BUS100 University of Michigan Running a Business Bookstore Paper Please read the writing instruction in the attached file. Please choose option 2, write a paper. And total word count is : 600-700. This paper is based on one person called Bailey and he want to open a bookstore on Manhattan. Your task is to demonstrate your learning throughout the course by answering the question:“Which decision is best? Should Bailey decide to accept the responsibility of running the business or
should she accept the buyout?” Enter your Name:_____Zhuoran Guo__________________________________
(Save this file with your name in the title.)
YOU MAY MAKE ANY REASONABLE ASSUMPTION TO COMPLETE STEP #1 and #2
(Before you begin, look over the entire spreadsheet to familarize yourself with the categories.)
The spreadsheet is ready for you to plug in sales figures. Without any sales, you can see that the business is running a loss of $58,588.00 (Cell: C/49)
Begin by estimating sales. Be careful to use conservative figures since the closer your guess is to reality, the better.
(Remember, 70% of customers browse and ONLY 30% buy.)
# customers
who buy
average sale
shopping days
Annual Sales:
#1) Estimate the average # of customers in a day
DAILY:
who purchase books at the average amount of each sale ($10)
20
Books
Books
using ONLY book customers for this first step (see Workbook p. 24)
$10.00
$72,000.00
#2) Estimate the # of customers in a day who purchase
souvenirs at an average of $15 each sale (see Workbook p. 24)
20
Souvenirs
$15.00
(The formula multiplies the # of customers by the average purchase–times the # of shopping days.)
I & E Statement for one year
Income:
Sale of books (average 10.00)
(Annual Total)
Sale of souveniers (average 15.00)
(Annual Total)
Total Income
$72,000.00
$108,000.00
$180,000.00
Expenses: Cost of Goods Sold
Books (replacement cost at 50%)
Souveniers (replacement cost at 25%)
$36,000.00
$27,000.00
Fixed Expenses:
Rent (3,000.00/mo)
Utilities (10% of rent on the average)
Labor (one FTE employee @ 7.25/2080 hrs/yr)
Labor taxes/employer burden @ 10%
Insurance (liability for slip and fall and fire)
Line of Credit (10,000 @ 12%)
$36,000.00
$3,600.00
$15,080.00
$1,508.00
$1,200.00
$1,200.00
Variable Expenses:
Contingency (unplanned expenses @ 1% of sales)
Commission (25% of souveniers)
$1,800.00
$27,000.00
Total Expenses:
$87,388.00
Profit/Loss (Total Income-total Expenses)
$92,612.00
Total Sales Volume
Bottom Line
Souvenirs
$108,000.00
360
Read through the Balance Sheet by referring to the Footnotes. Then, follow the instructions below.
Balance sheet for value of estate on July 29, 2009
Assets
Current:
Liabilities
Cash
Line of Credit (LOC) (1)
Prepaid Expenses:
apartment mortgage for August
annual insurance (5 months)
12,000.00
Inventory (2)
200,000.00
5,000.00
500.00
Short Term < 1 yr:
Long term > 1 yr:
Bank Loan (4)
Total Liabilities
Furnishings
2,000.00
Long Term:
Real Estate Investment (3)
(Coop Shares)
500,000.00
Owners’ Equity
Co-Signer’s Contribution (5)
Retained Earnings (6)
Total OE
525,000.00
525,000.00
140,000.00
54,500.00
194,500.00
Total Assets
719,500.00
Total Liabilities+ OE
$ 719,500.00
Your task is to calculate two leverage ratios by entering the appropriate formula into the cells.
Leverage ratios:
a) Debt Ratio measures the % of total assets financed by debt (liabilities)
Divide Total Liabilities/Total Assets
73%
b) Debt to Net Worth measures the ratio of Liabilities to Owner’s Equity (2:1 is ideal)
Divide Total Liabilities/total Owner’s Equity
270%
Footnotes:
(1) Mr Lee has granted an LOC which means that Bailey
has access to an additional $10,000 (not shown until she uses it)
(2) Mr. Lee is willing to refinance the apartment mortgage
if he can put a lein on 20% of the the inventory
(3) The Long Term Real Estate Invesment is the
current value of the coop-shares to the apartment
Notice that the Bank Loan is greater than the value of the coop-shares
(4) The Long-Term Bank Loan is the mortgage.
This loan is collateralized by the coop-shares which have dropped in value ( under water )
(5) The co-signer gave Uncle Jeorge the money with legal strings
attached. His contribution is not a loan. He is protected by the First Right of Refusal
in case the business folds. He would be paid before the owner is paid.
(6) The Retained Earnings reflects profitability (or loss) over time
Note: the Retained Earnings represent the portion that Bailey would “take home”
if she decides to not exercise her right to inherit the business.
Convert this percentage into a ratio (see the workbook/p. 25)
Convert this percentage into a ratio (see the workbook/p. 25)
Final Paper Instructions
Your task is to demonstrate your learning throughout the course by answering the question:
“Which decision is best? Should Bailey decide to accept the responsibility of running the business or
should she accept the buyout?”
You may choose to either:
1) Continue the story line and write the final chapter of the novel to say what Bailey would do
OR
2) Write a final paper to say what YOU would do.
In either case you must use at least 15 business terms and BOLD them.
Regardless of which perspective you choose, use the four questions from the critical-thinking rules of
thumb to clarify the question.
#1 What do we know about each option? Use the figures from the Income Statement in Exercise #14 to
state what is known about the amount of sales it would take to be successful for the option to keep the
business.
#2 The question “How do we know it?” is designed to reveal the information underlying question One. For
example, using the S.W.O.T. template will help to reveal the situation. What are the strengths of each
option? The Weaknesses? The Threats?
#3 The question “Why do we believe it?” is designed to get at the underlying assumptions. A decision of
this magnitude requires that the selection of either option must be aligned with a person’s values in order
to be a meaningful choice. If you decide to write about what Bailey should do, then use her values as
stated in the story. If you write from your perspective, then use your values.
#4 The final question “What does the evidence show?” is designed to bring in facts to support the options.
This is where the history of the bookstore is important because it is fact rather than projection of the
future. Use the Balance Sheet in #15 to state what is known about the existing value of the business and
the amount of the “buy out.”
See the syllabus for specifics on formatting.
Upload your final paper through Taskstream.
See the rubric as a resource.
NCU BUS110 Final Paper (100 points)
Exemplary (9-10)
Accomplished (7-8)
Developing (4-6)
Incomplete (1-3)
Missing (0)
An Informed Decision: (15%)
Based on what you have learned in
the course, make a decision: Manage
a Small Business or Accept the Buy
Out.
The choice is explicitly informed
by recognition of how
entrepreneurial thinking is
opportunistic and the paper yields
a truly innovative solution.
The choice is informed by
examples in the class and the
support within the paper is
acceptable for an
entrepreneurial approach.
The choice allows an
entrepreneurial approach, but is
not fully supported within the
paper.
The choice is
uninformed.
Content is
unacceptable
quality or missing.
Use of 15 business terms (15%)
used appropriately within the
context of the paper.
All 15 terms are bolded,
appropriately used in context, and
show that the writer knows how
to “talk the talk.”
All 15 terms are bolded and are
appropriately used in context.
Less than 15 terms are used in
a rudimentary way. May or
may not be bolded.
Less than 15 terms are
used, or not bolded, or
not used correctly.
Content is
unacceptable
quality or missing.
Use of first critical thinking
question: What do we know about
each option? (15%)
Uses I&E exercise #14 to state
amount of sales to be successful.
Offers support.
Builds a good case for what is
known without using
information from #14.
Fails to build a case for the
decision to keep or sell.
Is not addressed.
Content is
unacceptable
quality or missing.
Use of second critical thinking
question: How do we know it? (15%)
Uses the SWOT exercise to
compare both sides of the
decision.
Uses the SWOT exercise to
support one side of the
decision.
Fails to use the SWOT
exercise, but offers sound
support.
Does not analyze the
decision.
Content is
unacceptable
quality or missing.
Use of third critical thinking
question: Why do we believe it?
(15%)
Shows insight by using the value
system of the character if writing
a final chapter, or using own
value system for final paper.
Uses appropriate value system
depending on final chapter or
final paper.
Fails to use underlying value
system to answer question.
Does not evaluate the
decision from a values
point of view.
Content is
unacceptable
quality or missing.
Use of fourth critical thinking
question: What does the evidence
show? (15%)
Uses B.S exercise #15 to gain
accurate figures. Offers insightful
analysis.
Builds a good case to support
the decision, but does not use
exercise #15.
Fails to effectively use
evidence to support decision.
Does not address the
question adequately.
Content is
unacceptable
quality or missing.
Assignment/Grammar & APA
Format (10%) – All papers must Use
Times New Roman, 12-point font,
double spaced, paginated, and include
citations and references. Students
should use APA style for citations.
Meets all requirements: No title
page-put identification in upper
right corner: one line only with
initial, last name, course #, wk #.
No separate page for
References/put @ end of paper.
All in-text citations correct. Uses
APA format/no grammatical
errors.
Missing 1-3 elements
Missing 4-6 elements
Missing more than 6
elements.
Content is
unacceptable
quality or missing.
L
E
V
E
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15 Business terms
accounts payable
agents,
assets,
capital,
business plan,
clients,
cash flow,
benefit,
balance sheet,
break even analysis,
budget,
bookkeeping system,
customer service
debt, corporation,
competitive advantage,
equity,
economies of scale,
effectiveness,
employee
employee development programs,
differentiation strategy,
fixed cost,
expenses,
ethical decisions,
financial statements,
inventory,
goods,
invest,
job analysis,
innovative,
income,
Income and Expense,
human resource management,
liability, liquid, manage, management team,
margin, market, macroeconomics, leadership style,
leading, lending, leverage, leverage ratio, Limited liability company,
operations, opportunities, Operation management, work-in-progress.
mortgage, market segmentation, market research,
market value, market mix, product, profits, planning, price, place, owners equity,
performance evaluation, partnership, risk, service, shares of stock, social contract, sole
proprietorship, profits, threats, SWOT analysis, target customers, tax bracket, stock,
strategy, strength, values, trademark, value chain, wealth, weakness, work environment,
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