Restore Incorporated estore Incorporated was organized in 1975 by Ted Schale and his son, Bob. The company ‘stored classic and equ casi terms of bth body and engine work. The company way located in «large southeastern U Sit and drew customers Bom at least 300-cuhe dios Restor had 10 employees, Ted nl ib occasionally worked on the shop lm, bus they served primary as preside! and concls, spectively ‘Tae crmpary began wan ec sco of Te Schade hobby, fixing up od ears for hime sedhisfiends, Astts hobby per «shop was acquired, and sn there was more work than ould be handled by one perso. Ison Leva necessary for Schadler to decide whether he ‘would pursue the busines fullvineto cana lving, oing someting be rally enjoped AS the business pew and Scholes reputation as reliable expen restorer became ‘sen th usual ned fr entls and atelionfofinencal waters became efdent Twas tee set of circumstances ht presented an opportunity for Bob Schadie,arecentpraduee ote ‘ighy reputable university accounting program, join the company as controll Indy, Bob andi dad performed e great mary ofthe tas on the shop floor — Bob had picked up knowledge of engine repair while alt youngster. Customers iked be tee tat Bob, afer fishing job on eylnder walls, wuld coat em with pewuisun jelly bebe inserting the pistons —*just wo easre no inl fiton’— be would st) THe uiehieg stein brought in nen customs at steady rate, The Busines soon begins shit wo oan, aditieal help and Tel and Bob grve an increasing amount of tie to Gementerie ont ot the busines. By 1995, te annual revense was $5 milion Ascomptnyig tie steady growth in revenue experienced by the company was an incresing nee manana srong rate of profiabiiy. Two familie ene, ‘cre community, sw Rese ncarporsed a8 « major icome producing tect the anention to financial details, «knowledge of valu reat wor, epitel budgeting was handled ina efficient manner _ {si Ele desion ow eh company tha would requce cal consideration fern dita nd itarmatin at bd coe ole abeton the Schacen: AL eade ge kt wid aut body work machine, Bob Schade adRestore Incorpe ot sccountans, esearch and development personnel, end the engineering or production sta, ‘na company such as Restore, wherein the manegeniet siricture is very economical, usualy thecost accountant, he top company management, and a represerstve ffom the manifasturet formed major expenditure decisions, ‘Tae information from the meeting related directly to the economic effet the machine would have upon the fia The machin, an Automastr 1, was priced at $60,000 and had a useful life ‘of epproximately eight years. Restore’ cost accountant, Barbart Bome,oulined the economic fiectof the machine upon te company in Table 1 ‘The Automaster I would bave a salvage value as follows Probabilit Estimate ‘The foregoing data wee constructed by Bone andthe manufacturer's represenative for themachion Thee would alo be an increase in working epithe ine of purchase of he ew machine. This woud ununt to $2,000 aad was for he pusase of eddog exes pains, Prime, and ober materials ut woud allow suficect practise tne on the new ne ‘he machine tobe replaced was purchased two years earlier and was being depreciated toszeosalvae value, Bone reminded Bob Schadier tht the preset machine hed cginlly 224,00. Is 10.ger we it was deprecated using he sigh line method. Bowe toy feporte that the orginal machine could be sold for $15,000. I appeared thet mmaller body shops doit yourself adhe, provided a reascrably food secondary ake for uta boy finthing equipment. TheSims combined federal, ste and local marginal tax rate was 96 pee : Jo asmal but wells company such as Restore Incorporie, the elibtyofnterel sconcmi information was en extremely import mater, as t woulé be in ay forme ‘bine. In te ene o Restore with is “mall-sop" approach fo doing busine theres ochecks and double-checks rough several lnyers of management to ensure tha potoriad rvesnent et the static ad exo reeds of he for, This station was paps les importa’ duct te relatively few capital expeodiure projec tr were accesisy. Or the other hand, befor the company's money Wat Spee lees consulaion berween Bone and Bob Sched was vey importa. The bckproied fog aone, discussion wes always he wade und accountng daa organized ty Bome and be revonce eusomer projections eenvibdy Bob, Iwesty neces) cblecive tod rigorous esas, withthe cider Schadlr ce plying the ol of evils advocte by asking hae quewions wm afthe Automates |, however, there was ax aspeci ofthe bane for wine the potail pushse bad fir rehng implications forthe sll Se.pies Pues le 1 indicates. However, there was an concemed the Schadlers a ‘Witin the geographies ares served by the company, a steady and reliable pool of labor tadbeen provided by acy and county busines-sponsored jb training rogram, Tn ech the ‘rogram opersted as follows: An alliance of city and county lesders (sty council members, ‘county commissioners, members ofthe clergy) had teamed up with influential corporate ‘eertves and other business leaders to mentor yout heretofore believed unemployable. The youbh problems had been brought cnby minor brushes with the lew, trzey, poor educetonal ‘tainmen! and aspirations, end the like. Significant sums of money end grt amounts of ime Jndbeen deste tovard not only lestng employment for such persons, but toward providing cngoing uppor es they sought to establish themselves us wage earners In other words, after ‘individual was selected forte program and overseen by « permanent staf of two full-time persons (al ober sf served on volunteer basis), regular classes and meetings were required to srengthe sll, an eommitment, end to monitor progress, The purpose ofthe classes end ‘meetings wat to bolster basi ails such as oral and written communication, to increase inderstnding the basics ofthe U.S. economic system, and to promote dicussion of problems ‘encountered st work. The programs hod been in plice for 12 yeas, and the model had been replicated in several other ees arosnd Ue county, ‘The program provided the bilo hs Inbar used by Restore Incorporated. In addition, ‘Ted Schadler had become avery forceful spokesperson forthe program and had helped Fecruit many of his business colleagues into it Of eoure, there are eobs and flows ia any employment stuion, That i, cecsionlly employees ere let go due solely to the changing ‘needs ofthe jb market—this was normal and expected. Is was, however, never an easy Sep beneficial evangement. Also, sever] tcedemic studies done over the yers, which focused upon the jobs program relative tothe ‘scceraphical aes, had concluded ut rather far-rexching beneGts accrued i the ares because of the program. Those benefis were listed as « seadly increasing standard of living ae ‘esured by rises in disposable income. The higher nandard of living atracted addidecel Dusineses to the area, reduced the igh schoo} dropout rate, and lowered the enime rate The ‘ia ade avalaie he counys business lenders by local bank forecast economals grow fn he range of 10-15 percent annutly forthe foreseeable future ‘Tous it was against the foregoing background tht the Schadlers considered whether to favest inthe Automase |, which bus imerediate apparent economic beeis. Additonal, they wer very concerned about the eel questorin hes minds at lees, concerning tee scone ot jbs program wile preparing to red thr labor free by tppromatly 20 percent, Tables 2 and 3 illustrate the frm’ balance sheet and certain revenus and ince Projections, respectively.Balance Sheet December 31, 1995 Debt (mortgnge) Equiy Surplis Total longterm capi‘Evaluate the eash ows for the purchase ofthe Automaster 1 and the replacement o original michine. Is there an economic justification forthe replacement? Please explain your answer. ‘Should the original machine be replaced? Comment upen the ethical and other aspect af the company's potential reduction ofits workforce What adional economic inforiastion would be useful in the replacement decision? ‘Assess the Schadle’s concern over the ethis question Consider the company's 32 aes) ands line of business—will unforeseen, ‘obsolescence of the Automestr I aec the potential replFinancial Forecasting and Corporate Strategy Rapid Fire Batteries, Inc. ‘one pot et Ber cn, Aon Miler hgh tat te demise of the domestic thtoneble ity repre he ex he word Aa young mechanical exgseerng (Padus epremiposrneson over, alsmeapatecoepedexploinet wid Tlaspe coceats naw uaruconcr fora thar bevingcologe x 1901, Over fn et "vole espe and senesof snpressve svedlynnectcljmierengoer wedge ‘hie priet ne ie ey 1985, Alison ‘ebeved ther poston cot nu ny provide alo! exeplee jb Settee nee arene Theat btm ct Lai985, Aliso’ employe fred mujer drop in sas. “ref deed wee ats ovehnd ad chanel remain cx Dw a0 ‘ew prod evelopment eerste in 1582 Almas degeneracies frit recite cigreeg ints al he management posto wat he fem wes china Wale slisos neous ibaan snerance pomea Som Ge Sa, ber OM aE sppemredtonemcbambiee For srl outs folowing Bers, Also ed x va to Hind work wih, ssoiher namics ie. Gres he age was expece bower Se Reve: Seed 1 be fe cede Gu enloyes ta = ane She ms be too Young wo apes the iene, ose wa tc Wel-qulie br «wal mince potion By the endo 1985, Sib snverance netegendpercoa sing ear existed Aliso was desperate ‘Bat Alun was deri! male econsbackin fe muboobleinauy’ Given br tecjcal waning wd poo werk opera, we Teas tt the ee peoion of ‘simobies wou reqe mor powefi ad more Compact Bees fo pore te aed Slecrnic components ey wou cary. xy 1986, Aloe aneabled es pla for f sarep compan) © mandate ¢neiy designs uno bate Using the lac of her Derma sving: to banal om om ber pres Aliso rede acount ane tome) fo Ab ber pl te boss pan. Whe sb Spidey Geigoed te new “bat stepped for epatt ex ber work sheen caer emp, Cage etc prey\Vehiele manufacturer's name. By 1991, Allison grew tired of seling ‘rods under anothers ident. She was ances to promot he Rapid Fite name, and ‘96s distance he company fom te cial nature ofthe domestic automobile industry. She Geciied to change Rapid F's corporate srategy and become an independent producer of replacement bateris seling o local auto parts retailers. “Tables 1 and 2 provide Repié Fire's siles and income history forthe firs three years ‘allowing Alison's revisin oft frmis buses seategy, A‘ fr, sales came slowly and profit Produc established «reputation within the Detroit auto pars marke, orders began to accelerate. In 1995, Rapid Fre sold 100,000 bateries, ‘arming «respectable $264,000 on sales of $4 million Now, however, Allison wanted ta ait Fes nies orgs and limited financial resources, the fem cou hardly Afi the sipificant warn clas isblty hata fll waranty would reqae, Rapid Fire's‘Sopreme banery to cover the firm's expected frure waranty clains, return an adequate p ‘margin cn sles, nde her eutomers «good value in comparison With othe similar products ‘on the market? Allison realized that auto pars rellers could purchase batteries from her ommpetiors tht cares an unlimited waranty for $40 to $60. She also knew tht Rapid Fire's stter-tm cost of capital was approximately 14 perent, and she planned to invest ll funds the ‘Sem received in comecton wih future waranty claims back into the business at this ate of ‘tum. Allson waned wo preserve Rapid Fire's 1993 profit margins following the introduction ofthe Supreme, and she extimsted that added promotional expenses associated with the new ‘roduc introduction would resci $150,000. Finally, Alison believed that Rapid Fire could sell 40,000 Supreme bateies in 1994 within the suburban Detroit auto parts market«396,000) (64.000) (a6.000) 64.000) somo) 10000 TABLES Rapid Fire Batteries, Ie, Product Performance Test Results Foire Rates or the Adventare Bater amTABLES Rapid Fy Batteries Ine Producer QUESTIONS 1 Historia, how moch has it cos Rapid Frew produce esch Advantage batery? Prepare pnt sleren’ of evenue and expense for he fm covering the 1991-35 ered to answer tis question, iow wach wil icon Rapid Fire wo produce esch Advantage bausry over fhe nest ten years?the oa cox of waranty luis forthe Supreme bane, iit neces to consider pict clans beer 19997 Ii necesary to consider potcatal ims afer 20017 Why o: why not? ‘Given your answers io Questions 4 and S, whet is the total cost of warranty claims that Rapid Fire will experience in 1999, 2000, and 20017 ‘How ean Rapid Fire incorporate the projected cost of future waranty claims from 1994 sles ofits Supreme battery within the prising amework of this product? ‘What is tbe wholes rie at which Rapid Fire shoul off: the Supreme batey tits customers? Giver your answer to Question 8, shoud Rapid Fre proceed with its plans wo itroduce the Supreme butery n 19547 informulating your anewer to is question, consider the guoliative, 25 wel es uaruiate,eermacion provided by te et, and your personal Inowledge ofthe market for uomobile bteries. In particular, consider Repl Fire's size and marker shere in the replacement batery market B, The pric elasticity of demand for sutomnbile bates. © Rapid Fire's ability to reduce its selling price inorder to eapare mrt share in he replacement battery market. Review te pricing analysis you preured for Rapid Fire, Inc, espeially the information Contuned in your answers Questions | and 7, As you examine these daa, does it ‘seem that an important pice of information necessary to pice the Supreme battery is ‘missing? Fay parievir attention to he unit sales volume aa production cos figures at Rapid Fre over the 1991-93 pred, nd think sbout the total cost to manafaetare the Sipene ten, Cnyote sn ean yours minnie: 2