1) Noble Bicycles of Glen Arbor, Michigan, is a small batch manufacturer of high-end bicycles typically builds bicycles in batches of one to three units. Quality is high, only to be expected when the typical bicycle frame costs $2,500 and up. Yet, profits have not kept pace with top management's expectations. Management has set a goal of generating a minimum of 25% return on assets. As a result of a corporate SWOT analysis, management has identified one critical threat: the costs at Noble are simply too highand one important opportunity: because of the flexibility of operations and the experience of the design team, many of whom are either professional or serious amateur bicyclists, Noble is well positioned to become an innovation leader. A top management team consisting of the marketing director, the finance director, the corporate vice president, the purchasing director, and the director of operations management has developed two alternative strategies: (1) focus on reducing costs through the application of lean systems and procedures and (2) focus on product innovation. To assess the two approaches, the team has generated the following table.

Category Current Values Lean Proposal Innovation Proposal

Sales $12,500,000 $12,500,00 $16,000,000

Cost of goods sold $10,625,000 $9,375,000 $12,000,000

Variable expenses$750,000$650,000$800,000

Fixed Expenses$750,000$600,000$750,000

Inventory$1,250,000$900,000$1,500,000

Accounts Receivable$600,000$500,000$600,000

Other Current Assets$600,000$600,000$750,000

Fixed Assets$600,000$600,000$600,000

The company's current ROA is 12.30%

a.How does the lean proposal affect operations at Noble Bicycles?

b.How does the innovation proposal affect Noble Bicycles (why)?

c.Which proposal would you recommend to top management? Why?

d.How much of a change in sales would be required in order to make the returns of the two proposals equivalent?

e.What are the strategic risks of these proposals?