Figure 1. Image Depicting Relationships Between Rate of Return and Cost of Capital

As noted, commercial enterprises exist in order to earn a satisfactory risk-adjusted rate of return on investors' capital. Full stop. It's that simple. This is the genius of capitalism, which, for all of its pros and cons, has proved to be the best economic model for promoting the general welfare. The economic logic of capitalism says that investors will reward managers who operate businesses in such a way as to produce rates of return (return on net assets, or RONA) that exceed the weighted average cost of capital (WACC). That's the blue wedge in the above image. If managers produce a RONA that is consistently less than WACC (the red wedge), they get fired; or the business gets sold; or both.

Assume alternative scenarios A and B. In Scenario A, the enterprise manages its order-to-cash (O2C) cycle in an efficient manner whereby its O2C cycle is 30 days. Doing so produces a RONA (of 15%) that exceeds the WACC, such that the enterprise is positioned in the blue wedge of Figure 1. In Scenario B, the enterprise is positioned in the red wedge of Figure 1 not because it produces less profit (the NOPAT, item # 1 in Table 1 is the same $150 amount in both scenarios), but instead because the slower O2C cycle forces the enterprise to operate with more invested capital. Table 1 illustrates these relationships:

Table 1. Comparison of RONA Performance According to O2C Performance

# Description

Scenario A:

30-Day Order to Cash

Scenario B:

45-Day Order-to-Cash

1 Net Operating Profit After Tax (NOPAT)

$150

$150

2 Invested Capital

$1000

$1500

3 RONA= # 1 divided by # 2

15%

10%

4 Weighted Average Cost of Capital (WACC)

14%

14%

5 # 3 minus # 4

+1%

-4%

6 Position in Figure 1

Group 1

Group 3

Question 1Do the relationships illustrated in Table 1 suggest why employers care about maximizing the efficiency with which they manage the O2C cycle? Please explain.

Question 2Does your answer to Question 1 indicate why employers favor the candidacy of job applicants who can demonstrate that, on Day One, they have a threshold-level awareness of how an enterprise resource planning (ERP) system can be used to minimize the O2C cycle? Please explain.

Question 3Recall that an ERP is a paradigmatic example of a management information system. With that in mind, please indicate and explain which of the course objectives (see the Appendix) are implicated in our answers to questions 1 and 2.

APPENDIX: Course Objectives

The course is designed to meet the following objectives:

Understanding the role of information systems in organizations

Understanding the various information systems used

Understanding the technical infrastructure for information systems

Understanding the purpose and basic techniques of data management

Understanding how to use appropriate query and search technologies to locate and retrieve pertinent business information

Understanding the role of information technologies in solving business problems and exploiting business opportunities

Thread Please recall the following image from Week 1: Figure 1. Image Depicting Relationships Between Rate of Return and Cost of Capital As noted, commercial enterprises exist in order to earn a satisfactory risk-adjusted rate of return on investors' capital. Full stop. It's that simple. This is the genius of capitalism, which, for all of its pros and cons, has proved to be the best economic model for promoting the general welfare. The economic logic of capitalism says that investors will reward managers who operate businesses in such a way as to produce rates of return (return on net assets, or RONA) that exceed the weighted average cost of capital (WACC). That's the blue wedge in the above image. If managers produce a RONA that is consistently less than WACC (the red wedge), they get fired; or the business gets sold; or both. Assume alternative scenarios A and B. In Scenario A, the enterprise manages its order-to-cash (O2C) cycle in an efficient manner whereby its O2C cycle is 30 days. Doing so produces a RONA (of 15% ) that exceeds the WACC, such that the enterprise is positioned in the blue wedge of Figure 1. In Scenario B, the enterprise is positioned in the red wedge of Figure 1 not because it produces less profit (the NOPAT, item # 1 in Table 1 is the same $150 amount in both scenarios), but instead because the slower O2C cycle forces the enterprise to operate with more invested capital. Table 1 illustrates these relationships: Table 1. Comparison of RONA Performance According to O2C Performance \( \begin{array}{ccc} & \text { Scenario A: } & \text { Scenario B: } \\ \text { # Description } & 30-\text { Day } & \text { 45-Day } \\ \text { Order to } & \text { Order-to- } \\ \text { Cash } & \text { Cash }\end{array} \) NetOperatingProfitAfterTax(NOPAT)$150$150 2 Invested Capital $1000$1500 3 RONA =#1 divided 15%10% by # 2 Thread Please recall the following image from Week 1 : Figure 1. Image Depicting Relationships Between Rate of Return and Cost of Capital As noted, commercial enterprises exist in order to earn a satisfactory risk-adjusted rate of return on investors' capital. Full stop. It's that simple. This is the genius of capitalism, which, for all of its pros and cons, has proved to be the best economic model for promoting the general welfare. The economic logic of capitalism says that investors will reward managers who operate businesses in such a way as to produce rates of return (return on net assets, or RONA) that exceed the weighted average cost of capital (WACC). That's the blue wedge in the above image. If managers produce a RONA that is consistently less than WACC (the red wedge), they get fired; or the business gets sold; or both. Assume alternative scenarios A and B. In Scenario A, the enterprise manages its order-to-cash (O2C) cycle in an efficient manner whereby its O2C cycle is 30 days. Doing so produces a RONA (of 15% ) that exceeds the WACC, such that the enterprise is positioned in the blue wedge of Figure 1. In Scenario B, the enterprise is positioned in the red wedge of Figure 1 not because it produces less profit (the NOPAT, item # 1 in Table 1 is the same $150 amount in both scenarios), but instead because the slower O2C cycle forces the enterprise to operate with more invested capital. Table 1 illustrates these relationships: Question 1-Do the relationships illustrated in Table 1 suggest why employers care about maximizing the efficiency with which they manage the 02C cycle? Please explain. Question 2-Does your answer to Question 1 indicate why employers favor the candidacy of job applicants who can demonstrate that, on Day One, they have a threshold-level awareness of how an enterprise resource planning (ERP) system can be used to minimize the O2C cycle? Please explain. Question 3-Recall that an ERP is a paradigmatic example of a management information system. With that in mind, please indicate and explain which of the course objectives (see the Appendix) are implicated in our answers to questions 1 and 2. APPENDIX: Course Objectives The course is designed to meet the following objectives: Understanding the role of information systems in organizations - Understanding the various information systems used