Case 1 In Your Home part 1

Vivian Koyama founded In Your Home, Inc. (IYH) just ten years ago when she was having trouble finding in-home support services for her aging parents. She struggled because her parents wished to stay in their own home, but really werent capable of taking care of it. Their health wasnt critical and they certainly werent ready for a nursing home, but they were older and needed help with cleaning, cooking, and home upkeep plus someone to drive them to appointments, social events, and shopping when the weather was bad. Vivian, an only child, couldnt find anyone reliable and trustworthy to help her out. So she started IYH to meet the need. Over the past ten years, demand for the service has skyrocketed and revenues are now just over $5 million. The key to the companys success is a group of dedicated employees who treat the clients as if they were their own parents. It had been a great year and things were looking good for the future so Vivian had an idea for rewarding the care givers and shared it with you, the leadership team.

The company would buy a piece of real estate in a desirable vacation location. The property would be fully furnished, including linens, dishes, etc. As a reward, Vivian wants to give each of the 40 employees the use of the property free of chargemaybe one week a year or every other year, just depends on the property. When an employee isnt using the property, Vivian hopes it could be rented to generate almost enough income to cover the costs. She has worked with the accountant and determined that there is about $375,000 cash to spend. Anything above that price will have to be financed. IYHs borrowing rate is 4.5% and the company can take on up to another $375,000 in debt without violating existing debt covenants.

Your leadership team is given the task of doing the research resulting in a proposal for a property purchase. While you can ignore income tax implications, the complete report would contain analysis of (to be done in three parts)

Assignment Requirements for Part 1 of project

Your first task is to consider all the fixed and variable costs associated with a property like this. Your report, less than three pages, should contain the following headings:

• Introduction and Assumptions
• Variable Costs associated with the reward program
• Fixed Costs associated with the reward prog