Exercises and Problems Essay

Carry Yoki’s Lounge consists of the following. Carry, the owner believed that people would come to hear a band play on Friday, Saturday, and Sunday evening. During the remainder of the week, she believed her customers would watch sporting events on several television sets located throughout the lounge. Carry employed two bartenders, three servers, two assistant servers, two cooks, one dishwasher and a clean-up person. She had a bar, 15 barstools, 4 tables, 40 chairs, 4 television sets, and one satellite dish. She had an oven, stove, grill, refrigerator, sinks, dishes, and glassware. Carry started this business with $50,000 of her own money, and she borrowed $150,000 from the bank. From this description, list each of the scarce resources that are used in Carry Yoki’s Lounge. Entrepreneurial resource: Carry Yoki. Labor resources: 2 bartenders, 3 servers, 2 assistant servers, 2 cooks, 1 dishwasher, and a clean-up person. Economic capital resources: 1 bar, 15 bar stools, 4 tables, 40 chairs, 4 television sets, one satellite dish, oven, stove, grill, refrigerator, sinks, dishes, and glassware. Financial capital resources: $50,000 of her own money and $150,000 from the bank. Joe Fixit has an appliance repair business. He has more business than he can handle and wants to hire another repair person. Joe estimates that three appliances can be repaired each hour by a qualified person. Joe bills out labor at $45 per hour, but he stipulates that the minimum charge for appliance repair estimates is $30 plus parts. What is the marginal revenue product of a qualified repair person? 3 appliance repairs per hour times $30 = $90 marginal revenue product. What is the maximum hourly wage that he would pay an employee? Therefore, since we bring in an additional $90 per hour by hiring one more repair person, the maximum wage we would pay is $90. Sam Smith is currently employed as a mechanical engineer and is paid $65,000 per year plus benefits that are equal to 30% of his salary. Sam wants to begin a consulting firm and decides to leave his current job. After his first year in business, Sam’s accountant informed him that he had made $45,000 with his consulting business. Sam also notices that he paid $6,000 for a health insurance policy, which was his total benefit during his first  year. What was Sam’s opportunity cost? Sam gave up $65,000 in salary plus $19,500 in benefits or a total of $84,500. Sara Lee just graduated from college with a degree in accounting. She had five job offers: Bean Counters CPA, $35,000; Assets R Us, $27,000; The Debit Store, $30,000; J & J’s CPA’s, $33,000; and The Double Entry Shop, $40,000. What was her opportunity cost if she accepted the job with The Double Entry Shop? Sara gave up Bean Counters CPA at $35,000 which was the highest value surrendered. Sam Club earned $50,000 and paid taxes of $10,000. Samantha Heart earned $60,000 and paid taxes of $12,000. If these taxes were paid to the same government agency, is the tax on income progressive, regressive, or proportional? Why did you reach this conclusion? As show below these taxes are proportional because they both paid the same percentage of their income in taxes. 6.You read an article in this morning’s paper that stated inflation was accelerating and would reach six percent this year. If the FED believes this statement and it has set a goal of three percent inflation, what will it likely do at the next meeting of the Federal Open Market Committee? They would most likely raise the discount rate, the federal funds rate, or both. They could also sell more government securities to decrease the money supply. 7.A friend came into your office and said that his bank was out to kill small businesses. You asked him what he meant by this remark, and he said that he read an article that said his bank had just loaned $10 million to a major automobile manufacturer at a rate of 3 percent, which is less than prime. But your friend just borrowed $50,000 from the same bank and they charged him prime plus four percent, or 7.5 percent. Your friend has been in business for two years, and last year he had a loss of $2,000. How can you explain this difference in interest rate to your friend? The bank charges interest based upon risk. The probability of the automobile manufacturer defaulting on the loan is very remote; therefore, they get a favorable interest rate from the bank. Since your friend lost money last year and since over 40 percent of all small businesses fail in the first five years, the bank’s risk is much higher and therefore they will charge a higher interest rate. 1.Carry Yoki’s Lounge consists of the following. Carry, the owner believed  that people would come to hear a band play on Friday, Saturday, and Sunday evening. During the remainder of the week, she believed her customers would watch sporting events on several television sets located throughout the lounge. Carry employed two bartenders, three servers, two assistant servers, two cooks, one dishwasher and a clean-up person. She had a bar, 15 barstools, 4 tables, 40 chairs, 4 television sets, and one satellite dish. She had an oven, stove, grill, refrigerator, sinks, dishes, and glassware. Carry started this business with $50,000 of her own money, and she borrowed $150,000 from the bank. From this description, list each of the scarce resources that are used in Carry Yoki’s Lounge. 2.Joe Fixit has an appliance repair business. He has more business than he can handle and wants to hire another repair person. Joe estimates that three appliances can be repaired each hour by a qualified person. Joe bills out labor at $45 per hour, but he stipulates that the minimum charge for appliance repair estimates is $30 plus parts. What is the marginal revenue product of a qualified repair person? What is the maximum hourly wage that he would pay an employee? 3.Sam Smith is currently employed as a mechanical engineer and is paid $65,000 per year plus benefits that are equal to 30% of his salary. Sam wants to begin a consulting firm and decides to leave his current job. After his first year in business, Sam’s accountant informed him that he had made $45,000 with his consulting business. Sam also notices that he paid $6,000 for a health insurance policy, which was his total benefit during his first year. What was Sam’s opportunity cost? 4.Sara Lee just graduated from college with a degree in accounting. She had five job offers: Bean Counters CPA, $35,000; Assets R Us, $27,000; The Debit Store, $30,000; J & J’s CPA’s, $33,000; and The Double Entry Shop, $40,000. What was her opportunity cost if she accepted the job with The Double Entry Shop? 5.Sam Club earned $50,000 and paid taxes of $10,000. Samantha Heart earned $60,000 and paid taxes of $12,000. If these taxes were paid to the same government agency, is the tax on income progressive, regressive, or proportional? Why did you reach this conclusion? 6.You read an article in this morning’s paper that stated inflation was accelerating and would reach six percent this year. If the FED believes this statement and it has set a goal of three percent inflation, what will it likely do at the next meeting of the Federal Open Market Committee? 7.A friend came into your office and  said that his bank was out to kill small businesses. You asked him what he meant by this remark, and he said that he read an article that said his bank had just loaned $10 million to a major automobile manufacturer at a rate of 3 percent, which is less than prime. But your friend just borrowed $50,000 from the same bank and they charged him prime plus four percent, or 7.5 percent. Your friend has been in business for two years, and last year he had a loss of $2,000. How can you explain this difference in interest rate to your friend? Carol Jones wanted her business to increase sales by 50 percent over the next five years. To do this, she must hire three more people. She wanted to determine how to evaluate these people, so she lists their job specifications and develops job descriptions. She also listed where these employees would work and what training they would require. What management functions is Carol performing, and how do they apply to this scenario? Carol is performing the management function of planning because she wants to increase sales by 50% over the next five years. Specifically she is determining her strategic goals and beginning a long-range plan. She is also performing the management function of staffing because she is about to hire three more people, to evaluate them, and train them. Carol is also performing the management function of control when she develops the standards for evaluating her personnel. Jerry is a personnel manager for a large retail department store. He just received a memo stating that the company will build three new stores in Phoenix over the next five years, with one store opening in 24 months, one opening in 36 months, and one opening in 60 months. The memo that Jerry received relates to what type of business plan? The memo that Jerry received relates to the strategic overall plan for his company. If Jerry is directed to develop a personnel plan for Phoenix, what type of planning will Jerry be doing? When Jerry develops a personnel plan he will be working on a functional plan (personnel) designed to support the strategic plan. Joe Doe just started a business. He wants the business income to flow directly to his own personal tax return, but he wants to make sure that he has limited liability. What form(s) of business ownership would you recommend for Joe? Recommend either  a Subchapter S corporation or a Limited Liability Company. You buy 1,000 shares of ABC Company at $6 per share. The company is sued for millions of dolla rs, and ABC Co. is forced into bankruptcy. The newspaper stated that the cost of this suit would amount to $12 per share of stock. What is the maximum amount of money you can lose with this investment? Why? You can only lose $6,000 ($6 per share times the 1,000 shares). Since this is your investment in the corporation it is also your total liability. The price of $12 reported in the paper is irrelevant in this situation. Sam Jones, Mary Adams, and Larry Brown have been talking about starting their own business for several years. Sam is an electronic repairman, Mary is a partner in a large law firm, and Larry is an excellent sales person. Sam and Larry will work in the business on an equal basis. It will cost $100,000 to start this business. Sam has no money, Mary has $60,000 and Larry has $40,000. If they form a partnership, how would you recommend that they organize? You should recommend a limited partnership with Mary as the limited partner. Sam and Larry would be general partners and would each be paid a salary. The profits that accrue to the partnership after all expenses are paid would be divided with sixty percent going to Mary and forty percent going to Larry if share of profits were only based on financial contribution. The actual division o f the profits would be based on a partnership agreement because Sam would not want to have unlimited liability and no share of the profits. This business could also be formed as an LLC; then none of them would have unlimited liability, but would Mary agree to this since she is putting up most of the financial capital? This problem was inserted to stimulate discussion. Barry McGuire wants to purchase a dry-cleaning establishment. Barry has heard of the SWOT analysis and wants to use this methodology to determine whether he should purchase the business. He found the following information: The dry cleaner is located in a busy shopping center and currently does all the cleaning on the premises. It has three commercial accounts that comprise 20 percent of its business. The population in the local area is growing by approximately 6 percent per year. Located across the street in another shopping center is a price-cutting dry cleaner that advertises heavily in the local area. With the exception of this shopping center and the property across the street, all property in this area is zoned residential. Most of the residents in this area are professional  people who wear suits to work. The shop has an assumable lease, and the lease has a fixed rental fee for the next five years. Barry has had five years of experience in the dry-cleaning business, and would run the shop full time. Based on this information, perform a SWOT analysis. Strengths include the fact that Barry has five years of experience, dry cleaning business is already established, assumable lease, and fixed rent for next five years, commercial accounts for 20% of business. Weakness, none listed. Opportunities include fact that business is located in a busy shopping center, population is growing at 6% a year, residential area with residents being professional and wearing suits to work, no new competition because of favorable zoning. Threats include competition from price cutting business across the street. Joe Latte wants to open up a coffee and gelato shop. He figures with the popularity of coffee shops and Italian ice cream shops that a combination business will be a clear winner. Write a two page paper describing the following elements of a business plan: description of the business, factors affecting location, and product or service to be offered. This should be graded based on the rigor of the class and how much is assigned by the instructor for outside research. We recommend team discussion and specifics with regard to these items. 8 Joe Latte has completed a business plan and determined that it will take $120,000 to open the coffee and gelato shop. He has $30,000 of his own money and will have to obtain $90,000 in loans or grants. How should Joe go about getting financing? What is the probability that he can obtain a grant to start an Italian ice cream shop? Joe’s first step should be to complete a business plan and contact the local Small Business Association (SBA) and SCORE office to determine what financing is available. He should also check with local and state agencies for small business assistance. Depending on his credit rating and bank standing he can also contact local banks and financial institutions and shop for the best loan and interest rates. Chances of obtaining a grant for this type of business are very slim.