expected EPS at debt levels of $0, $ 200,000, $400,000,$ and 600,000. How many shares would remain after recapitalization under each scenario? Assume that shares are repurchased at the current market price of $ 10per share?
2. What would be the stock price under each case defined above?
3.If CDSS’s fixed costs total $ 50,000, what is its degree of operating leverage?
4. What will be CDSS’s degree of financial leverage at a debt level of $ 500,000?
In: Accounting
For the past 5 years, Shirin Nadia has been working as a Management Accountant at Meridian Energy – a leading power company based in New Zealand. However, she has recently seen a job advertisement for a Senior Management Accountant at Auckland Museum. Shirin applied for the position and subsequently progressed towards the final interview stage. While she was going through the final interview process, an interview panel member asked her how the performance report of Auckland Museum would be different from Meridian Energy (i.e., her current employer). Imagine yourself as Shirin and write down your response to the panel member’s question
In: Accounting
(Calculation of depreciation; three methods)
On January 1, 2016, SugarBear Company acquired equipment costing $150,000, which will be depreciated on the assumption that the equipment will be useful for five years and have a residual value of $12,000. The estimated output from this equipment is as follows: 2016—15,000 units; 2017—24,000 units; 2018—30,000 units; 2019—28,000 units; 2020—18,000 units. The company is now considering possible methods of depreciation for this asset.
Required
a. Calculate what the depreciation expense would be for each year of the asset's life, if the company chooses:
i.The straight-line method
ii.The units-of-production method
iii.The double-diminishing-balance method
b. Briefly discuss the criteria that a company should consider when selecting a depreciation method.
In: Accounting
University of Waterloo is predicting an at least a 15% reduction in its revenues in the Fall 2020 semester due to a reduced demand for university education caused by the current pandemic. Assume a decreasing returns to scale technology and a competitive market. Also, assume that the market was in the long run equilibrium prior to the outbreak of covid-19. Discuss the short run and long run implications of this reduction for:
1. the choice of output by the university
2. capital and labour choices by the university
In: Economics
You are the international manager of a US business that has just invented a revolutionary new personal computer that can perform the same functions as existing PCs but costs only half as much to manufacture. Several patents protect the unique design of this computer. Your CEO has asked you to formulate a recommendation for how to expand into Western Europe. Your options are (a) to export from the US, (b) to license a European firm to manufacture and market the computer in Europe, and (c) to set up a wholly owned subsidiary in Europe. Based on the information from chapter 8, evaluate the pros and cons of each alternative and suggest a course of action to your CEO.
|
Criteria |
Maximum Points |
|
1.- Student answered and elaborated on the pros and cons for each option (a,b,c) |
9 |
|
2.- Student provided his/her recommendation |
4 |
|
3.- Format |
2 |
|
Total |
15 |
Format:
Times New Roman 12 pt font size
In: Economics