Department of Finance Faculty of Business

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Department of Finance Faculty of Business, Bentley University

MJP_TP2_Rev.1.1

 

Copyright Š 2018, Michael J. Page

Project Appraisal at Stoneville, Inc.

Since its founding in in 2005 in Moorhead, Stoneville, Inc. has established a significant reputation as a producer of quality faux gardening products. The Company operates within the greater Fargo–Moorhead metropolitan area spanning the North Dakota–Minnesota border. Stoneville is still run by its founder and majority shareholder, Jack Sprat, who has established a significant reputation amongst the local business community for running the business using lean manufacturing techniques.

Products within the company’s portfolio include such items as interlocking faux cobblestones for garden borders, artificial self-draining turf tiles for balconies and courtyards, faux rocks of various sizes that can be used as swimming pool surrounds to make swimming pools look more like natural ponds, and realistic predator birds designed to keep “bully” birds such as starlings, pigeons and English sparrows away.

Stoneville distributes its products through two channels—a company owned website and in-store placement within a multi-state garden and home improvement retail chain, Builders Warehouse, Inc. The contractual relationship with Builders Warehouse requires that Stoneville place pre-agreed popular items on consignment at each of the chain’s hyper stores throughout Minnesota and North Dakota. Although this greatly increased the company’s inventory and funding requirements, Jack continued to see the relationship as key to building awareness of the quality of his products.

Approximately 85% of Stoneville, Inc. sales come from in-store placement with the remainder ordered directly through the company website.

 

Conversation with the Founder and CEO

You have just begun the second week of your internship with Stoneville, Inc. when Mr Sprat calls you into his office.

Sprat: Good morning! As you are about to start your second week with us, I thought it would be a good idea for me to find out how things are going. As I indicated when I first offered you the position for the summer, I want to support your education by making sure that the tasks you fulfil while with us complement your studies as much as possible.

You: Good morning Mr Sprat. Thanks for taking the time to chat with me. My first week was fantastic and I have really enjoyed seeing how the production division works. Although we did spend time in my sophomore year learning about lean manufacturing, actually seeing how you have implemented it has really grounded what was previously a little theoretical for me. I have also greatly appreciated Ms Brews1 and her team. My parents had suggested that I may get a little friendly teasing when I arrived—they even warned me about being sent off to collect left-handed screwdrivers—but none of this happened. All of the team were very welcoming and open to answering my queries, no matter how silly they might have been.

Sprat: I’m pleased to hear it. Does this mean that you’d like to continue working with Jane and the production department?

1 Ms Jane Brews is the vice president for production at Stoneville, Inc.

 

 

MJP_TP2_Rev.1.1 Project Appraisal at Stoneville, Inc.

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You: Now that you ask, although I’d be happy to continue working with the production team, I am hoping to spent a little time in finance. As you are aware, I have decided to major in Finance & Accounting at the Offutt School of Business at Concordia College. It would be really helpful if I could spend a little time learning more about broader treasury aspects. I learned in my foundation principles of accounting and finance course that treasury is involved in ensuring that Stoneville maintains the needed liquidity, in developing the company’s financial plans, and in looking into the financial rationale for its capital investment choices. Seeing how some of this is actually done would be fascinating for me!

Sprat: Wow, your timing is perfect! We have just had a request from Builders Warehouse to manufacture and supply rainwater capture barrels that resemble faux rocks. Recent media stories about possible drought conditions in North Dakota2 are raising concerns about increases to water tariffs in urban areas. This has resulted in a number of urban homeowners requesting rainwater capture barrels that can be attached to domestic downpipes and used to store roof runoff. The barrels currently available have a real industrial look to them and they certainly don’t make for an attractive presence against the wall of a home. Central purchasing of Builders Warehouse, Inc. believe that a storage devise of up to fifty gallons that is designed to look like a large boulder would offer a popular alternative.

Claire, a bookkeeper in the finance department, has done an analysis for us using information that she obtained from our production group. Her analysis suggests that the investment will boost our earnings per share only marginally and achieve an internal rate of return that is less than our company’s hurdle rate of 8% per annum. She suggests that we do not take on the project. Both I and William Blake, our vice president of finance, greatly respect Claire’s bookkeeping ability. Every year, our auditors comment on how easy it is for them to perform their due diligence thanks to Claire’s abilities and processes. However, even she would not claim to be an expert in capital budgeting. Perhaps you can look through what has been done with fresh college eyes? William and I are concerned that not investing in the project may adversely impact our relationship with Builders Warehouse. Even though the product will only represent an extremely small percentage of their revenue, our sense is that they see offering it as further evidence of the company’s commitment to sustainability or good citizenship.

You: Gee, Mr Sprat, I would love to give this a go! We covered capital budgeting in our introductory course with the professor telling us about a whole host of do’s and don’ts when undertaking a capital budgeting exercise.

Sprat: Terrific! I know that William would appreciate someone taking a second look at the value proposition before we commit. I’ll give him a call and say you’ll be along tomorrow morning to collect any material he has, as well as the analysis done by Claire. I’ll also give Jane a call to ask her to release you from the production department from tomorrow to concentrate on this assignment.

You: Thank you Mr Sprat. I really appreciate this opportunity.

 

2 See: http://www.valleynewslive.com/content/news/Drought-conditions-create-difficulties-for-ND-farmers-ranchers-426368681.html and http://www.westfargopioneer.com/news/4306292-hay-lottery-planned-north-dakota-ranchers-struggling-drought, accessed February 9, 2018 at 2:14PM EST.

 

 

MJP_TP2_Rev.1.1 Project Appraisal at Stoneville, Inc.

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The Task at Hand

It is 10:00AM Tuesday morning and you are sitting in a small office allocated to you by William Blake. Lying on the desk in front of you is the material given to you by Mr Blake. Although the material is less than you expected, you do see some challenges ahead. You hope you are up to the assignment.

Mr Blake has asked you to review the materials and make any adjustments you consider appropriate before reaching a conclusion on whether the investment should be pursued. Although you gathered from your discussion with him that he was as keen as Mr Sprat that Stoneville make the right decision on this investment, you did get a reinforced sense of how respected Claire was. What would the implications be if you come to a recommendation that is contrary to her? How might you handle this? What about the relationship with Builders Warehouse, Inc.?

You have been asked to submit a written memorandum addressed to both Mr Sprat and Mr Blake motivating your case—particularly in areas where you believe that an alternative choice should be made concerning aspect that is material to the decision—and to include any necessary spreadsheets as appendices to the document.

The material lying on the desk in front of you includes:

• Appendix 1: Email from Builders Warehouse requesting faux rock rainwater capture barrels • Appendix 2: Production department estimates of requirements for production • Appendix 3: Claire’s Analysis and conclusions

 

Memorandum Requirements

The memorandum that you need to submit must be concise and focused on key issues. It should be submitted as a single .PDF document that includes any necessary appendices. Remember that you need to impress Messrs Sprat and Blake with as parsimonious a report as is possible while ensuring that your arguments are well presented. The professionalism of presentation is also important. In particular, you need to:

• Begin with an executive summary that presents your overall recommendation and a brief motivation.

• Within the body of your report you need to include:

o More comprehensive justifications for your choices when developing your cash flow analysis. You need to justify where, and why, your analysis does not agree with choices made by Claire.

o The outcome of your sensitivity analyses and discuss how they support your ultimate recommendation. What if sales volumes are 5% lower than expected, or production costs are 5% higher? What will be the outcome if the ultimate retail price could be increased by 5% at existing volumes?

o An appendix that presents your comprehensive base-case cash flow analysis—laying out the incremental cash flows for each quarter—and the final net present value etc.

 

 

 

 

MJP_TP2_Rev.1.1 Project Appraisal at Stoneville, Inc.

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Appendix 1: Email from Builders Warehouse requesting faux rock rainwater capture barrels

From: Olive Smith [[email protected]] Sent: Friday, February 09, 2018 5:52 PM To: Sprat, Jack Subject: Proposal for Faux Rainwater Barrels Dear Jack, I refer to our telephone conversation of last week. With the current drought concerns in Northern Dakota, Builders Warehouse anticipates significant demand from homeowners for low costs self-installation rainwater capture barrels. Preliminary market research has been undertaken by our marketing department using both focus group techniques and in-store surveys. The results confirm for us that barrels disguised as large boulders holding between twenty-five and fifty gallons of rainwater have particular appeal for urban home owners who want to maintain their gardens if expected water restrictions are instituted in the Moorhead-Fargo metropolitan area. Perhaps unsurprisingly given how many roof runoff drainpipes are front of property facing, concern for appearance remains high amongst even the most ardent gardeners. Given the good relationship we have with Stoneville, Inc. and the quality and consequent demand we face for your products that we stock, the Board of Builders Warehouse has charged me with asking if you would be prepared design and deliver to our stores faux rock barrels that can be easily installed—placed—against property walls to allow a cut off drainpipe to flow directly into them. We would be looking for two barrel sizes, twenty-five and a fifty gallons that we believe will retail at $125 and $218.75 respectively. The terms of stocking would be exactly the same as with your other products—on consignment with us keeping 20% of the retail price and remitting the remainder to you when you complete your quarterly restocking and submit your invoice through to us. As is standard with consignment arrangements, we require quarterly opening consignment inventory equal to 110% of expected quarterly sales except for the final quarter of the contract. Our expectation is that we’ll sell 1,000 of the twenty-five gallon and 750 of the fifty gallon barrels per quarter over the first year, increasing by 10% for the next year before declining by 25% for the final year of sales and then ceasing when a major Minnesota dam project is completed that will be able to fully supply the Morehead-Fargo metropolis. Please feel free to call if you have any additional queries. We would like to sign a formal contract as soon as possible. Kind regards, Olive Olive Smith Vice President, Purchasing Builders Warehouse, Inc. 510 Center Ave, Moorhead, MN 56560 T: 218-299-1000 Ext. 1113 Email: [email protected]

 

 

MJP_TP2_Rev.1.1 Project Appraisal at Stoneville, Inc.

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Appendix 2: Production department estimates of requirements for production

 

Product Design:

Stoneville, Inc. subcontracted design team has developed the production plans for the twenty-five and fifty gallon faux rock rainwater barrels. Their design meets the company’s lean manufacturing requirements with process flow requiring no retention of raw materials. Rather, on arrival, raw materials are fed directly into the production machinery to produce finished goods that can be transported relatively quickly to the retail client, Builders Warehouse, Inc.

The recently submitted invoice from the designer team is at the agreed fee of $35,000.

Production:

Production machinery needed to produce the barrels will be acquired at an all-in price of $600,000. The machinery will qualify for five-year modified accelerated cost recovery system (MACRS-5) depreciation and, if purchased, if will be in service in the 1st quarter. Consequently, the schedule for annual depreciation deductions is:

Year 1 2 3 4 5 6 Allowance 35.0% 26.0% 15.6% 11.01% 11.01% 1.38%

Stoneville’s experience with machinery purchases suggests that its second-hand equipment can generally be disposed of after three or four years of use at 150% of its depreciated value. The company has a reputation for exemplary maintenance of it equipment and it can usually obtain manufacturer endorsement when looking to sell equipment that it no longer requires.

If Stoneville accepts the offer to supply the barrels to Builders Warehouse, Inc., the production facilities will be located in a building that the Company currently leases to a 3rd party at $24,000 per quarter payable in advance. Since the lease is about to expire, Stoneville can take back the building for its own use without incurring any lessor penalties for early termination of the lease.

Estimates of the production costs excluding production equipment depreciation (i.e. materials and labor) are 55% of the anticipated wholesale price. At today’s prices, they are estimated at $55.00 and $96.25 for the twenty-five and fifty gallon barrels respectively. As with all raw materials purchasing, these costs presume Stoneville will pay cash and receive the maximum supplier discounts possible.

Given the expected size and weight of the barrels, shipping costs to the retail outlets of Builders Warehouse are estimated at 15% of the production costs, or $8.25 and $14.44 per barrel for the two respective sizes.

 

 

 

MJP_TP2_Rev.1.1 Project Appraisal at Stoneville, Inc.

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Appendix 3: Claire’s Analysis and conclusions

 

Recommendation:

My overall recommendation is that we do not invest in the project. I calculate the net present value of the three-year project at a negative $80,194 with a corresponding internal rate of return (IRR) of 3.59% per annum, significantly below our hurdle rate of 8% per annum. Additionally, although earnings for the first year are positive at $10,300 and we intend to finance the equipment purchase and working capital needed using debt and current cash balances, this only represents a 2.94c improvement in earnings per share given the 350,000 shares currently outstanding. This hardly seems worth the investment given the negative value indicators of NPV and IRR.

 

Assumptions and Calculations:

As you will see from the attached spreadsheet, I have undertaken a quarterly analysis over the three-year life of the project. Specific assumptions that I have made are:

Quarterly Income Statements:

• I presume that the volumes sold are as anticipated in the memorandum from Olive Smith of 1,000 and 750 units per quarter for the twenty-five and fifty gallon barrels respectively. First year retail selling prices of $125 and $218.75 respectively have been translated into $100 and $175 per barrel selling prices to Stoneville, Inc.

• Selling prices are escalated at our corporate assumed inflation rate of 1.5% per annum with the assumption that Builders Warehouse will adjust prices once per annum. This is consistent with their past practices.

• Cost of production—excluding depreciation of the production equipment—and shipping costs are set at 40% of the anticipated wholesale price and 15% of the expected production cost respectively.

• The depreciation allowance per annum is based upon the required MACRS-5 schedule under the assumption the equipment is brought into service in the 1st quarter. The annual allowance is distributed equally across the four quarters of each year.

• As is common practice when monitoring divisional performance, I have allocated an overhead charge of 7.5% of project revenue even though we do not anticipate any incremental expenditure or investment needs in central administration.

• Because we need to recover our design investment, I have charged the $35,000 to the project. I presume that the taxation benefit will be realised in the first quarter even though we are already obligated to pay the invoice within the next few weeks.

• Finally, although we have enough cash on hand to fund our needed working capital investments, Stoneville, Inc. will need to arrange a medium term loan to fund the equipment purchase. Treasury has indicated that our banker is willing to extend the loan at an annual rate of 4.4% with interest payable quarterly in arrears.

Equipment and Working Capital Investments:

• As indicated above, the $600,000 capital investment is depreciated using the MACRS-5 schedule. • No allowance is made to sell or scrap the equipment at the end of the project. This seems prudent,

particularly if any assumption of residual value on equipment makes a poor project look attractive. Our skill

 

 

MJP_TP2_Rev.1.1 Project Appraisal at Stoneville, Inc.

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is in faux garden product production and not in second-hand equipment sales. This suggests we should find value in our core operating business.

• From a working capital perspective, opening inventories for each quarter—excluding the last—is set equal to 110% of the production cost of the inventory that Builders Warehouse, Inc. expects to sell over the quarter. For the last quarter of planned sales, the inventory is set at 100% of the inventory that Builders Warehouse, Inc. expects to sell over the quarter as per our standard consignment agreements. Accounts receivable at the end of each quarter are set equal to the expected revenue to Stoneville for the quarter. Full recovery of accounts receivable is expected at the end of the three-year contract. Finally, all raw materials are purchased for cash so that we obtain maximum discounts and accounts payable are zero throughout the life of the project

Sensitivity Analysis:

• Given the negative outlook for the project at base assumptions, I have not undertaken a major sensitivity analysis. However, even if Builders Warehouse is prepared to consider increasing the initial retail price by 4.5% to $130.63 and $228.59 for the twenty-five and fifty gallon barrels respectively, this will only make the project marginally worth pursuing.

Assuming that our production and distribution costs remain the same, the incremental after tax contributions to Stoneville for the first year are:

25 gallon barrel: 80% ( $130.63 – $125.00 ) ( 1 – 0.21 ) = $3.56 per barrel 50 gallon barrel: 80% ( $228.59 – $218.75 ) ( 1 – 0.21 ) = $6.22 per barrel

This results in a final net present value of $6,110 and an internal rate of return of 8.33%. The impact on our first year earnings per share would be 12.34c.

 

 

 

MJP_TP2_Rev.1.1 Project Appraisal at Stoneville, Inc.

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HCC MAN1021 Final Exam (

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Question

Question 1

1. Which of the following statements about the importance of communication is true?

a. Many of the basic management processes cannot be performed without effective communication.

b. Oral communication is the most important skill for college graduates who are entering the work force.

c. Poor communication skill is the single most important reason that people do not advance in their careers.

d. Communication is especially important for top managers.

e. All of these statements about the importance of communication are true.

2 points

Question 2

Which of the following statements about what makes a successful leader is true?

a. Successful leaders have the same traits that nonleaders have.

b. Successful leaders have drive, which is defined as the ability to attract and retain the best employees.

c. Successful leaders are confident about their ability to make long-term strategic decisions even if the decisions seem risky to others.

d. Successful leaders believe in individual reciprocity.

e. None of these statements about what makes a successful leader is true.

2 points

Question 3

Conscientiousness is ____.

a. the degree to which someone is organized, hardworking, responsible, and achievement-oriented

b. the degree to which someone is curious

c. the degree to which someone is active and gregarious

d. the degree to which someone is cooperative, flexible, good-natured, tolerant, and trusting

e. defined by none of these

2 points

Question 4

Of all types of departmentalization, ____ departmentalization requires the highest level of management skill for successful implementation.

a. functional

b. product

c. matrix

d. geographic

e. customer

2 points

Question 5

As a class project, Senora is working with other classmates to create a company that would market NASCAR memorabilia. Senora’s teacher has instructed her to use the traditional approach to create the organization’s structure. What should Senora do?

a. create a virtual organization

b. create an organizational structure with vertical and horizontal configurations

c. use an organizational process to create a matrix design

d. create a matrix structure that will adhere to the unity of command principle

e. use the organizational structure to control creativity

2 points

Question 6

Marketers often appeal to consumers’ needs as defined by Maslow’s hierarchy. Schlage, a lock manufacturer, shows how much protection its locks provide. Clorox developed several types of wipes to eliminate concerns about infectious germs. Both marketers are appealing to which need as defined by Maslow?

a. achievement

b. physiological needs

c. safety

d. achievement

e. belongingness

2 points

Question 7

The term ____ refers to the degree to which someone is cooperative, polite, flexible, forgiving, good natured, tolerant, and trusting.

a. self-reliance

b. emotional stability

c. conscientiousness

d. agreeableness

e. locus of control

2 points

Question 8

____ is a technique of assuming half the responsibility for successful communication by actively giving the speaker nonjudgmental feedback that shows you’ve accurately heard what he or she said.

a. Active listening

b. Hearing

c. Synergistic communication

d. Dyadic communication

e. Empathetic listening

2 points

Question 9

Two of the most important results of a job analysis are ____.

a. recruiting guidelines and selection boundaries

b. employee-needs assessment and job mapping

c. job descriptions and job specifications

d. rater training and selection validation

e. employee-needs assessment and performance appraisal evaluation

2 points

Question 10

Hot Topic is a fast-growing clothing chain targeted to the alternative teen demographic. Hot Topic’s CEO is Betsy McLaughlin, who relies on her employees to locate new trends. McLaughlin almost daily consults with her employees for suggestions on what the stores should carry. After attending an Insane Clown Posse concert, an employee suggested that the stores should carry Faygo soda (the kind the band sprays on audience members during a concert). The employee’s suggestion was an example of ____ communication.

a. horizontal

b. functional

c. upward

d. downward

e. dyadic

2 points

Question 11

The ____ states that people will be motivated to the extent to which they believe that their efforts will lead to good performance, that good performance will be rewarded, and that they are offered attractive rewards.

a. equity theory

b. theory of motivational instrumentality

c. expectancy theory

d. goal-setting theory

e. reinforcement theory

2 points

Question 12

When Billy Ingram founded White Castle, much of the public thought that hamburgers were made from rotten beef and not fit for human consumption. Ingram ground fresh beef in front of customers to prove it was safe and was the first to successfully sell hamburgers to the middle class. Today Ingram is credited as the founder of the fast-food industry. Understanding that Midwesterners wanted clean, convenient food when they were away from home was the information Ingram used to ____.

a. create a tactical advantage

b. create a first-mover advantage

c. sustain a competitive advantage

d. acquire a source of perceived knowledge

e. pioneer sales in the consumer food industry

2 points

Question 13

Excessive speed is a major cause of road crashes in Australia. The Australian government is thinking of using cameras to catch speeders, but it only has access to a limited number of cameras, and there are many areas where speeding is a problem. Government officials plan to put cameras at various locations for four weeks and give everyone who gets caught speeding during that period a substantial fine. According to reinforcement theory, Australian officials are using ____ to control speeding.

a. positive reinforcement

b. negative reinforcement

c. punishment

d. expectancy modification

e. avoidance learning

2 points

Question 14

Pages listing all of the felony crimes perpetrated in New York during the last decade would be an example of ____.

a. a resource allocation table

b. traditional knowledge

c. raw data

d. perceived knowledge

e. information

2 points

Question 15

____ is the process by which individuals attend to, organize, interpret, and retain information from their environments.

a. Participative communication

b. Perception

c. Passive listening

e. Active hearing

e. Apprehension

2 points

Question 16

Mike is a big fan of all kinds of sports. As he walked past the snack room bulletin board, he was excited to notice that the company was sponsoring a softball team. Non-athletic Kenneth typically walks by the same bulletin board at least three times every day and has yet to see the softball notice. The fact that one saw the notice and the other did not is due to ____.

a. faulty closure

b. defensive biases

c. selective retention

d. selective perception

e. kinesics

2 points

Question 17

____ control is a method of gathering information about performance deficiencies as they occur.

a. Concurrent

b. Stasis

c. Feedback

d. Simultaneous

e. Feedforward

2 points

Question 18

____ control is top-down control in which managers try to influence employee behavior by rewarding or punishing employees for compliance or noncompliance with organizational policies, rules, and procedures.

a. Concertive

b. Administrative

c. Bureaucratic

d. Objective

e. Normative

2 points

Question 19

Noise can occur when ____.

a. the sender isn’t sure of what message to communicate

b. the receiver doesn’t have the time to understand the message

c. the message is not decoded properly

d. the message is not encoded properly

e.  any of these occur

2 points

Question 20

Which of the following is an example of an intrinsic reward?

a. a bonus

b. a contest prize

c. a sense of achievement

d. a trophy

e. all of these

2 points

Question 21

A group in Great Britain has been established to improve the employment, retention, and promotion prospects of black and other ethnic minorities as well as women in the Fire and Rescue Service, which at present has a largely white, male demographic. By the ____ stage of team development, the group members will have resolved petty differences, developed friendships, and established strong group cohesiveness.

a. forming

b. performing

c. storming

d. norming

e. reforming

2 points

Question 22

____ involves assigning direct authority and responsibility to a subordinate to complete tasks for which the manager is normally responsible.

a. Staff functionality

b. Delegation of authority

c. Decentralization

d. A job description

e. An organization chart

2 points

Question 23

In the traditional control systems used at most companies, ____ measures are used to assess performance.

a. quality/profit

b. customer

c. optimization

d. financial

e. value/quality

2 points

Question 24

Users of GM Master Cards earn money toward the purchase of a new General Motors car or truck every time they use this credit card to make purchases. The rebate increases the more times the credit card is used. GM is using ____.

a. punishment

b. positive reinforcement

c. negative reinforcement

d. underreward

e. extinction

2 points

Question 25

Which of the following statements about 360-degree feedback is true?

a. With the 360-degree feedback approach, feedback comes from four sources.

b. 360-degree feedback is most effective when used to train performance raters.

c. Employees do not provide feedback about their own efforts in the 360-degree feedback approach.

d A 360-degree feedback provides feedback from peer workers only.

e. 360-degree feedback should not be used for developmental purposes.

2 points

Question 26

E-Lab (the “E” stands for experience) has project teams perform field research for its clients. These project teams are composed of students of theology, actors, and musicians as well as the more traditional marketing experts and statisticians. E-Lab teams benefit from ____.

a. structural accommodation

b. group norms

c. team diversity

d. collectivism

e. aggregated creativity

2 points

Question 27

Which of the following is another term for considerate leadership behavior?

a. employee-centered leadership

b. concern for production

c. job-centered leadership

d. initiating structure behavior

e. participative management

2 points

Question 28

A car manufacturer ordered 20,000 window assemblies from a supplier. To make sure the assemblies were made to specifications, the supplier of the window assemblies shipped a sample to the car manufacturer for testing. This is an example of ____ control.

a. feedforward

b. feedback

c. contiguous

d. suboptimal

e. synergistic

2 points

Question 29

Managers can motivate employees to increase their efforts by ____.

a. relying on the innate value of extrinsic rewards

b. satisfying higher-order needs first

c. asking employees what their needs are then matching rewards to those needs

d. expecting employees’ needs to remain stable

e. doing all of these

2 points

Question 30

Job specialization can result in ____.

a. complicated job designs

b. high job satisfaction

c. employee boredom

d. low absenteeism

e. low employee turnover

2 points

Question 31

The ____ is a barrier that prevents women and minorities from advancing to the top jobs in an organizations.

a. missing key

b. diversity bottleneck

c. missing rung

d. organizational roadblock

e. glass ceiling

2 points

Question 32

Group cohesion tends to be relatively strong at the ____ stage of team development.

a. storming

b. conforming

c. norming

d. informing

e. forming

2 points

Question 33

____ is the relatively stable set of behaviors, attitudes, and emotions displayed over time that makes people different from each other.

a. Cognitive activity

b. Motivation

c. Self-concept

d. Disposition

e. Personality

2 points

Question 34

Relatively stable characteristics such as abilities, psychological motives, or consistent patterns of behavior, form the basis for the ____ of leadership.

a. path-goal theory

b. expectancy theory

c. situational theory

d. behavioral theory

e. trait theory

2 points

Question 35

The steps in the basic perception process include all of the following EXCEPT ____.

a. retention

b. organization

c. attention

d. analysis

e. interpretation

2 points

Question 36

According to a survey done on teaching evaluations, students’ motivation to participate in teaching evaluations is impacted significantly by their expectation that they will be able to provide meaningful feedback. In other words, if they are going to expend the thought and effort to fill out evaluation forms, (1) Is the form designed to gather meaningful information? and (2) Do the students have enough information to form a meaningful opinion about the instruction? In terms of expectancy theory, students are concerned with ____, or whether it is worth their efforts.

a. synergy

b. reciprocity

c. valence

d. instrumentality

e. expectancy

2 points

Question 37

Why is information strategically important for organizations?

a. Information can be used to obtain first-mover advantage.

b. Information is derived from perceived knowledge, which limits its availability.

c. Information cannot be used as a medium of exchange.

d. Information creates suboptimization opportunities.

e. All of these are examples of why information is strategically important for organizations.

2 points

Question 38

Airline companies have blamed their recent financial problems on labor unions, the events of September 11, and a weak economy. Those airlines in financial difficulties have tried to solve the problem through short-term price reductions, firings and early retirements, and asking for employees to take pay cuts. The CEOs of these companies have not tried to motivate employees to create long-term solutions to the problems facing the companies. The CEOs of these troubled companies ____.

a. are more interested in doing the right thing than doing things right

b. are more than likely managers rather than leaders

c. are true leaders

d. are promoting long-term change

e. tend to focus on organizational visions, missions, goals, and objectives rather than organizational efficiency and productivity

2 points

Question 39

Which of the following is an internal recruiting method?

a. advertising

b. job posting

c. walk-ins

d. job fairs

e. Internet job sites

2 points

Question 40

With divisions that focus on business clients and consumer clients, companies like Sprint, American Express, and others are examples of ____ departmentalization.

a. product

b. customer

c. matrix

d. boundaryless

e. functional

2 points

Question 41

The two basic methods of capturing information are ____.

a. manual and electronic

b. planned and unplanned

c. systematic and unsystematic

d. functional and hierarchical

e. continuous and intermittent

2 points

Question 42

The three components of ____ are initiation of effort, direction of effort, and persistence of effort.

a. motivation

b. performance

c. efficiency

d. self-management

e. compliance

2 points

Question 43

The fastest-growing population group in the United States is ____.

a. Hispanic-Americans

b. African-Americans

c. Canadians

d. Chinese-Americans

e. Vietnamese-Americans

2 points

Question 44

Which of the following statements about sexual harassment is true?

a. Only people who have themselves been harassed can file complaints or lawsuits.

b. Nonemployees cannot be guilty of sexual harassment.

c. Sexual harassment can occur between people of the same sex.

d. The three kinds of sexual harassment are quid pro quo, bona fide, and disparate treatment.

e. None of these statements about sexual harassment is true.

2 points

Question 45

According to ____, leaders need to make clear how followers can achieve organizational goals, take care of problems that prevent followers from achieving goals, and then find more and varied rewards to motivate followers who achieve those goals.

a. Fiedler’s contingency theory

b. the path-goal theory

c. the Boston Consulting Group leadership matrix

d. the Vroom-Yetton-Jago normative decision model

e. Blake and Mouton’s leadership grid

2 points

Question 46

Teams are typically required when ____.

a. tasks are simple

b. tasks require multiple perspectives

c. synergy will complicate the problem solution process

d. the company has very limited resources

e. any of these conditions are met

2 points

Question 47

Effective managers define ____ as the process of influencing others to achieve group or organizational goals.

a. autonomy

b. interpersonal influence

c. supervision

d. leadership

e. management

2 points

Question 48

Functional departmentalization ____.

a. makes it easier for top managers to assess work-unit performance

b. enhances coordination between departments

c. allows work to be done by highly qualified specialists

d. produces managers with broader experience and expertise

e. encourages interdepartmental communicatione

2 points

Question 49

____ is leadership that creates a positive image of the future that motivates organizational members and provides direction for future planning and goal setting.

a. Visionary leadership

b. Supportive leadership

c. Leadership empowerment

d. Transactional leadership

e. Achievement-oriented leadership

2 points

Question 50

____ generates awareness and acceptance of a group’s purpose and mission and gets employees to see beyond their own needs and self-interest for the good of the group.

a. Charismatic leadership

b. Transformational leadership

c. Leadership empowerment

d. Virtual leadership

e. Transactional leadership

 

 

 
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I Do, You Do, We Do

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There are various instructional strategies to use when teaching a new literacy concept to students. The I Do, We Do, You Do (IWY) method is a common best practice that can be adapted during instruction. This practice includes direct instruction (I Do), guided practice (We Do), and independent practice (You Do).

Research various instructional strategies specific to concepts of print and phonemic awareness to teach new literacy concepts. Include the IWY method in your research. Describe how this strategy is implemented in grade levels K-8 and how it is effective as an instructional strategy in the classroom.

In 500-750 words, create a literacy instructional plan for how you will apply the IWY method in your future classroom when introducing new literacy concepts.

In your plan, be sure to address the following in your reflection:

  1. How the IWY model supports the introduction of new literacy concepts.
  2. How the IWY model creates and supports student engagement of typical and atypical students.
  3. How the IWY model supports differentiation to meet the diverse needs of students.
  4. Include any gaps that may be present in the IWY model.
  5. How you will use the IWY model in your future professional practice.

Support your findings with a minimum of three scholarly resources.

 
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Cash Flows and Dividend Valuation

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Assignment 1: Cash Flows and Dividend Valuation  In this Assignment you will be reviewing the case study of Starbucks Corporation and completing questions and exercises relating to financial reports, financial statement analysis and financial valuation. This will show you how investors and analysts understand the present profitability and risk of firms and forecast future investment decisions.  Questions and Exercises: Income and Cash Flows  Answer the following questions from your textbook: (view grading rubric):

1.Chapter 3: Questions and Exercises: 3.2 (p.196): Articulation of the Statement of Cash Flows with Other Financial Statements. Describe how the statement of cash flows is linked to each of the other financial statements (income statement and balance sheet). Also review how the other financial statements are linked with each other.

2.Chapter 3: Integrative Case 3.1 Starbucks, Cash Flows: f (p. 219): Refer to the income statement for Starbucks in Exhibit 1.27). Compute the amount of EBITDA for 2010, 2011, and 2012.

3.Chapter

Starbucks 69

LO 1-2, LO 1-3,

LO 1-4, LO 1-5

INTEGRATIVE CASE 1.1

Starbucks

The first case at the end of this chapter and numerous subsequent chapters is a series of inte- grative cases involving Starbucks. The series of cases applies the concepts and analytical tools discussed in each chapter to Starbucks’ financial statements and notes. The preparation of responses to the questions in these cases results in an integrated illustration of the six sequen- tial steps in financial statement analysis discussed in this chapter and throughout the book.

Introduction

‘‘They don’t just sell coffee; they sell the Starbucks Experience,’’ remarked Deb Mills while sitting down to enjoy a cup of Starbucks cappuccino with her friend Kim Shannon. Kim, an investment fund manager for a large insurance firm, reflected on that observation and what it might mean for Starbucks as a potential investment opportunity. Glancing around the store, Kim saw a number of people sitting alone or in groups, lingering over their drinks while chatting, reading, or check- ing e-mail and surfing the Internet through the store’s wi-fi network. Kim noted that in addition to the wide selection of hot coffees, French and Italian style espressos, teas, and cold coffee- blended drinks, Starbucks also offered food items and baked goods, packages of roasted coffee beans, coffee-related accessories and equipment, and even its own line of CDs. Intrigued, Kim made a mental note to do a full financial statement and valuation analysis of Starbucks to evalu- ate whether its business model and common equity shares were as good as their coffee.

Growth Strategy

Kim’s research quickly confirmed her friend’s observation that Starbucks is about the experience of enjoying a good cup of coffee. The Starbucks 2012 Form 10-K (page 3) asserts the following:

Our retail objective is to be the leading retailer and brand of coffee in each of our tar- get markets by selling the finest quality coffee and related products, and by providing each customer a unique Starbucks Experience. The Starbucks Experience is built upon superior customer service as well as clean and well-maintained company operated stores that reflect the personalities of the communities in which they operate, thereby building a high degree of customer loyalty.

The Starbucks experience strives to create a ‘‘third place’’—somewhere besides home and work where a customer can feel comfortable and welcome—through friendly and skilled cus- tomer service in clean and personable retail store environments. This approach enabled Starbucks to grow rapidly from just a single store near Pike’s Place Market in Seattle to a global company with 18,066 locations worldwide at the end of fiscal 2012. Of that total, Starbucks owned and operated 9,405 stores (7,857 stores in the Americas; 882 stores in the Europe, Mid- dle East & Africa (EMEA) region; and 666 stores in the China and Asia Pacific (CAP) region). In addition, licensees owned and operated a total of 8,661 stores (5,046 stores in the Americas; 987 stores in the EMEA region; and 2,628 stores in the CAP region).

Most of Starbucks’ stores at the end of fiscal 2012 were located in the United States, amounting to one Starbucks retail location for every 28,000 U.S. residents. However, Starbucks was clearly not a company content to focus simply on the U.S. market, as it was extending the reach of its stores globally, with thousands of stores outside the United States. At the end of fiscal 2012, Starbucks owned and operated stores in a number of countries around the world, including 878 stores in Canada, 593 stores in the United Kingdom, and 408 stores in China.

Starbucks’ success can be attributed in part to its successful development and expansion of a European idea—enjoying a fine coffee-based beverage and sharing that experience with others in a comfortable, friendly environment with pleasant, competent service. Starbucks imported the idea of the French and Italian cafe ́ into the busy North American lifestyle. Ironi- cally, Starbucks successfully extended its brand and style of a cafe ́ into the European continent. On January 16, 2004, Starbucks opened its first coffeehouse in France—in the heart of Paris at 26 Avenue de l’Opera—and had a total of 67 stores in France by the end of 2012. The success of Starbucks’ retail coffeehouse concept is illustrated by the fact that by the end of 2012, Star- bucks had opened over 1,100 company-operated and licensed locations in Europe, with the ma- jority of them in the United Kingdom. Not long ago, Starbucks’ CEO Howard Schultz stated that his vision and ultimate goal for Starbucks was to have 20,000 Starbucks retail locations in the United States, to have another 20,000 retail locations in international markets worldwide, and to have Starbucks recognized among the world’s leading brands. Kim Shannon wondered whether Starbucks could ultimately achieve that level of global penetration because she could name only a few such worldwide companies. Among those that came to mind were McDonald’s, with more than 34,000 retail locations in 118 countries; Subway, with more than 34,000 locations in 90 countries; and Yum! Brands, with more than 40,000 restaurants in 130 countries under brand names such as KFC, Pizza Hut, and Taco Bel Growth in the number of retail stores had been one of the primary drivers of Starbucks’ growth in revenues. The most significant area of expansion of the Starbucks model in recent years has been the rapid growth in the number of licensed retail stores. At the end of fiscal 1999, Starbucks had only 363 licensed stores, but by the end of fiscal 2012, the number of li- censed stores had mushroomed to 8,661.

 

 

Recent Performance

 

in recent years caused Kim to question whether Starbucks had already reached (or perhaps exceeded) its full potential. She wondered whether it could generate the impressive growth in new stores and revenues that it had created in the past. In fiscal year 2008, Starbucks opened 1,669 net new retail locations (698 net new company- owned stores and 971 new licensed stores), but this number was well below the initial target of 2,500 new stores and well below the 2,571 new stores opened in 2007. Late in 2008, Starbucks announced a plan to close approximately 600 underperforming stores in the United States as well as 64 underperforming stores in Australia. The store closings triggered restructuring charges that reduced Starbucks’ operating income by $266.9 million in 2008. During fiscal 2009, they increased the restructuring plan to close a total of approximately 800 U.S. stores (an increase of 200), and managed to close 566 U.S. stores during the year. They also announced a plan to close 100 stores in various international markets. The 2009 store clos- ings triggered additional restructuring charges that reduced Starbucks’ operating income by $332.4 million in 2009. In 2009, for the first time in company history, Starbucks’ net store growth was negative, with a net of 474 stores closed in the United States (92 stores opened net of 566 closed) and only 89 net new international stores opened (130 stores opened net of 41 closed), for a net total closure of 385 company operated stores. In fiscal 2009, total revenues fell to $9.775 billion from $10.383 billion in fiscal 2008. Fiscal 2009 marked the first year of revenue decline (5.9%) in company history. Prior to 2009, Star- bucks had generated impressive revenue growth rates of 10.3% in fiscal 2008; 20.9% growth in fiscal 2007; and 22.2% in fiscal 2006. Starbucks’ revenue growth is not just driven by opening new stores; it is also driven by sales growth among existing stores. Through 2007, Starbucks could boast of a streak of

16 consecutive years in which it achieved comparable store sales growth rates equal to or greater than 5%, but that string was broken with negative 3% comparable store sales growth in 2008. Unfortunately, things got worse in 2009, because Starbucks’ company- operated stores generated a negative 6% growth in comparable U.S. store sales, a negative 2% growth in comparable international store sales, and a negative 6% growth in com- parable store sales overall. In response to the downturn in Starbucks’ business, in January, 2009, Howard Schultz returned from retirement and reassumed his role as president and CEO of Starbucks in order to restructure the business and its potential for growth. Focal points of his transformation plan included taking a more disciplined approach to new store openings, reinvigorating the Star- bucks Experience, developing and implementing even better service and quality, while cutting operating and overhead costs. In addition, the transformation plans included introducing more new beverage and food offerings, such as baked goods, breakfast items and chilled and other foods. A key to Starbucks profit growth lies in increasing same store sales growth via new prod- ucts. Starbucks regularly introduces new specialty coffee-based drinks and coffee flavors, as well as iced coffee-based drinks, such as the very successful line of Frappuccino drinks and Shaken Iced Refreshment drinks. Under Schultz’s renewed leadership, comparable store sales growth rebounded impres- sively, to 7% growth among U.S. stores and 6% among international stores. Starbucks’ store openings were very conservative in 2010, owing in part to the difficult economic conditions in the primary markets. In the United States, Starbucks only opened a net 3 new stores in 2010—opening 60 licensed stores while closing 57 company-owned stores. Internationally, Star- bucks opened 220 new stores in 2010—opening 235 licensed stores while closing 15 company- owned stores. Overall revenue growth also rebounded, reaching $10.7 billion (up 9.5% from 2009). Starbucks continued this modest new store growth trajectory into 2011. Among company- owned stores, Starbucks opened 49 but closed 51 in the United States and opened 180 but closed 36 international stores. Starbucks’ licensees opened 345 new stores internationally and 133 new stores in the United States. Unfortunately, because Borders’ Bookstores went bank- rupt in 2011, it closed the 475 Starbucks’ stores that it had licensed. This caused a net negative growth of 342 licensee closings in 2011 in the United States. Overall revenue again sustained healthy growth, with total revenues reaching $11.7 billion (up 9.3% from 2010). Kim was even more encouraged with Starbucks’ growth in fiscal 2012. During that period, Starbucks opened a total of 1,063 new stores. Of those, Starbucks opened 234 company-owned and 270 licensed stores in the Americas. In the EMEA region, Starbucks opened 10 company- owned and 101 licensed stores, as well as 154 company-owned and 294 licensed stores in the CAP region. Overall revenue reached $13.3 billion (up 14% from 2011).

Starbucks also continues to expand the scope of its business model through new channel development in order to ‘‘reach customers where they work, travel, shop, and dine.’’ To further expand the business model, Starbucks terminated its licensing and distribution agreement with Kraft Foods and now manages its own marketing and distribution of Starbucks whole bean and ground coffee to grocery stores and warehouse club stores. By the end of fiscal 2012, Star- bucks whole bean and ground coffees were available throughout the United States in approxi- mately 39,000 grocery and warehouse club stores. Further, Starbucks sells whole bean and ground coffee through institutional foodservice companies that service business, education, office, hotel, restaurant, airline, and other foodservice accounts. For example, in 2012 Starbucks (and their subsidiary, Seattle’s Best Coffee) were the only superpremium national brand coffees promoted by Sysco Corporation to such foodservice accounts. Finally, Starbucks had formed partnerships to produce and distribute bottled Frappuccino and DoubleShot drinks with PepsiCo and premium ice creams with Unilever.

 

Despite Starbucks’ past difficulties with store closings, restructuring charges, and negative comparable store sales growth rates, Kim could see some very positive aspects of Starbucks’ finan- cial performance and condition. She noted that Starbucks had been profitable in 2008 and 2009, despite the difficulties. She also noted that Starbucks generated record high profits in 2010, 2011, and 2012, suggesting the restructuring and turnaround efforts were proving successful. The restructuring plan was seemingly complete and had helped Starbucks to reduce costs. Further, she noted that Starbucks’ operating cash flows had remained fairly strong throughout this period. With its positive operating cash flows, Starbucks had retired all of the $713 million in commercial paper and short-term borrowings during 2009, initiated the first dividend in company history in 2010, resumed repurchasing common shares in 2010, and had grown the combined balances in cash and short-term investments over $2.0 billion by fiscal year-end 2012.

: Integrative Case 11.1 Starbucks, Dividend Valuation; a, b (p. 903): a. Use the CAPM to compute the required rate of return on equity capital for Starbucks. b. Compute the weighted-average cost of capital for Starbucks as of the start of Year +1. At the start of Year +1, Starbucks had $550 million in outstanding interest-bearing debt on the balance sheet and no preferred stock. Assume that the balance sheet value of Starbucks’ debt is approximately equal to the market value of the debt. Assume that at the start of Year +1, Starbucks will incur interest expense of 6.25% on debt capital and that Starbucks’ average tax rate is 33.0%.

see attached Rructions

 
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