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BSAD 102 Mike’s Bikes Business Simulation

BSAD 102 Mike’s Bikes Business Simulation. St. Francis Xavier University. Professor Neil Maltby. Carpe Diem: A Time of Decision. Gather ye rosebuds while ye may, Old time is still a-flying; And this same flower that smiles today, Tomorrow will be dying. Robert Herrick (1648).

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BSAD 102 Mike’s Bikes Business Simulation

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  1. BSAD 102Mike’s BikesBusiness Simulation St. Francis Xavier University Professor Neil Maltby

  2. Carpe Diem: A Time of Decision Gather ye rosebuds while ye may, Old time is still a-flying; And this same flower that smiles today, Tomorrow will be dying. Robert Herrick (1648) St. Francis Xavier University

  3. Overview • The Year Ahead • The President of your firm has retired and you have now assumed full control. Your design team has announced the completion of three new bike designs. • Your first major decision is to decide whether to invest in one of the new designs. • You also have full control of financing the firm • Issuing bonds • Issuing/repurchasing shares and paying dividends. St. Francis Xavier University

  4. Concepts • New Product Development • Key factors for successful products • Unique, superior product • Strong market orientation • International orientation • Why do new products fail? • Not delivering what is promised • Poor marketing research • Technical problems • Insufficient marketing effort • Bad timing St. Francis Xavier University

  5. Launching • New Product Development re: Mike’s Bikes • Is there an opportunity for a new bike? • Scenario report • Your company’s positioning (price, awareness/public relations, quality, distribution) vs competitors (see next slide)  good forecast? • Cost (development and marketing) • Do you have the resources – financial position and capacity • Opportunity cost • Foregone benefits of the next best alternative • What are you going to do with your mountain bike? • Keep, re-design ($) or abandon? St. Francis Xavier University

  6. Launching • Positioning Map • Projecting competitive launches High Price St. Francis Xavier University Open Market Space A D A B F G Mountain Road Youth C C D X D Open Market Space E E Low Price

  7. Decision • New Product Development re: Mike’s Bikes • Product Marketing • Adv 1 (existing) • Pricing & Promotion • Development • maintain current design, redevelop or abandon • Product slot (empty) • Note costs, design specifications, and SCUs St. Francis Xavier University

  8. Application • Financingre: Mike’s Bikes • How much money do you have? • How much money do you need? • Bike launch(es) • Marketing to customers and vs competitors • Which method of raising money meets your short-term and long-term needs? St. Francis Xavier University

  9. Concepts • Financing • Debt financing through selling bonds • A bond is a: • Certificate indicating the owner has lent money to the issuer of the bond • Contract of indebtedness issued by a corporation that promises payment of regular interest payments and the principal amount at a specific future time • Source of long-term financing (long term obligation) • Advantage – no loss of ownership (bondholders are creditors); opportunity to generate funds to invest in profitable ventures • Disadvantage – increase debt and market’s perception of risk St. Francis Xavier University

  10. Application • Issuing Bonds • Financial Management • Bonds • Bond issue limit – 50% of assets less existing bonds • Note interest rates, amount (listed on I/S) and repayment date • Higher levels of debt will increase your D/E ratio and could result in lower SHV because the market (and your investors) perceive your firm to be riskier St. Francis Xavier University

  11. Concepts • Equity • Financing through issuing/repurchasing equity • Equity financing is another form of long-term financing • Equity financing is the sale of shares of ownership in the corporation • Dilutes concentration of ownership, therefore firms “manage” the number of outstanding shares via issuing and repurchasing • Dividends • Payment made out of a firm’s earnings to its investors (shareholders) St. Francis Xavier University

  12. Application • Issuing Equity • Financial Management • Equity • Firms that need money may consider issuing Equity • Equity issue limit – 50% of issued shares to a limit of $5,500,000 • Firms that have money may consider repurchasing Equity and/or issuing dividends to shareholders • Equity repurchase limit – 10% of issued shares to a limit of $1,100,000 • Dividend limit – 50% of retained earnings to a limit of $3.61/share St. Francis Xavier University

  13. Application • Managing SHV with Equity • Dividends • Firms that issue dividends inflate their SHV beyond the impact of net income • Earnings per Share • Firms that increase their Earnings per Share inflate their SHV beyond the impact of net income St. Francis Xavier University

  14. Next • Have your decisions input by 4pm Friday • Next Class • Prepare for discussion the Maple Leaf Hardware case.  Review the past performance of Maple Leaf Hardware Ltd. • What have been the major sources of financing and the major uses (both short and long-term)? • Has Maple Leaf Hardware been financially successful? • Prepare projected income statement for the next two years.  St. Francis Xavier University

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