Starting Right Corporation Case Study After watching a movie about a young woman

Question

Starting Right Corporation Case Study

After watching a movie about a young woman who quit a

successful corporate career to start her own baby food company,

Julia Day decided that she wanted to do the same. In

the movie, the baby food company was very successful. Julia

knew, however, that it is much easier to make a movie about

a successful woman starting her own company than to actually

do it. The product had to be of the highest quality, and

Julia had to get the best people involved to launch the new

company. Julia resigned from her job and launched her new

company—Starting Right.

Julia decided to target the upper end of the baby food market

by producing baby food that contained no preservatives but

had a great taste. Although the price would be slightly higher

than for existing baby food, Julia believed that parents would be

willing to pay more for a high-quality baby food. Instead of putting

baby food in jars, which would require preservatives to stabilize

the food, Julia decided to try a new approach. The baby

food would be frozen. This would allow for natural ingredients,

no preservatives, and outstanding nutrition.

Getting good people to work for the new company was

also important. Julia decided to find people with experience

in finance, marketing, and production to get involved with

Starting Right. With her enthusiasm and charisma, Julia was

able to find such a group. Their first step was to develop

prototypes of the new frozen baby food and to perform a

small pilot test of the new product. The pilot test received

rave reviews.

The final key to getting the young company off to a good

start was to raise funds. Three options were considered: corporate

bonds, preferred stock, and common stock. Julia decided

that each investment should be in blocks of $30,000. Furthermore,

each investor should have an annual income of at least

$40,000 and a net worth of $100,000 to be eligible to invest in

Starting Right. Corporate bonds would return 13% per year for the next five years. Julia furthermore guaranteed that investors

in the corporate bonds would get at least $20,000 back at the

end of five years. Investors in preferred stock should see their

initial investment increase by a factor of 4 with a good market

or see the investment worth only half of the initial investment

with an unfavorable market. The common stock had the greatest

potential. The initial investment was expected to increase by

a factor of 8 with a good market, but investors would lose everything

if the market was unfavorable. During the next five years,

it was expected that inflation would increase by a factor of 4.5%

each year.

Discussion Questions

1. Sue Pansky, a retired elementary school teacher, is considering

investing in Starting Right. She is very conservative

and is a risk avoider. What do you recommend?

2. Ray Cahn, who is currently a commodities broker, is also

considering an investment, although he believes that there is

only an 11% chance of success. What do you recommend?

3. Lila Battle has decided to invest in Starting Right. While

she believes that Julia has a good chance of being successful,

Lila is a risk avoider and very conservative. What

is your advice to Lila?

4. George Yates believes that there is an equally likely

chance for success. What is your recommendation?

5. Peter Metarko is extremely optimistic about the market

for the new baby food. What is your advice for Pete?

6. Julia Day has been told that developing the legal documents

for each fundraising alternative is expensive. Julia

would like to offer alternatives for both risk-averse and

risk-seeking investors. Can Julia delete one of the financial

alternatives and still offer investment choices for risk

seekers and risk avoiders?

please I want the answers for the last three questions number 4,5and 6 only thank u

Explanation / Answer

4) Solution for George Yates:Corporate Bonds = $30,000(1+0.13)5= $55,273 - $30,000 = $25,273

Preferred Stock = (4x$30,000) = $120,000 - $30,000 = $90,000

Common Stock = (8x$30,000) = $240,000 - $30,000 = $210,000

George Yates is very optimistic about the future of the new company that he isconsidering to invest in. Since he is very optimistic about the future of the company he isgoing to invest in the option which he will have the maximum return. So George Yatesshould invest in the common stock. This will yield him a profit of $210,000 after deductinghis initial investment of $30,000

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