Question 1
Here are seven more accounting problems. Thanks! 85. Presented below is the stockholders' equity section of Oaks Corporation at December 31, 2010: Common stock, par value $20; authorized 75,000 shares; issued and outstanding 45,000 shares $ 900,000 Paid-in capital in excess of par value 250,000 Retained earnings 500,000 $1,650,000 During 2011, the following transactions occurred relating to stockholders' equity: 3,000 shares were reacquired at $28 per share. 3,000 shares were reacquired at $35 per share. 1,800 shares of treasury stock were sold at $30 per share. For the year ended December 31, 2011, Oaks reported net income of $450,000. Assuming Oaks accounts for treasury stock under the cost method, what should it report as total stockholders' equity on its December 31, 2011, balance sheet? a. $1,965,000. b. $1,961,400. c. $1,957,800. d. $1,515,000. Answer is A 102. Masterson Company has 420,000 shares of $10 par value common stock outstanding. During the year Masterson declared a 5% stock dividend when the market price of the stock was $36 per share. Three months later Masterson declared a $.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by a. $1,020,600 b. $756,000 c. $264,600 d. $252,000 Answer is A 105. At the beginning of 2011, Hamilton Company had retained earnings of $150,000. During the year Hamilton reported net income of $75,000, sold treasury stock at a ?gain? of $27,000, declared a cash dividend of $45,000, and declared and issued a small stock dividend of 1,500 shares ($10 par value) when the market value of the stock was $30 per share. The amount of retained earnings available for dividends at the end of 2011 was: a. $184,500. b. $162,000. c. $157,500. d. $135,000. Answer is D *117. Assuming that $183,000 will be distributed, and the preferred stock is also participating, how much will the common stockholders receive? a. $111,000. b. $90,000. c. $93,000. d. $48,000. Answer is B *118. Yoder, Inc. has 50,000 shares of $10 par value common stock and 25,000 shares of $10 par value, 6%, cumulative, participating preferred stock outstanding. Dividends on the preferred stock are one year in arrears. Assuming that Yoder wishes to distribute $135,000 as dividends, the common stockholders will receive a. $30,000. b. $55,000. c. $80,000. d. $105,000. Answer is C 121. On July 1, 2010, Nall Co. issued 2,500 shares of its $10 par common stock and 5,000 shares of its $10 par convertible preferred stock for a lump sum of $125,000. At this date Nall's common stock was selling for $24 per share and the convertible preferred stock for $18 per share. The amount of the proceeds allocated to Nall's preferred stock should be a. $62,500. b. $75,000. c. $90,000. d. $68,750. Answer is B 122. Horton Co. was organized on January 2, 2010, with 500,000 authorized shares of $10 par value common stock. During 2010, Horton had the following capital transactions: January 5?issued 375,000 shares at $14 per share. July 27?purchased 25,000 shares at $11 per share. November 25?sold 15,000 shares of treasury stock at $13 per share. Horton used the cost method to record the purchase of the treasury shares. What would be the balance in the Paid-in Capital from Treasury Stock account at December 31, 2010? a. $0. b. $15,000. c. $30,000. d. $45,000. Answer is C,Hi Michael. I have some more questions. You've done a great job helping me with my other questions. Thanks! Denise,Michael. Yes. I have the answers but I need to see how to solve each problem. Thanks! Denise,Michael, This is all the information I have on 117: *117. Assuming that $183,000 will be distributed, and the preferred stock is also participating, how much will the common stockholders receive? a. $111,000. b. $90,000. c. $93,000. d. $48,000. Answer is B If more information is needed to solve this one, I guess skip it. But that is how the problem is presented. Thanks. Denise
Question 2
E 14?3: Determine the price of bonds; issuance; effective interest LO14?2 The Bradford Company issued 10% bonds, dated January 1, with a face amount of $80 million on January 1, 2013. The bonds mature on December 31, 2022 (10 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31. Required: 1. Determine the price of the bonds at January 1, 2013. 2. Prepare the journal entry to record their issuance by The Bradford Company on January 1, 2013. 3. Prepare the journal entry to record interest on June 30, 2013 (at the effective rate). 4. Prepare the journal entry to record interest on December 31, 2013 (at the effective rate). E 14?8: Investor; straight-line method LO14?2 (Note: This is a variation of the previous exercise modified to consider the investor?s perspective.) Universal Foods sold the entire bond issue described in the previous exercise to Wang Communications. Required: 1. Prepare the journal entry to record the purchase of the bonds by Wang Communications on January 1, 2013. 2. Prepare the journal entry to record interest revenue on June 30, 2013. 3. Prepare the journal entry to record interest revenue on December 31, 2020.
Question 3
MGMT 640 Midterm Exam Ques. 1) Which of the following is not an advantage of the corporate form of business organization? a. Sell debt or equity in public capital markets b. Owners have limited liability c. Owners are subject to double taxation d. May continue in business in perpetuity Ques. 2) Working capital management involves decisions related to the following: a. Purchase of production machines b. Extending credit to customers c. Signing a 3 year lease for an office building d. Negotiating with city officials a 2-year tax abatement plan for a new factory Ques. 3) Which of the following statements is correct: a. Market forces provide sufficient incentives for ethical behavior b. It would be easier to do business if there were no ethical norms c. Government regulations are necessary to ensure ethical behavior d. An ethical culture with good internal controls promotes ethical behavior Ques. 4) In 2010, Jack's Art Gallery sold 200 original works of art for $1,240,520. The gallery acquired the works sold for $530,000. Each painting was framed using predesigned framing kits in the gallery's own workshop. The firm bought 100 kits in January for $50,000, 100 kits in March for $60,000.,100 kits in May for $40,000 and 100 kits in August for $30,000. Other costs of operation, including salaries, supplies, rent, etc., totaled $200,000. The company depreciated its assets by $120,000 and paid interest on loans totaling $55,000. Assuming no other costs and that Jack's Art Gallery used FIFO in its inventory management, the firm's EBITDA for 2010 was: a. $280,520 b. $230,520 c. $400,520 d. $440,520 Ques. 5) Jake Smith opened his Balinese coffee shop business in downtown Boise on January 1st 2010. On December 31st, 2010, he sat down with his accountant to figure out how his business had done in its first year and heaved a sigh of relief when his accountant reported that his EBT came to $20,000. Revenues, at $1,050,000 looked good. His expenses were as follows: Salaries and benefits paid to employees $210,000 Jake's own salary $100,000 Supplies (coffee, tea, milk, pastries, etc.) $620,000 Cost of Restaurant grade coffee machine $30,000 Miscellaneous operating costs $44,000 Interest on loan $12,000 How much did Jake's accountant allocate for depreciation and amortization? a. $44,000 b. $14,000 c. $4,000 d. $0.00 Ques. 6) Timber firewood company reported the following numbers in its 2010 income statement: EBIT $520,000 Depreciation $35,000 Interest expenses $24,000 General expenses $110,000 If it's marginal tax rate was 30%, what were Timber's cash flows from operating activities for 2010? a. $347,200 b. $382,200 c. $496,000 d. $520,000 Ques. 7) For the year ending June 30, 2008, the Austin Corporation has current assets of $ 275,000 and total assets of $ 900,000. It also has current liabilities of $ 150,000, equity of $ 200,000, and retained earnings of $ 100,000. The marginal tax rate for the firm is 30%. How much long-term debt does the firm have? a) $ 250,000 b) $ 350,000 c) $ 315,000 d) $ 450,000 Ques. 8) The Johnson and Baker Company increased investments in foreign securities by $ 120,000, funded fixed asset acquisitions by $ 1,500,000, and sold $ 90,000 of long-term debt. Also, the firm had a net inflow of $ 300,000 from the sale of assets. What is the net cash used in investing activities? a) $ 1,320,000 b) $ 1,230,000 c) $ 1,410,000 d) $ 1,800,000 Ques. 9) Net working capital is: a) equal to the expenses on the income statement b) a traditional measure of a firm?s liquidity c) reduced by the firm?s outstanding treasury stock to determine profits d) equal to total assets plus total liabilities Ques. 10) Intangible Assets include all the following except: a. Trademarks b. Goodwill c. Patents d. Capital leases e. All of the above Ques. 11) Owners Equity consists of all the following except: a. Additional paid in capital. b. Par value stock c. Debentures outstanding d. Retained earnings Ques. 12) On the statement of cash flows an increase in accounts receivables is considered: a. A cash inflow b. A use of cash c. A source of cash d. None of the above Ques. 13) Which of the following best describes how corporations are taxed on dividend income? a. Like individuals, corporations are taxed on all dividends received. b. Seventy percent of dividend income received by corporations is tax exempt. c. Varying amounts of dividend income received by corporations are tax-exempt, depending on the percent of the paying corporation that the receiving corporation owns. d. In order to avoid triple taxation of earnings, dividend income received by one corporation from another in which it owns stock is 100% tax-exempt. Ques. 14) Kleaner Kars has a return on assets of 6.75 percent, a total asset turnover rate of 1.3, and an equity multiplier of 1.6. Using the Dupont Identity, what is the return on equity? a. 8.30 percent b. 8.78 percent c. 10.80 percent d. 14.04 percent e. 14.33 percent Ques. 15) Jefferson and Sons has total assets of $807,200, total equity of $509,500, total sales of $945,300, and net income of $25,600. What is the profit margin? a. 1.17 percent b. 1.86 percent c. 2.71 percent d. 3.17 percent e. 5.02 percent Ques. 16) A firm has a debt-to-equity ratio of 0.5. What is the firm?s equity multiplier? a. 0.33 b. 1.50 c. 0.50 d. 2.00 e. 5.00 Ques. 17) Knox Corp. plans to sell 1,000 units in 2011 at an average sale price of $40 each. Cost of goods sold will be 40% of the sale price. Depreciation expense will be $2,500, interest expense $1,500, and other expenses will be $3,000. Wessel's tax rate is 35%. What will Knox Corp.'s net income be for 2011? a. $ 9,500 b. $ 6,875 c. $14,200 d. $11,050 e. $28,430 Ques. 18) What is the return on stockholders' equity for a firm with a net profit margin of 4.9 percent, sales of $350,000, an equity multiplier of 1.6, and total assets of $215,000? a. 12.76% b. 15.24% c. 12.57% d. 8.88% Ques. 19) Assume a firm has an average inventory of $50,000, sales of $250,000, gross profit of $100,000, and net income of $25,000. The preferred formulation for an inventory turnover results in an inventory turnover of: a. 1 time b. 3 times c. 4 times d. 5.5 times Ques. 20) The higher the rate of interest: a. the smaller the future value of an amount invested to-day b. the smaller the present value of a future sum of money c. the larger the present value of a future sum of money d. all of the above Ques. 21) Holding all other variables constant, an increase in the interest rate will cause ________ to decrease. a. Future values b. Annuity payments c. Present values d. Growth rates Ques. 22) You have just calculated the present value of the expected cash flows of a potential investment. Management thinks your figures are too low. Which of the following actions would increase the present value of your cash flows? a. assume a longer stream of cash flows of the same amount b. decrease the discount rate c. increase the discount rate d. a and b Ques. 23) Ed Sloan wants to withdraw $25,000 (including principal) from an investment fund at the end of each year for five years. How should he compute his required initial investment at the beginning of the first year if the fund earns 10% compounded annually? a. $25,000 times the future value of a 5-year, 10% ordinary annuity of 1. b. $25,000 divided by the future value of a 5-year, 10% ordinary annuity of 1. c. $25,000 times the present value of a 5-year, 10% ordinary annuity of 1. d. $25,000 divided by the present value of a 5-year,10% ordinary annuity of 1. Ques. 24) What amount will be in a bank account three years from now if $5,000 is invested each year for four years with the first investment to be made today? a. ($5,000 x 1.260) + ($5,000 x 1.166) + ($5,000 x 1.080) + $5,000 b. $5,000 x 1.360 x 4 c. ($5,000 x 1.080) + ($5,000 x 1.166) +($5,000 x 1.260) + d. ($5,000 x 1.360) e. $5,000 x 1.080 x 4 Ques. 25) On January 1, 2004, Carly Company decided to begin accumulating a fund for asset replacement five years later. The company plans to make five annual deposits of $30,000 at 9% each January 1 beginning in 2004. What will be the balance in the fund, within $10, on January 1, 2009 ( one year after the last deposit)? The following 9% Interest factors may be used. Present Value of Ordinary Annuity Future Value of Ordinary Annuity 4 periods 3.2397 4.5731 5 periods 3.8897 5.9847 6 periods 4.4859 7.5233 a. $195,699 b. $179,541 c. $163,500 d. $150,000 Ques. 26) Your uncle promises to give you $550 per quarter for the next five years starting today. How much is his promise worth right now if the interest rate is 8% compounded quarterly? a. $9,173.14 b. $13,363.57 c. $13,630.84 d. $8,993.27 Ques. 27) Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT? a. The periodic rate of interest is 1.5% and the effective rate of interest is 3%. b. The periodic rate of interest is 6% and the effective rate of interest is greater than 6%. c. The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%. d. The periodic rate of interest is 3% and the effective rate of interest is 6%. e. The periodic rate of interest is 6% and the effective rate of interest is also 6%. Ques. 28) Suppose an ExxonMobil Corporation bond will pay $4,500 ten years from now. If the going interest rate on safe 10-year bonds is 4.25%, how much is the bond worth today? a. $2,819.52 b. $2,967.92 c. $3,116.31 d. $3,272.13 e. $3,435.74 Ques. 29) You want to go to Europe 5 years from now, and you can save $3,100 per year, beginning one year from today. You plan to deposit the funds in a mutual fund that you think will return 8.5% per year. Under these conditions, how much would you have just after you make the 5th deposit, 5 years from now? a. $18,369 b. $19,287 c. $20,251 d. $21,264 e. $22,327 Ques. 30) A portfolio with a level of systematic risk the same as that of the market has a beta that is: a. equal to zero b. equal to one c. less than the beta of the risk-free asset d. less than zero Ques. 31) The expected return on KarolCo. stock is 16.5 percent. If the risk-free rate is 5 percent and the beta of KarolCo is 2.3, then what is the risk premium on the market assuming CAPM is true? a. 2.5% b. 5.0% c. 7.5% d. 10.0% Ques. 32) Using the above information, what is the rate of return on the market? a. 2.5% b. 5.0% c. 7.5% d. 10.0% Ques. 33) The expected return for Stock Z is 30 percent. If we know the following information about Stock Z: Return Probability Poor 0.2 0.25 Lukewarm ? 0.5 Dynamite! 0.4 0.25 What return will stock Z produce in the Lukewarm state of the world? A) 20% B) 30% C) 40% D) It is impossible to determine. Ques. 34) The risks that diversification cannot eliminate are: a. Interest rate risk. b. risk due to a recession. c. inflation risk. d. systematic risk. e. all of the above Ques. 35) Kevin purchased a stock a year ago that pays a dividend. He has earned a 50%. The stock was purchased for $16 and is now worth $21. What is the amount of dividends received during the year? a. $5 b. $4 c. $3 d. $2 Ques. 36) John is investing in the S&P 500. His expected return on the S&P 500 is 10% with a standard deviation of 4%. If John is investing $200,000, then what is the dollar range of returns that John can have with 90 percent confidence at the end of the year? a. $212,000 - $228,000 b. $206,840 - $233,160 c. $204,320 - $235,680 d. $199,400 - $240,600 Ques. 37) Microsoft?s beta is 1. The risk free rate of return is 2%. If the expected return on the market is 12 percent, then the expected return on Microsoft is: a. 12 percent b. 15 percent c. 8 percent d. 10 percent Ques. 38) What is the relationship between present value and future value interest factors? A. The present value and future value factors are equal to each other. B. The present value factor is the exponent of the future value factor. C. The future value factor is the exponent of the present value factor. D. The factors are reciprocals of each other. E. There is no relationship between these two factors. Ques. 39) An investment that costs $50,000 will return $15,000 operating cash flows per year for five years. Determine the net present value of the investment if the required rate of return is 14 percent. Should the investment be undertaken? ( Your answer might be slightly different due to rounding. Select the best answer from those available.) A. Yes, the profit is $25,000. B. No, the accounting return is less than 14%. C. No, the net present value is negative at $11,045. D. Yes, the net present value is positive at $1,496.50. Ques. 40) What is the net present value of a project with the following cash flows if the required rate of return is 15 percent? Year Cash Flow 0 -$42,398 1 13,407 2 21,219 3 17,800 A. -$1,574.41 B. -$1,208.19 C. -$842.12 D. -$2,991.34 E. $1,311.16
Question 4
Naomi Soderstrom sells over-boots for use in wintry conditions. Naomi's products, worn over shoes, provide traction on ice and packed snow, helping prevent falls. Naomi's income for her most recent year of operations is as follows: Revenues (120,000 units X $20) $2,400,000 Variable Costs Direct Materials $480,000 Direct Labor 720,000 Selling and administration 120,000 $1,320,000 Contribution Margin $1,080,000 Fixed Costs Manufacturing $540,000 Marketing & Sales 120,000 General administration 228,000 888,000 Profit Before Taxes 192,000 Naomi believes that while the cost of direct materials and direct labor varies with the number of units, the cost of variable selling and administration expenses are proportional to revenues. Not satisfied with her current profit and 8% return on sales ($192,000/$2,400,000), Naomi wants to improve profits in the coming year. She is considering changing her selling price. If Naomi increases her selling price to $22 per unit, then she expects sales to stay at 120,000 units in the coming year. However, if she reduces her selling price to $19 per unit, then she expects sales to increase to 175,000 units. Regardless of her pricing strategy, Naomi expects next year's costs to be as follows: -Direct material costs to increase by 10%. -Direct labor costs to increase by 5%. -Variable selling and administration costs to stay the same as a fraction of each sales dollar. -Total fixed costs to stay the same at $888,000. Prepare a budgeted income statement for each of Naomi's two pricing choices. What price should Naomi choose?
Question 5
Need to submit this case study, please read and answer the questions at the end in the form of an essay 3-5 pages. I have attached a copy of the essay. Version 1.2 The Blue Sky Software Consulting Firm Case for Management and Leadership Program Assessment The Blue Sky is a fifteen-year old software-consulting firm. It was founded by Max Blue, who was until last year its CEO and Chairman of the Board. Blue has stepped down from the CEO role, but remains Board Chairman. The new CEO is Jim Willis, who joined the company as VP for the HR software division five years ago. Before coming to Blue Sky Willis was an executive with a major accounting/consulting firm. Blue Sky is divided into three divisions: Machine Tool Software?This division develops machine tool software used in the auto industry. Some of the software is utilized by the major manufacturing companies, but mostly they serve suppliers of parts and components. HR Software- This division has developed Human Resource Management software to be used in the retail industry. Their major client has been the Best Dollar Retail Chain, which sells upscale style, but affordable clothes for teenagers. They have retail locations in most parts of the country, except for the mid Atlantic and New England states. Most of their stores are in medium to small cities. Heath Payment Software- This division has developed software for state governments to help manage their Medicaid provider payment systems. They provide this software for 15 states scattered across the country. Each division is headed by a Vice President: Machine Tool?Michael James- was one of the founders of the company, and has been with Blue Sky since the beginning as VP for Machine Tool Software. This was the first business line for Blue Sky. HR Software- Mary Garrison- she has just started with Blue Sky, and replaced Willis when he became CEO. She had previously been an Associate VP for HR Technology at Best Dollar, and was the major point of contact with them. Thus, she was very familiar with the HR software produced for Best Dollar. She was a computer science major at State University. Health Payment- Jeff Roberts has been with Blue Sky for seven years and VP of the health payment division for the last two years. Before joining Blue Sky he was a hospital administrator responsible for the hospital IT system. Page 1 of 7 The CFO is Karl Counts, who has worked in the finance department since the beginning of the company. He has been CFO for the last ten year. The newest member of the Executive team is Susy Hubres, who last year assumed the position of Director of Planning and Marketing. She graduated from Harvard?s MBA program the previous year. She was hired by Max Blue shortly before he retired as CEO. Susy is the daughter of a long-time friend of Blue. Blue Sky also has five regional offices: North, South, Central, West and East. Forty percent of the Blue Sky employees work in the regional offices. The rest work at the corporate headquarters in Cleveland Ohio. All those who work in the Machine Tool division are located in Cleveland. Three of the largest Medicaid accounts are run from the Cleveland HQ. The other health payment cli- ents are served from the regional offices. The regional offices were set up originally to serve the Best Dollar chain client. About 80% of the HR software work is performed in the various regions. Only a few centralized design functions are at the Cleveland headquarters. Each regional office has a director, who is responsible for technical output and client service in that region. Service is an important part of the business, and the regional direc- tors have all come from the service side of the business rather than the technical side. As you read the case issues below you will be asked to assume the role of a consultant who has been hired by Willis to write a critical analysis of the issues facing Blue Sky. Willis has told you he wants an honest critique and recommendations and has not indi- cated any personal preferences to you. But, Willis does want you to draw on the Man- agement literature in your report. Problems and Issues In the last few months CEO Willis has become concerned about several issues with a po- tential impact on Blue Sky. Susy Hubres is pressing him to institute a strategic planning process. Max Blue never liked to have meetings, and thought planning was a waste of time. Thus, Blue Sky never had a formal strategic plan. Susy has written a memo to Willis proposing a three-day retreat for Blue Sky executives. The main agenda for the meeting would be the development of a ten-year strategic plan. In her memo Susy relates how she took three courses in planning at Harvard, and believes she is the best person to conduct the planning retreat and process. In the memo she asks Page 2 of 7 for authority to hire two new people in her office. Both would be planning analysts, who would develop planning models using corporate and industry data. In her memo Susy cites several issues of concern. First, the decline of the American auto industry because of the current economic environment. Blue Sky has been the major source of machine tool software in the industry. Secondly, some client companies have recently cut back on contracts with Blue Sky in favor of outsourcing work to India at 20% of what they would need to pay Blue Sky for the same work Jeff Roberts, VP of the Health Payment Division, has recently informed Willis that there is an ongoing federal grand jury investigation with a focus on the Southern Regional of- fice. The U.S. Attorney is investigating allegations of illegal contributions made to the Governor as a quid pro quo for state contracts. Also, the Western regional office made a serious coding error that nearly cost Blue Sky the whole HR software line of business with Best Dollar. Mary Garrison is making the argument that more control centralization at HQ is essential for the continued viability of this division. She is proposing the closure of two of the five regional offices with a transfer of about half the professional employees in the HR software division to the Cleveland office. Garrison argues this will allow her to more personally supervise this activity. Since she has come from Best Dollar, Garrison believes she has a clear sense of their needs. Susy has concluded the HR line of business is too narrow in its focus on one client, and has suggested aggressive pursuit of new clients in the retail field. Garrison has resisted this approach with the argument that the whole HR software system is tailored for Best Dollar, and they would resist essentially sharing their HR software with competitors. If the HR software business were centralized in Cleveland, the rationale for the system of regional offices would be weakened. They were developed ten years ago specifically to serve Best Dollar whose stores are in most parts of the country. Jeff Roberts has a small R/D office in his division, and they have begun to lay the groundwork for moving to develop an information system module that might be sold to hospitals as part of the move toward electronic medical records. The CFO claims the pursuit of this strategy would take a significant technical and financial investment to de- velop and sell such a product. He does not think the company has the financial resources to do this, and fears the taking on of substantial debt to pursue this project is very risky. Historically not only has the level of autonomy of the regions been an issue, but there is also the question of how they should be involved in decision-making. Page 3 of 7 Decision-making Max Blue was a very talented software engineer, who personally led the effort to develop the three main software programs, which are the main competitive advantage of Blue Sky. Even his greatest admirers would admit that Max was an autocrat. Mostly a be- nevolent autocrat, but as he often said, ?This is my company, and I know best how to run it.? Health problems have slowed down his level of physical activity so Willis thinks Max will live up to the promise to stay out of operations that he made when he offered the CEO position to Willis. But, Max?s autocratic nature has led to a somewhat passive culture in which most key participants tend to wait for the ?boss? to give orders. Suzy has been somewhat outspo- ken in her critique of this culture. But, everyone gets along well, and there are few of the personal battles that poison the atmosphere in some companies. The regional directors are all younger and have been with Blue Sky a relatively short time. They started with Blue Sky in the sales and customer service part of the business, and have less technical knowledge. They would like to be more aggressive by expanding the business by seeking new clients and new product lines. The directors have typically only been involved in the Executive team meetings when there is a specific issue related to the regional offices. Willis has wondered if the dynamics of the decision process for the Executive Team would be enhanced if the regional directors were more systematically involved. Willis is by nature more collaborative than autocratic. He has experimented with a more collaborative decision-making process in his weekly meetings with the VPs. As a group they do not seem to have a facility to come to a consensus decision. After a period of dis- cussion, they seem to look to Willis to make a decision. Since the company has been successful most of the executives and employees who have been with Blue Sky for a while are financially well off. Many of these older employees seem to be coasting toward retirement, and are not very interested in company expansion, especially if this carries some risk. Much of their retirement fund is tied to Blue Sky. Thus, the older generation tends to be satisfied with Blue Sky as it has been. They are mostly risk averse on new initiatives. A Major Decision An example of the recent decision-making process at Blue Sky is found in their dealing with product pricing in the Machine Tool Division. CFO Counts initiated this discussion in the Executive Team by presenting a report showing steady downward trend in the net revenue for this division. Gross revenue has over the last five years increased about 1% Page 4 of 7 per year on average, but expenses have increased an average of 5% per year. If this trend continues for three more years, the division will no longer be profitable. Willis scheduled a special meeting for this to be discussed by the Executive Team. At the meeting James stated the problem was a decision a few years ago to head off further de- cline in the volume of business by holding the line on charges for the product. The threat is the aggressive behavior of Indian software companies in seeking the business. This de- cision was made by Blue and James with little consultation of the others. James reminded the team that the level pricing approach was intended to last only a year or so. He thinks that it is now time to raise charges again. Counts responded by pointing out that the rise in expenditures is caused by the hiring of several new high salary people in the Machine Tool Division. Hubres replied by pointing out American automakers and their suppliers are the main clients, and now those companies are in serious decline. She believes the problems are structural in the industry, and that not the India software com- panies are the real long-term problem. Garrison and Roberts take the attitude ?this is not my division or my problem?. The Japanese and other automakers in the US tend to use their own internal software prod- ucts, and thus James has never pursued contracts with them. Counts has urged Willis to lay off some of the employees in the division since business has not been growing. He believes too many new people were hired in the last couple of years. Hubres wrote a ?planning memo? arguing the division should be more aggressive in developing both new clients for the current software product, and new products for other clients. James has argued that Counts has too much of an accounting perspective and doesn?t un- derstand the difficulty of maintaining complex software??this is not just an Excel finan- cial model?, and that Harvard didn?t teach Hubres about the importance of personal rela- tionships as a key to business development. Willis held two all morning meetings on the topic, and hoped the group would develop a consensus. But, mostly there was a restating of everyone?s position. Even after Willis talked individually with Garrison and Roberts, they were reluctant to personally intervene in the dispute. Willis concluded they feared other VPs might try to micromanage their divisions in the future if they set a precedent. Willis tended to agree with the perspective expressed by Hubres, but thought the only way he could get the division to move aggressively with new software or new customers was to fire James and replace him with someone new. Blue would almost certainly not be happy about such an action because James was personally an old friend and co- founder of the company. Page 5 of 7 It was clear the others looked to Willis to solve the problem, and most of the participants thought he would side with them. Willis ultimately talked to James, and convinced him to work with Counts on a special retirement package for a few senior employees in the division without any immediate re- placement for the retirees. This would save some money for the division.? He had a meeting with James and Hubres and convinced them to work together to hire a management consultant who would suggest possible approaches to finding new clients for the current software. Willis felt he had averted a large-scale conflict within the organization, but continued to worry this was a small temporary adjustment in response to a larger problem. Case Questions and Instructions (to students) Assume you are a consultant reporting to Willis, who charged you to examine the management issues facing Blue Sky Software. Based on your total classwork in the Management and Leadership program write a critical analysis. Focus on what you find to be the critical elements facing the company. Be sure to identify and analyze the management issues facing the Blue Sky Company, and in your essay include relevant conceptual ideas. Some questions to consider are: (but the essay need not be limited to these ques- tions) 1. Blue Sky has undergone a leadership change. Be sure to address the differences in leadership style and approach today and in the recent past at Blue Sky. 2. For every organization motivation is a critical element. Be sure to discuss and evaluate the approaches to motivation at Blue Sky now and in the past. 3. Has strategic planning and decision-making changed at Blue Sky? If so, is this a positive change? 4. The structure of an organization and its control systems are design elements. Identify potential design and/or control problems at Blue Sky and discuss appli- cable principles and theories of management that address these problems. Page 6 of 7 In your essay be sure to explicitly rely on management principles, concepts and theories from all the management courses to organize your response. The goal is to demonstrate understanding, application, and integration by the case essay. There is no single solution, and the essay should not just be a set of personal opinions.
