M&T Air was founded 10 years ago. The company has manufactured and sold light airplanes over this period, and the company’s products have received high reviews for safety and reliability. The company has a niche market in that it sells primarily to individuals who own and fly their own airplanes. The company has two models: The Birdie, which sells for $53,000, and the Eagle, which sells for $78,000. S&S Air is not publicly traded, but the company needs new funds for investment opportunities. Mark Sexton and Todd Story, the owners of S&S Air, have decided to expand their operations. They instructed their newly hired financial analyst, Chris Guthrie, to enlist an underwriter to help sell $20 million in new 10-year bonds to finance construction. Chris has entered into discussions with Renata Harper, an underwriter from the firm of Crowe & Mallard, about which bond features S&S Air should consider and what coupon rate the issue will likely have.

Although Chris is aware of the bond features, he is uncertain as to the costs and benefits of some features, so he isn't clear on how each feature would affect the coupon rate of the bond issue. You are Renata's assistant, and she has asked you to prepare a memo to Chris describing the effect of each of the following bond features on the coupon rate of the bond. She would also like you to list any advantages or disadvantages of each feature.

a. The security of the bond—that is, whether the bond has collateral.

b. The seniority of the bond.

c. The presence of a sinking fund.

d. A call provision with specified call dates and call prices.

e. A deferred call accompanying the preceding call provision.

f. A floating rate coupon.

S&S Air was founded 10 years ago. The company has manufactured and sold light airplanes over this period, and the company’s products have received high reviews for safety and reliability. The company has a niche market in that it sells primarily to individuals who own and fly their own airplanes. The company has two models: The Birdie, which sells for $53,000, and the Eagle, which sells for $78,000. S&S Air is not publicly traded, but the company needs new funds for investment opportunities. Mark Sexton and Todd Story, the owners of S&S Air, have decided to expand their operations. They instructed their newly hired financial analyst, Chris Guthrie, to enlist an underwriter to help sell $20 million in new 10-year bonds to finance construction. Chris has entered into discussions with Renata Harper, an underwriter from the firm of Crowe & Mallard, about which bond features S&S Air should consider and what coupon rate the issue will likely have. Although Chris is aware of the bond features, he is uncertain as to the costs and benefits of some features, so he isn't clear on how each feature would affect the coupon rate of the bond issue. You are Renata's assistant, and she has asked you to prepare a memo to Chris describing the effect of each of the following bond features on the coupon rate of the bond. She would also like you to list any advantages or disadvantages of each feature.

a. The security of the bond—that is, whether the bond has collateral.

b. The seniority of the bond.

c. The presence of a sinking fund.

d. A call provision with specified call dates and call prices.

e. A deferred call accompanying the preceding call provision.

f. A floating rate coupon.

Step 1: Read the following scenario carefully: EverGlad Bodycare was recently co-founded by two Australian siblings who share a passion for protecting our planet and being ethical consumers. Ann and Oliver Jones, while pursuing their vocational education, realised that people the world over desire products that are not only good for them but also for the Earth. They wanted to create a line of skin and hair care products that used all-natural and organic ingredients and were cruelty-free and ethically sourced. The brother-sister duo spent months reaching out to local producers to understand which ingredients could be locally sourced with ease. After much experimentation with the various ingredients, they locked in their formulae for five product lines: shampoo & conditioner bars; hair masks; soap bars; body oils and body scrubs. As Ann and Oliver want to use only the best and safest natural ingredients, they realise that their prices will be high initially, at least until they started manufacturing on a much larger scale. Currently, they expect to just sell in their home state of South Australia. As they have no prior business or marketing experience, they approach you to be their marketing consultant.

Step 2: Answer the following questions 1. What marketing problems do you think EverGlad Bodycare will face once they launch their products? How should they overcome these? (You need to identify at least two possible problems and solutions. Provide reasons and support for your answers through research). (approx. 300 words) 2. On which bases should EverGlad segment the market? (Along with the segments, provide reasons and support them with your research). (approx. 150 words) 3. Which of Roy Morgan's value segments will this brand appeal to? (you need to provide reasons for your answer). (approx. 150 words) 4. Which targeting strategy would suit this brand the best? Why? (approx. 150 words) 5. Create a perceptual map for EverGlad Bodycare. Apart from showing its positioning, use external research to plot two other actual companies on the same perceptual map. Include a short write up to explain your logic. (approx. 100 words) 6. Which type of competitive advantage can EverGlad Bodycare establish? How should they go about it? (Chose one of the following - Cost, Differentiation, Niche or Sustainable competitive advantage to address this question). (approx. 150 words)

QUESTION 1: EQUITY VALUATION
Silverline Electricals Limited was founded ten years ago by Jim and Wendy Birt. The company manufactures and installs both traditional and contemporary models of lights for residential and commercial purposes. Silverline Electricals Ltd has experienced rapid growth because of the new technology that increases the energy efficiency of its systems and the introduction of new models of LED integrated lights. The company is equally owned by Jim and Wendy holding 100,000 shares each.
In August 2018, Jim and Wendy have decided to value their holdings in the company for financial planning purposes. To accomplish this, they have gathered the following information about their main competitors in the industry.
EPS ($)
DPS ($)
Share Price ($)
ROE (%)
Required rate (%)
Colonial Lighting
0.42
0.08
7.65
10.5
9.5
Reliable Lighting Plus
0.46
0.26
6.25
11.5
10.5
FullBright Electricals
-0.24
0.27
24.3
12.5
11.5
Industry Average
0.36
0.27
8.24
11.0
10.5
Last year, Silverline Electricals Ltd had an EPS of $0.52 and paid dividends to Jim and Wendy of $31,200 each. The company also had a return on equity of 15%. Jim and Wendy believe a required rate of return of 12% for the company is appropriate.
Required:
1. Assuming the company continues its current growth rate (growth rate should be inferred from the data given) into the infinite period, what is the share price of the company?
(7marks)
2. To verify their calculations, Jim and Wendy have hired Richard Wang, a consultant. Richard was previously an equity analyst, and he has a good understanding of the electrical Industry. Richard has examined the company’s financial statements as well as those of its competitors. Although Silverline Electricals Ltd currently has a technological advantage, Richard’s research indicates that Silverline Electricals Ltd’s competitors are investigating other methods to improve efficiency. Given this, Richard believes that Silverline Electricals technological advantage will last for only the next five years. After that period, the company’s growth is likely to slow down to the industry average. Additionally, Richard believes that the company’s required return currently is too high and so after year 5, the industry average required return is a more appropriate rate for valuation. Taking Richard’s assumptions into consideration, calculate the estimated share price of Silverline Electricals Ltd.

3. What is the industry average price-earnings ratio? What is Silverline Electricals Ltd’s price-earnings ratio based on Richard’s estimation in part (2) above? Comment on any differences and explain why these differences may exist?

4. After a discussion with Richard, Jim and Wendy agree that they wanted to increase the value of the company’s equity. Like many small business owners, they want to retain control of the company and do not want to sell shares to outside investors. They also feel that the company’s debt is at a manageable level and do not want to borrow more money. What steps can they take to increase the share price? - justify each of your suggestions.

Simulation Case Study:
Phoenix Boutique Hotel Group

Phoenix Boutique Hotel Group (PBHG) was founded in 2007 by Bree Bristowe. Having worked for several luxury resorts, Bristowe decided to pursue her dream of owning and operating a boutique hotel. Her hotel, which she called PHX, was located in an area that included several high-end resorts and business hotels. PHX filled a niche market for “modern travelers looking for excellent service and contemporary design without the frills.” Since opening PHX, Bristowe has invested, purchased, or renovated three other small hotels in the Phoenix metropolitan area: Canyon Inn PHX, PHX B&B, and The PHX Bungalows.

One of the customer service enhancements Bristowe has implemented is a centralized, toll-free reservation system. Although many customers book specific hotels online, the phone reservation system enables PBHG to find the best reservation match at all properties. It has been an excellent option for those customers who have preferences regarding the type of room, amenity options, and the best price across the four hotel locations.

Currently, three agents are on staff for the 6 a.m. to 2 p.m. call shift. The time between calls during this shift is represented in Table 1. The time to process reservation requests during this shift is in Table 2.

Table 1: Incoming Call Distribution

Table 2: Service Time Distribution

Bristowe wants to ensure customers are not on hold for longer than 2 minutes. She is debating hiring additional staff for this shift based on the available data. Additionally, Bristowe and PBHG will soon be featured in a national travel magazine with a circulation of over a million subscriptions. Bristowe is worried that the current operators may not be able to handle the increase in reservations. The projected increase for call distribution is represented in Table 3.

Table 3: Incoming Call Distribution

Bristowe has asked for your advice in evaluating the current phone reservation system. Create a simulation model to investigate her concerns. Make recommendations about the reservation agents.

Personally Yours: The negligent Hiring/Retention Case

GeNeral INformatIoN

Personally Yours is a personal assistant rm founded in 1997. After years of struggling to balance work and family, Sarah Winters established this company to address some of the challenges working professionals face in their busy lives. Personally Yours provides a wide range of services, including residential housekeeping, grocery shopping, household organization, home companion, adult day care and even handyperson services.

Sarah Winters started the company in her hometown of Tampa, Florida, with the help of a small business grant, personal savings, and three employees (her mother, sister and cousin). After several rocky years, Winters now has 15 branch offices located throughout central Florida and Miami. Each branch employs a branch manager who is responsible for administrative duties and approximately 15 employees who work either full time or part-time. The rest of her 250 employees are located at the Tampa headquarters. To keep operations lean, Winters has kept central administrative staff to a minimum; she has outsourced services such as payroll, accounts payable and legal services. But as the company grows, Winters has been rethinking this strategy.

role of Gary GarcIa, Hr suPervIsor

Gary Garcia has been the HR supervisor at Personally Yours for the past 9 years. His immediate supervisor is HR Manager Alyssa Williams. After attending a meeting
at the local SHRM chapter, Garcia came away with some great ideas about how their organization could improve HR operations. Overall, things are running pretty efficiently; but Personally Yours is a quickly growing, medium-sized organization, and in many ways, it still operates like the small, family-owned and -operated business it was just a few years ago.

For example, hiring processes are now standardized at headquarters and at the branch offices. Each job applicant completes a standardized application, submits a re?sume? (if appropriate for the position), does pre-employment testing, and undergoes a screening that includes contacting references and former employers and a criminal background check. However, this was not the case when the company first started, and many longtime employees have never gone through a background check. This is extremely troubling to Garcia, in light of the fact that their employees work in clients’ homes and have contact with vulnerable individuals (e.g., children, elderly, infirm).

role of alyssa WIllIams, Hr maNaGer

Alyssa Williams is the HR manager for Personally Yours, Inc. She has been in this position for more than seven years. Williams works in the corporate headquarters located in Tampa, Florida. She has an undergraduate degree in HR and is active in the local SHRM chapter.

Though her title is officially HR manager, her duties are more like a vice president of HR. She reports directly to the president and founder, Sarah Winters, who routinely consults Williams regarding both general and strategic HR management decisions. The company has outsourced some HR functions, such as payroll; however, when it comes to the remaining HR functions that are handled internally, top management takes a hands-off approach and allows Williams to exercise her judgment. (Williams is the highest-ranking human resource management professional in the company.) Williams feels complimented by the faith the senior management has shown in her. For example, all requests to create new positions must be approved by Williams.

role of vIolet jeNNINGs, braNcH maNaGer, tamPa-east

Violet Jennings has been the Tampa-East branch manager of Personally Yours,Inc., for the past 9 years. Jennings has been friends with the president and founder, Sarah Winters, ever since they attended high school together. Jennings was one of the first non–family members hired to work for Personally Yours, and she has been serving as manager of the Tampa-East branch for 6 years now. Before working for Personally Yours, Jennings worked in a number of positions, including housekeeping manager for a major hotel chain and customer service representative for a local utility company. Jennings was also a stay-at-home mother for several years and briefly owned a used-clothing store.

The Tampa-East branch is the largest branch office, with 17 full-time housekeepers, 11 full-time nurses, 19 part-time nurses, 10 part-time home health aides, and 6 full-time handymen. Jennings’ official job title is branch manager, but because of the close relationship she has with the Winters’ and her long tenure with the company, Jennings is frequently consulted by headquarters when they are making policy decisions.

Currently, hiring processes at Personally Yours are standardized at headquarters and at the branch offices. Each job applicant completes a standardized application, submits a re?sume? (if appropriate for the position), does pre-employment testing, and goes through a screening that includes contacting references and former employers and a criminal background check. However, this was not the case when the organization was first started, and many longtime employees have never gone through a background check. Because their employees work in clients’ homes and have contact with vulnerable individuals (e.g., children, elderly, infirm), HR supervisor Gary Garcia would like to reevaluate the company’s screening policies.

Assignment:

- You and the HR supervisor, along with suggestions from the branch manager, must determine if background checks on all employees (new and existing) are necessary. If so, you must develop a protocol to conduct them (e.g., which employees; how thorough).

- It has come to Branch Manager Violet Jennings’s attention that one of her longtime employees, Jackson Tibbits, a handyman, is on the Florida Sexual Offender list. After doing more research, they learn that 17 years ago, when Tibbits was 24, he was convicted of having unlawful sexual contact with a 15-year-old female. As a registered sexual offender, Tibbits cannot live within 1,000 yards of a school and must register with the state any time he moves. Also, he is prohibited by law from holding positions such as schoolteacher and healthcare professional. You, Garcia and Jennings must decide whether you should terminate Tibbits based on this newly discovered information.

Mini Case

Share Valuation At Gold Coast Constructions.

Gold Coast Constructions was founded nine years ago by siblings Elise and Paul Nelson. The company constructs prestige homes in the Gold Coast region of Queensland. Gold Coast Constructions has experienced rapid growth because a number of celebrity customers have used them to build their homes on the new canal developments. The company is equally owned by Elise and Paul. The original partnership agreement gave each sibling 50,000 shares. In the event that either wished to sell their shares, the shares first had to be offered to the other partner at a discounted price.

Although neither sibling wants to sell, they have decided they should value their holdings in the company. To get started, they have gathered the following information about their main competitors:

Expert Homes Ltd negative earnings per share were the result of an accounting write-off last year. Without the write-off, earnings per share for the company would have been $1.10. Last year, Gold Coast Constructions had an EPS of $3.15 and paid a dividend to Elise and Paul of $45,000 each. The company also had a return on equity of 17%. The siblings believe that 14% is an appropriate required return for the company.

Questions.

1. Assuming the company continues its current growth rate, what is the value per share of the company’s shares?

2. To verify their calculations Elise and Paul have hired Josh Schessman as a consultant. Josh was previously an equity analyst and covered the building industry. Josh has examined the company’s financial statements, as well as those of their competitors. Although Gold Coast Constructions currently has a reputational advantage, his research indicates that other companies are investigating ways to improve their own standing. Given this, Josh believes that Gold Coast Constructions’ reputational advantage will last only for the next five years. After that period, the company’s growth will probably slow to the industry growth average. Additionally, Josh believes that the required return used by the company is too high. He believes the industry average required return is more appropriate. Under this growth rate assumption, what is your estimate of the share price?

Fresh Munchables is a mid-sized but steadily growing food-processing company founded in 1967. Since its inception, the company has been committed to providing only premium quality health foods. The company is headquartered in Wichita, Kansas, and it is one of the area’s largest producers of soups and simple meals. In the past 20 years, the company has also begun processing healthy snacks and beverages. Fresh Munchables has traditionally sold its products through large grocery stores, but it is now venturing into online and restaurant businesses, which is all very new territory for management.

The company is split up into three overarching strategic business units—soups and meals, drinks, and snacks. Additionally, the company is divided into several business units at the operational level, consisting of a mix of business operations, manufacturing (production), research and development, finance, and so on. As the company continues to grow, the executive team and other leaders are constantly looking for ways to improve processes.

Because Fresh Munchables has grown from a very small company into a well-established organization, management has decided to broaden the company’s strategic HR functions. The human resources team is currently working to improve recruiting and hiring processes, succession planning, and most importantly, compensation and rewards.

For many years, the company has delegated compensation decisions to managers with little to no training on the subject. This has left the company in a disorganized, confused state when it comes to paying and rewarding employees. These problems have compounded as Fresh Munchables has recently opened up new manufacturing locations with new managers and many new employees.

The chief human resources officer has organized a team of compensation specialists of which you are a part to spearhead total compensation-related problems and help the company to reach its current and future goals. You and your team can achieve this by revising the current total compensation system to reflect the company’s current business strategies and goals as well as attract and retain top talent.

1. Angelina is a self-proclaimed “health nut” and animal activist. She recently was hired at Fresh Munchables, a food and beverage company offering vegan on-the-go snacks, as their marketing manager. Angelina could not be happier about her new position because it aligns with her values.

   What does the HR manager who hired Angelina know about the purpose principle?

   Purposeful employees are typically the hardest-working employees in any industry. Animal activists have a higher moral purpose than those who disregard animal rights. When the employee’s values align with the business’s core purpose, the employee will need fewer rewards. When the employee’s values align with the business’s core purpose, the employee will value their relationship with the business more.

2. Bookmark question for later

   After the departure of more than a few employees over the past six months, the management team at Fresh Munchables’ are concerned about their employees’ happiness and job satisfaction. The company has raised wages and found the best possible health care plan; yet, it still struggles to keep long-term employees.

   Which strategy can the management team use to figure out how to retain employees and increase employee satisfaction?

   Reward the managers whose departments have the highest employee retention rates and fire the ones with low employee satisfaction. Offer a better retirement plan for employees in order to incentivize older workers to apply for jobs. Create policies that penalize employees for leaving the company before a specified period of time in order to establish expectations. Conduct a survey asking employees what benefits they want in order to gain useful information about preferred compensation plans.

3. Bookmark question for later

   Liping was an employee in the marketing department at Fresh Munchables. As time passed, she became dissatisfied with her own pay after realizing that the sales team made more than she did and that they also received quarterly bonuses based on their sales numbers. Liping felt that her efforts in marketing led to more sales by the sales team and that the division of pay was unfair. Unfortunately, her manager wasn’t able to provide satisfactory answers to her questions about why the two departments were paid differently and Liping soon quit. Fresh Munchables does not want such a situation to occur again. While developing a total rewards system, the compensation team should do their best to build a model that is ________.

   private and inaccessible, because it will prevent the employees at Fresh Munchables from getting upset by pay disparities flexible and adaptable, because it will permit the managers at Fresh Munchables to make appropriate wage-related decisions clear and logical, because it will allow the employer to justify their compensation-related decisions fluid and ever changing, because it will enable Fresh Munchables to change its total compensation system on a monthly basis

4) As an HR professional, you understand that compensation and total rewards is a complicated topic. At Fresh Munchables, there have been many cases over the years in which employees have shared strong feelings and harsh words with HR when they felt that their pay was unfair.

In light of the company’s past dealings with employees concerning compensation, which of the following is important for you to understand as you revise the total compensation system?

1. Taylor Venz founded Venz Products on January 1.  During its first year the company had sales of $220,000, a cost of goods sold of $100,000, and operating expenses (not including depreciation) of $50,000.  The company estimates its income taxes expense will be approximately 25% of income before taxes.

The company's equipment, all of which was purchased on January 1, cost $80,000, with an estimated residual value of $5,000, and a useful life of five years.

You have been asked by Taylor Venz to assist in deciding which depreciation method to use in accounting for the Venz Products' activity for its first year ended December 31.

Required:

1. Calculate the Venz Products' net income using the straight-line and double-declining-balance depreciation methods.  Round all calculations to the nearest dollar.

ii.)           What depreciation method would result in more cash available for Venz Products on December 31? How much more additional cash? You must support your answer.