Bridge-It Energy Solutions Chris has just been hired as the new CEO of Bridge-It Energy Solutions, a 40-year-old corporation specializing in installing oil and gas pipelines throughout western Canada. The company made a sudden transition in its leadership last week after the previous CEO, Jack Burns, was recorded drunk in a local bar making derogatory comments about Terrace's indigenous community. The clip went viral and the company acted quickly to announce that Jack's comments did not reflect the views of the organization and relieved the 67-year-old executive from the duties he had held for eighteen years. To replace Jack, Bridge-It hired Chris, who had been working as the VP of Communications with a competing pipeline company. As he comes from an indigenous background (his grandmother was onequarter Kitsela), Chris has an idea of what needs to be done to work equitably with the indigenous BC community. He already has some experience in this area with his old role. Over the last couple of years, Bridge-It's customers have urged the company to mend its relations with the indigenous community. However, the shareholders have relentlessly urged the company to continue focusing only on generating the highest profit possible. Lisa, one of Bridge-It's senior accountants has noticed the company has recently lost bidding wars on a couple of new projects. One of the concerns from customers has been its lacking community relations. In her first discussion with Chris, Lisa wondered if discussing the issue with the media and shareholders may help push the company in the right direction. Chris convinced her to keep quiet for now, reminding her that certain information should remain inside the company until it can be disclosed strategically. Chris wants an outline of the ethical implications of the company's current business environment, including potential pollution concerns and accountants who have access to sensitive information. He also wants specific advice on how the company can become more ethical (once again, taking into account specific pollution concerns with pipeline companies). A golf course in Terrace, which has agreed to let the oil pipeline through its property in exchange for $250,000 and assurance that Bridge-It will only complete work between October and March, has inquired about having additional natural gas lines installed so there can be outdoor patios with fireplaces around the golf course. Chris is wondering how he would price out a job like that and how the bookkeeping/accounting process for it might look like. While there are employees with experience with this sort of thing in the company, Chris has been explicitly told by major investors to investigate cash shortfall issues which have plagued the corporation of late. Hence, he will try to get external help with pricing new projects to avoid unwittingly involving someone who has been cheating the company. Chris is planning on conducting a thorough investigation to determine the cause(s) of the cash shortfalls. To start, he wants to make a budget of a project started last year, Eagle Heights. He has some data about the construction process to date, but highly suspects it is incomplete (he feels not all relevant costs are included). He wants you to not only look at the data critically, ensuring nothing is missing, but also explain to him why budgeting is a useful process. He isn't sure why the company hasn't been budgeting its projects in detail all along and is considering making regular budgeting a strict policy at Bridge-It. Here is the data he has for the Eagle Heights project: Inputs Required Cost per input 20-foot pipeline segments (433) $814 per segment Digging/prep man hours per segment (2.7) $32 per hour Digging/prep machine hours per segment (2.4) $122 per hour Installation- man hours per segment (3.2) $47 per hour Installation- machine hours per segment (2.8) $113 per hour Installation- supervisor hours per segment (1.1) $68 per hour End-of-project land restoration cost $235,000 Bridge-It narrowly won the Eagle Heights project with a bid of $1.18 million three years ago. Since then, the project has suffered repeated delays. A significant portion of the costs incurred to date have been covered via bank loan- the Eagle Heights customer has paid $250,000 in advance. Currently, the company has installed 303 pipeline segments (all of the segments have been purchased) and spent a collective $696,000. Chris is wondering if the bid for such a large project was too low. He wants advice on how to evaluate budgets once actual data is available. He is also wondering if the company should bid higher in the future. In his mind, a project is not worth doing unless there is a profit margin of 25% after all expenses, but he's not sure if this is the right mentality to have. Bridge-It's management has been thinking about investing in a new $550,000 machine which would be able to dig as well as install pipeline segments. This would drop the digging/prep hours to 2.1 and the installation machine hours to 2.6 (Eagle Heights is a typical project for Bridge-It, so the project's numbers are pretty representative of the company as a whole). Also, the man hours for both functions would drop by 10%. The machine could feasibly be used for 1,500 hours a year for the next eight years, at which point it could be scrapped for $5,000. An alternate option is for the company to lease the machine for four years, at a cost of $6,000 per month. With leasing, the estimated maintenance costs of $3,500 per year would be covered by the machine's owner. Currently, Bridge-It is able to borrow money at a rate of 4.20%. It can also opt to issue additional common shares instead (the company has paid an annual dividend of $3 per share for the last decade). Some shareholders have expressed concern over the company borrowing more money, as debt is already 90% of equity. However, other shareholders are not keen about the company issuing new common shares. In addition to a financial analysis of buying, leasing, or forgoing the new machine, Chris wants a detailed discussion of pros and cons of financing with debt or equity (particularly with Bridge-It). Bridge-It is also strongly considering boosting its annual marketing budget from $80,000 to $130,000. By doing this, it could bid 10% higher on projects but still continue to sustain its current revenue level of $1,400,000 a year. Chris wonders if there is any real advantage to doing less business for the same money. He wants you to think about what kind of advertising might be appropriate to attract large businesses such as golf courses, hotels, and even municipal governments. He also wants to use strategic marketing to rapidly improve Bridge-It's reputation, specifically with indigenous issues. Chris is well aware that he does not have enough experience with accounting, finance, or numbers in general to make decisions unilaterally for Bridge-It Energy Solutions- he really is in a tough spot until he resolves the cash shortfall issue and starts trusting others in the company. He is asking you, a group of talented MBAs, for a detailed business report which outlines the company's current situation, analyzes the issues it faces, and provides practical recommendations.