Assets Legal Issues

Document Sample
Assets Legal Issues Powered By Docstoc
					 Opening Issues
Things we need to discuss!
          Opening Issues
          Things we need to discuss!

•       Lifforce the strange case of

•       Week 9 Assignments
    •     Skill Module 17.2 Whole Life Costing
    •     Inventory Valuation
    •     Eli Consulting advice
    •     The three books and what they said to
                Or man is this strange!

• Risk from most to least – 2 then 1& 3.
  – Why? In 2 Albert is risking almost 75% of his net worth
    and is risking none of it in the others.

• Rewards from most to least – 2, 3, 1.
  – But that that far apart given case assumptions.
• Revise based on the Theorem #6 makes 1
  & 2 many times higher rewards than 3!
  – They are close enough together that risking net worth just
    doesn't seem worth it.
                                  Theorem #6
• If Phase 1 fails everything is lost in all options.
    – Albert is worse off in 2.
• If Phase 2 fails after 1 succeeds then everyone losses all those
  paper gains and are left with nothing.
    – Albert probably got enough out of IPO to recover his net worth and get
      some salary in Phase 2 though not stated in case.
• BUT if Phase 2 Succeeds then the stock that Albert got at the end
  of Phase I IPO and had to leave in stock, would skyrocket in price at
  least 2-4x so his returns would be say $300 million or so depending.
    – This is far more than 3 making it a really bad deal all the way around.
    – This makes 1 and 2 generate huge returns.
    – To me 1 is the overwhelming choice – less risk with the same gain
      [about]! [But you could argue with me on the risk/reward of risking 75%
      of your net worth now verses gaining an extra $30 million! To me it
      depends on the probability of the successful outcome at the end.]
                    Misconceptions Abound!
• Loan has no risk impact on Albert, they are debt of the company.
  D/E ratios are meaningless. Albert’s personal risk and reward is
  NOT = to the risk of the company. Loans are responsibility of
  company an interest paid by company.

• Amount of control does NOT = Risk [he loses control in all

• Amount of rewards does not = ownership %

• The grant has nothing to do with risk except maybe increase it?

• Don’t the family, wife and personal life have any risk?

• Expected value is an important tool in these situations. [Maybe
  NPV does to!] [EV is the probability of an event happening times the
  return of that event.] Add that to PV and you have a winner!
                        Jonathan’s Insight
• Even to the very end new insights emerge. I call this one “The
  Jonathan Insight”!

• He ask me after class why alternative two had to go to an IPO, they
  didn’t need all that much money which they could get by a small IPO
  [I said not likely, too small but it could be raised with another
  investor which would cost a lot less than the first since Phase I
  successful! Amazing, I hadn’t thought of that.

• Then Albert could keep a higher percentage and likely maintain
  control of the company and get a lot, and I mean a lot, more money
  if Phase 2 successful.

• This was a really good insight and I thank Jonathan for it. Oh how
  binders can get in the way of good insight and analysis.

Thanks, Jonathan!
                   Skill Module 17.2 Whole Life Costing

                                                    Kyrobi                                             Delta
                               Whole Life                                             Whole Life
                                   Costs            NPV-20%        NPV 10%                Costs        NPV-20%    NPV 10%
Purchase Price         1        $ 110,000           $ 110,000      $ 110,000          $ 80,000     $ 80,000      $ 80,000
Shipping               1        $    3,500          $   3,500      $   3,500          $   1,000    $    1,000    $   1,000
Installation           1        $    6,500          $   6,500      $   6,500          $   4,000    $    4,000    $   4,000
Testing                1        $    3,500          $   3,500      $   3,500          $   4,500    $    4,500    $   4,500
Maintenance          1-10       $ 120,000           $ 50,310       $ 73,735           $ 149,000    $ 62,468      $ 91,554
Energy costs         1-10       $ 85,000            $ 35,636       $ 52,229           $ 130,000    $ 54,502      $ 79,879
Rebuilding             7        $ 25,000            $   6,977      $ 12,829           $ 35,000     $    9,768    $ 17,961
Disposal              10        $    4,850          $    783       $   1,870          $   6,000    $      969    $   2,313
Whole Life Costs                $ 358,350           $ 217,206     $ 264,163           $ 409,500    $ 217,207     $ 281,207

Whole Life Costs     Kyrobi is clearly the winner

NPV At 20% COC       Indifferent either one

NPV At 10% COC       Kyrobi clearly the winner

Why?                 The late year cost of the Delta is higher while the initial cost of Kyrobi
                     is higher. With the higher the discount rate the last year costs count less

                     and with a lower rate they count more.
                                    Inventory Valuation

Beginning inventory                  0 units
Purchases                            70 units          30@ $1.00, 20@ $1.10, 20@ $1.15
Ending inventory                     25 units
Inventory used                       45 units

LIFO - Last In First Out             25 @ $1.00                 $    25.00
FIFO - First In First Out            20 @ $1.15 and 5 @ $1.10   $    28.50
Weighted Average                     25 @ $1.07                 $    26.75

Weighted Average cost =                             [30x$1.00 + 20x$1.10 + 20x$1.15]/70 = $1.07

LIFO                           Falling prices INCREASE value of inventory                         First cost more
Leaves the first ones          Rising prices DECREASES value of inventory                         First cost less
FIFO                           Rising prices INCREASES value of inventory                         Last cost more
Leaves the last ones           Falling prices DECREASES value of inventory                        Last cost less

Can have a major impact on asset valuation and on Gross Profit [Sales less Costs of Goods]
If higher value then New worth up and income down. If lower Net worth down and income up!

       Just to remind you, Lisa said FIFO is most often used, others methods require much documentation.
             Eli Associates – Advise for Business!
        Deal with all parties – clients, employees, renters, partners
               Cover legal, ethical and professional issues

•   Get a good lawyer                          •   Copyright everything automatically
•   Get a good accountant                      •   Ensure terms with clients are clear on
•   Organize a professional corporation            product ownership
•   General liability insurance for building   •   Be selective with clients
•   Professional business liability            •   Don’t promise what you can’t give just
    insurance                                      to get a job
•   Standard contract terms and                •   Review process by owners of every
    conditions                                     contract prior to signing
•   Non-compete, don disclosure and            •   Give specific rather than general
    client confidentiality agreements              advise
•   All agreements in writing                  •   Be sure in writing client know the
•   Accept a prime contractor only that            recommendations based on facts and
    you trust and will accept your terms           goals provided
•   Figure out ownership of writings,          •   Follow terms of contract
    consulting and copyrights.                 •   Set up standard contract with
                                                   conditions, ownership and payment
                     What Did The Books Say?
           Just a few of the things that could impact Lensbabies!

           THE TIPPING POINT                        CROSSING THE CHASM
•   Just a few people determine the       •   The process of the diffusion of
    success of the “buzz”                     innovations
•   Know who the connectors [ones who     •   Chasm is the problem between the
    knows lots of people] and mavens          early adopters and the early majority.
    [the ones that collect information]       Critical for this product
•   Message must be in context            •   They have to figure out strategy to
•   Word of mouth as shows and                make the leap across the chasm
    conferences and on line blogs         •   Product definition, positioning the
                                              product, channels all are key in finding
                 E- MYTH                      the right people.
•   Have to get past the technician
•   Deal with the triad of management,
    entrepreneur and dreamer in the
Assets & Legal Issues

    Dr. Thomas Webb
         Week 9
         Accounts Receivable
• Critical to cash flow of business, never
  underestimate importance.
• You need to now what appropriate goals are.
• You must have a plan to control A/R.
• Dalton example.
• Check out articles on
            Dalton A/R Example

• Goal less than 60 days given government clients
• Call each client and determine their methods on
  AP. Bill to fit that.
• Identify problem clients and get a strategy for
• Strategy to contact every client over 30-45 days.
• Make collections part of PM job
• Make A/R part of weekly management briefing.
          Inventory & Asset Value

• Inventory
  – Huge consumer of cash
  – Keep it low and then get it lower
  – Different ways to value inventory and their impact.
• Asset valuation
  – Remember have choices, correct isn’t always the best
  – Big impact on balance sheet and even income
       Capital Budgeting

• You need a method to help you
  make choices.
• Simple are “payback” and ROI.
• More complex but better are NPV,
• Rent or buy decision
• This is worth a course in itself, your
  job is
           Legal Issues

•   Lawyers – yes but must fit
•   Negotiation – everything!
•   Litigation, Arbitration, Mediation
•   Zorro Example

    There is just so much here and
    so little time. It is critical!
    Negotiate Everything
             Great Section!
• Prepare
• Position
• Propose
• Seek to create value
• Seek long term solutions
• Seek balance
• Seek mutual safety
• Seek outcomes commensurate with
• Pounce!
    Never ever compromise unless it is part of the deal
    or they won’t accept it as a compromise. Gratuitous
    compromises will only hurt. Nice is not always
         Excellent Section!

• How to avoid torts in contracting.
• Litigation vs. Arbitration vs.
• Intellectual property – patents,
  secrets, copyright, trademarks.
• The problem of infringement
• The Zorro Example
Litigation vs. Arbitration vs. Mediation

     • Litigation
        – Courts system, torts
        – Appeal, costly, slowest, public
        – Favors those with deep pockets
     • Arbitration
        – Outside courts, private judges
        – Mutual agreement to do it, binding decision
        – Confidential, costly, faster, balanced

     • Mediation
        – Outside courts, informal, mediation specialists or
        – Binding only if mutually agree, non binding
        – Confidential, least costly, fastest, best for small
          business, put it in contracts.
              Never enter a relationship without protection!
           25% of staff are lawyers and they are a profit center!

                 WHAT DO                              WHY DO IT?
•   Warning on every page               •   Must protect rights through due
•   Clipping service world wide no          diligence – or lose it! Must show
    name and similarities                   they make good faith effort.
•   Screen books, TV and movies         •   They have a few cases every year
•   Respond to 100% of possible             that generate from $1,000 to
    infringements                           $10,000 in settlement.
•   If no response call and follow up   •   They have one or two cases a
                                            year that can be a windfall. They
•   Have all distributors and agents        got $50,000 from Wal-Mart.
    sign agreements
                                        •   In a TV show they where offered a
•   Investigates potential money            settlement of $500,000. John
    issues – did infringer make             wanted the millions and lost so it
    money?                                  cost him $250,000.
•   File suit if necessary              •   Keeps his current wife busy and
                                            it’s a good business expense.
The End!