Use this case study to answer the questions below.

CASE CHAPTER 1: INTRODUCTION TO RESEARCH THE LAROCHE CANDY COMPANY

In 1864 Henricus Laroche started making high-quality chocolate in his kitchen in Ooigem, Belgium. Henricus learned his trade at a famous chocolate shop in Paris, and he and his wife began to make chocolate in bars, wafers and other shapes soon after Henricus had returned to Belgium to start his own business. The Belgian people loved Laroche’s chocolate and the immediate success soon caused him to increase his production facilities. Henricus decided to build a chocolate factory in Kortrijk, a nearby city in the Flemish province West Flanders. With mass-production, the company was able to lower the per-unit costs and to make chocolate, once a luxury item, affordable to everybody. The Laroche Candy Company flourished, expanded its product lines and acquired related companies during the following decades. Within a century the company had become Belgium’s leading candy-manufacturer employing over 2,500 people. Today, The Laroche Candy Company is one of the biggest manufacturers of chocolate and non-chocolate confectionery products in Europe. Under the present leadership of Luc Laroche the company has become truly innovative. What’s more, the company has adopted a very proactive approach to marketing planning and is therefore a fierce competitor in an increasingly global marketplace. The number of products the company produces and markets has increased dramatically; at this moment there are more than 250 Laroche Candy items distributed internationally in bulk, bags, and boxes. Luc Laroche, born in 1946, is the fifth generation of his family to lead The Laroche Candy Company. He is the great-great-grandson of company founder Henricus Laroche and the current Chairman and CEO of the company. But Luc is nearing retirement. He has planned to stop working in two to three years. Whereas stepping back from power is a very difficult thing to do for a lot of people, it is an easy thing to do for Luc: He is looking forward to spending time with his grand-children and to driving his Harley Davidson across Europe. What’s more, he has never found the time to play golf, and he is planning to spend “three whole summers learning it” if necessary. And yet, even though ‘letting go’ is not a problem for Luc, he still has his worries about his imminent retirement. As in most family businesses, Luc’s two children spent their share of summers working for the company. Luc’s oldest son Davy has repeatedly worked for the accounting department whereas Davy’s younger brother Robert has infrequently worked in the field. However, they have never shown a serious interest in the business. Davy, who is 35, currently works as an associate professor of management accounting at a reputable university in Belgium. Robert, aged 32, lives in Paris and has been working as a photographer for the last ten years. About twelve years ago, Robert told his dad, "I know you'd like me to come in the business, but I've got my own path to travel." Luc recalls responding that he respects that and that he does not want Robert to feel constrained; “I just want you to be happy” is what he has told Robert on that particular occasion. Ever since this conversation with Robert, Luc has put his hopes on Davy. A few days ago, Luc has invited Davy to have dinner at the famous restaurant “In de Wulf” in Dranouter, Belgium to discuss the future of the Laroche Candy Company. He wants to talk about his retirement and a succession plan for the company with Davy, who has serious doubts about taking over the company. Davy knows that for his dad the company is his life and like his dad, he wants the company to be successful in the future; but he just does not know whether it is a good idea to take over from his father. In an effort to maintain a balanced perspective on the issue, Davy has done some research on it. Hence, he has become very familiar with statistics about the failure rate of family transitions. These statistics have triggered numerous concerns and fears about taking over the company from his father. Luc and Davy discuss the future of the company during a memorable dinner in Dranouter. Luc tells Davy that he wants his son to take over the company, but Davy explains that he has qualms. He brings up his doubts and fears and alternatives such as going public, selling to a strategic acquirer or investor, or selling to employees through an employee stock ownership plan. Luc hardly listens to Davy’s concerns and strikes a blow for family business. “History is full of examples of spectacular ascents of family business,” he said after the waiter has refilled his glass for the fourth time in just over an hour, “the Rothschilds, the Murdochs, the Waltons, and the Vanderbilts, to name only a few. The Rothschilds, for instance, not only accumulated the largest amount of private wealth the Western world has ever seen, they also changed the course of history by financing kings and monarchs. Did you know that they supported Wellington’s armies, which ultimately led to the defeat of Napoleon at Waterloo? I bet you didn’t.” Davy raised an eyebrow. “I didn’t. But what I do know”, he replied, “is that only fifty years after the death of Cornelius Vanderbilt, who created a fortune in railroads and shipping, several of his direct descendants were flat broke. Apparently the Vanderbilts had both a talent for acquiring and spending money in unmatched numbers.” Davy leaned in closer toward his father. “Seriously dad, I do believe that strong family values are very important but I also feel that they may place restraints on the development of the company. It is commonly known that familism in Southern Italy is one of the main reasons for the slower economic development of the south relative to the north.” Luc sighed and looked at his son. “So, what does this all mean?” “Well, I think that the key question is whether family firms evolve as an efficient response to the institutional and market environment, or whether they are an outcome of cultural norms that might be harmful for corporate decisions and economic outcomes”, Davy replied with a gentle smile. “Don’t you think so?” “I … um … I guess I do.” Luc smiled back at his son. “I am not sure that I understand what you mean, but it sounds great. Let’s throw some money at it and hire a consultant who knows something about this. I’ll call McKinsey first thing tomorrow morning. Cheers.” “Cheers dad”, Davy echoed lifting his glass. Two weeks later, Paul Thomas Anderson, a senior McKinsey consultant, put forward the following problem statement in a meeting with Luc Laroche: What are the implications of family control for the governance, financing, and overall performance of the Laroche Candy Company?

QUESTIONS

1. What is business research?

2. Why is the project that Paul Thomas Anderson is doing for The Laroche Candy Company a research project?

3. Which steps will Paul take now that he has clearly defined the problem that needs attention?

4. Luc Laroche has decided to hire an external consultant to investigate the problem. Do you think that this is a wise decision or would it have been better to ask his son Davy or an internal consultant to do the research project?

5. What can (or should) Luc do to assist Paul to yield valuable research results?

6. How can basic or fundamental research help Paul to solve the specific problem of The Laroche Candy Company?

7. Try to find relevant books, articles, research reports and this issue. Use, among others, electronic resources of your library and/or the internet.

Thomas Railroad Company organizes its three divisions, the North (N), South (S), and West (W) regions, as profit centers. The chief executive officer (CEO) evaluates divisional performance, using operating income as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31:

The company operates three support departments: the Dispatching Department, the Equipment Management Department, and the Treasurer’s Department. The Dispatching Department manages the scheduling and releasing of completed trains. The Equipment Management Department manages the railroad cars inventories. It makes sure the right freight cars are at the right place at the right time. The Treasurer’s Department conducts a variety of services for the company as a whole. The following additional information has been gathered:

Required:

1. Prepare quarterly income statements showing operating income for the three regions. Use three column headings: North, South, and West. Do not round your interim calculations.

2. What is the profit margin of each region? Round to one decimal place.

Identify the most successful region according to the profit margin.

3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the regions?

1. The method used to evaluate the performance of the regions should be reevaluated.
2. A better regional performance measure would be the return on investment (operating income divided by regional assets).
3. A better regional performance measure would be the residual income (operating income less a minimal return on regional assets).
4. None of these choices would be included.
5. All of these choices (a, b & c) would be included.

Thomas Railroad Company organizes its three divisions, the North (N), South (S), and West (W) regions, as profit centers. The chief executive officer (CEO) evaluates divisional performance, using income from operations as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31:

Revenues—N Region $912,100

Revenues—S Region 1,105,800

Revenues—W Region 1,975,400

Operating Expenses—N Region 578,000

Operating Expenses—S Region 658,100

Operating Expenses—W Region 1,194,600

Corporate Expenses—Dispatching 470,400

Corporate Expenses—Equipment Management 214,500

Corporate Expenses—Treasurer’s 138,700

General Corporate Officers’ Salaries 306,300

The company operates three service departments: the Dispatching Department, the Equipment Management Department, and the Treasurer’s Department. The Dispatching Department manages the scheduling and releasing of completed trains. The Equipment Management Department manages the railroad cars inventories. It makes sure the right freight cars are at the right place at the right time. The Treasurer’s Department conducts a variety of services for the company as a whole. The following additional information has been gathered:

North South West

Number of scheduled trains 4,900 5,900 8,800

Number of railroad cars in inventory 800 1,300 1,200

Required:

1. Prepare quarterly income statements showing income from operations for the three regions. Use three column headings: North, South, and West. Do not round your interim calculations.

Thomas Railroad Company

Divisional Income Statements

For the Quarter Ended December 31

North South West

Revenues $ $ $

Operating expenses Income

from operations before

service department charges $ $ $

Service department charges:

Dispatching $ $ $

Equipment Management

Total service department charges $ $ $

Income from operations $ $ $

2. What is the profit margin of each division? Round to one decimal place.

Region

Profit Margin

North Region %

South Region %

West Region %

Identify the most successful region according to the profit margin.

3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the divisions?

a. The method used to evaluate the performance of the divisions should be reevaluated.

b. A better divisional performance measure would be the rate of return on investment (income from operations divided by divisional assets).

c. A better divisional performance measure would be the residual income (income from operations less a minimal return on divisional assets).

d. None of these choices would be included.

e. All of these choices (a, b & c) would be included.

Scenario: You have been hired as an IT consultant by an entrepreneur starting a small advertising company called MilleniAds. As a start-up, your client’s company is relatively small and has a limited budget. There are only 10 employees, including a few creative directors, graphic designers, sales staff, a financial accountant, and an office administrator, with the entrepreneur acting as CEO. The current IT budget cannot exceed $25,000 and ideally should come in as far under that number as possible. MilleniAds will produce customized sales flyers, brochures, and other branded items, such as letterhead and business cards, that apply a youthful, fresh perspective targeting millennial demographics. Therefore, the company needs the ability to store and manipulate digital images and to produce physical copies of their products for their clients. The CEO wants to keep track of inventory, sales, and expenses digitally, but she does not anticipate having very complex records for the first year. She projects having only a dozen or so accounts but hopes to scale up in the coming years. It would be ideal to have a simple and user-friendly system for sharing information and files between employees. Many of the employees are millennials themselves who have indicated that their current desktop PCs are limiting their capabilities and that they prefer using their phones and other mobile devices for their professional and personal responsibilities. Two of the 10 employees will operate primarily outside of the office, soliciting business from regional firms, and they will need to access company information while on the road, in their home offices, and at customer sites. Beyond the specific information given above, you have the ability to fill in the gaps with assumptions or additional details that will make your final project unique and meaningful to you. If you have any questions, reach out to your instructor for guidance.

II. Hardware Components A. Examine the business’s issues to determine specific hardware requirements. Based on these issues, what are the major categories and components of hardware that should be considered? Identify each of the applicable requirements (hard drive storage, video cards, etc.), being sure to cite specific examples wherever appropriate. B. Then, compare and contrast the various options for meeting the requirements. Be sure to cite specific evidence from the component specification fact sheets to support your evaluation. What are their functional strengths and weaknesses? How do they compare in terms of cost and maintainability? C. Compose a final list detailing all of your specific hardware recommendations for your client. Be sure to logically justify your proposal as the best possible choice for meeting the business requirements.

Thomas Railroad Company organizes its three divisions, the North (N), South (S), and West (W) regions, as profit centers. The chief executive officer (CEO) evaluates divisional performance, using income from operations as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31:

The company operates three service departments: the Dispatching Department, the Equipment Management Department, and the Treasurer’s Department. The Dispatching Department manages the scheduling and releasing of completed trains. The Equipment Management Department manages the railroad cars inventories. It makes sure the right freight cars are at the right place at the right time. The Treasurer’s Department conducts a variety of services for the company as a whole. The following additional information has been gathered:

Required:

1. Prepare quarterly income statements showing income from operations for the three regions. Use three column headings: North, South, and West. Do not round your interim calculations.

2. What is the profit margin of each division? Round to one decimal place.

Identify the most successful region according to the profit margin.
North

3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the divisions?

1. The method used to evaluate the performance of the divisions should be reevaluated.
2. A better divisional performance measure would be the rate of return on investment (income from operations divided by divisional assets).
3. A better divisional performance measure would be the residual income (income from operations less a minimal return on divisional assets).
4. None of these choices would be included.
5. All of these choices (a, b & c) would be included.

                          
       TFAC4001 Assessment 2020                  
Question 1                          
                          
Classic Dining Ltd. is considering opening a new restaurant in a rented facility.                          
It wishes to evaluate this investment over the five-year leasing period, on the assumption                           
that the equipment would be sold and the working capital recovered at the end of the 5th .                          
year                          
The following estimates in respect of the new restaurant have been prepared.                          
                          
                   €'000      
Premium on lease (capital expenditure)                    600      
Equipment and furnishing investment                   850      
Estimated disposal value of equipment at end of year 5                   100      
                          
Weighted average cost of capital                   11%      
                          
Estimates / Year           Year 1   Year 2   Year 3   Year 4   Year 5
                          
Numbers of customers           32,000   36,000   40,000   42,000   45,000
                          
Average revenue per customer           € 75   € 75   € 78   € 80   € 82
                          
Food & bev. costs per customer           € 23   € 24   € 25   € 26   € 27
Variable wages cost per cust.           € 19   € 20   € 21   € 22   € 23
                          
Fixed Costs           €'000   €'000   €'000   €'000   €'000
Annual rent (lease) of premises           425   425   425   425   425
Marketing and admin. expenses           225   200   180   180   180
Depreciation of equipment           150   150   150   150   150
Salaries           150   160   170   180   200
Apport. head office overheads           75   75   80   85   100
           1,025   1,010   1,005   1,020   1,055
                          
Profits lost in other restaur. €000           60   70   80   90   100
Working capital as % of turnover           4%   4%   4%   4%   4%
                          
Required:                          
                          
(a)   Evaluate the above project using the following methods:                      
                          
       Net present value                  
       Internal rate of return                  
       Nominal payback period                  
                          
(b)   Comment on the proposed investment                       (5.33 marks)
                           (33.33 marks)

persuade to wear a mask in 2020

                          
       TFAC4001 Assessment 2020                  
Question 1                          
                          
Classic Dining Ltd. is considering opening a new restaurant in a rented facility.                          
It wishes to evaluate this investment over the five-year leasing period, on the assumption                           
that the equipment would be sold and the working capital recovered at the end of the 5th .                          
year                          
The following estimates in respect of the new restaurant have been prepared.                          
                          
                   €'000      
Premium on lease (capital expenditure)                    600      
Equipment and furnishing investment                   850      
Estimated disposal value of equipment at end of year 5                   100      
                          
Weighted average cost of capital                   11%      
                          
Estimates / Year           Year 1   Year 2   Year 3   Year 4   Year 5
                          
Numbers of customers           32,000   36,000   40,000   42,000   45,000
                          
Average revenue per customer           € 75   € 75   € 78   € 80   € 82
                          
Food & bev. costs per customer           € 23   € 24   € 25   € 26   € 27
Variable wages cost per cust.           € 19   € 20   € 21   € 22   € 23
                          
Fixed Costs           €'000   €'000   €'000   €'000   €'000
Annual rent (lease) of premises           425   425   425   425   425
Marketing and admin. expenses           225   200   180   180   180
Depreciation of equipment           150   150   150   150   150
Salaries           150   160   170   180   200
Apport. head office overheads           75   75   80   85   100
           1,025   1,010   1,005   1,020   1,055
                          
Profits lost in other restaur. €000           60   70   80   90   100
Working capital as % of turnover           4%   4%   4%   4%   4%
                          
Required:                          
                          
(a)   Evaluate the above project using the following methods:                      
                          
       Net present value                  
       Internal rate of return                  
       Nominal payback period                  
                          
(b)   Comment on the proposed investment                       (5.33 marks)
                           (33.33 marks)

Superstar Limited purchased several investments during 2018. At 31 December 2018, the company had the following investments in ordinary share listed below. All investments are considered as available-for-sale:

On 1 May 2019, the company sold out half of Orlando shares at $28 each and paid $5,000 brokerage fee.

The company acquired 6% bonds from Fantastic Company on 1 October 2019 at $1,207,321. The face value of the bonds is $1,500,000. Semiannual interest is payable 31 March and 30 September. The market interest rate was 9% for bonds of similar risk and maturity. Management has the positive intent and ability to hold the bonds until maturity in 2029.

During 2019, the net income for Sunshine and Orlando were $200,000 and $500,000 respectively. Sunshine and Orlando declared and paid cash dividends of $1.2 and $0.8 each share on 31 December 2019.

The fair value of the investments on 31 December 2019 are shown as below:

Required:

1. Prepare the journal entries to record the investments mentioned above for the year 2019.
2. Assume Superstar has significant influence over the management of Sunshine Company (the investment represents 25% interest in the net assets of Sunshine), what is the reported amount of the investment shown on Superstar’s 2019 statement of financial position?