Harry'sLaptopRetailandRepair

Harryisbetweenjobsrightnow.Hewasmostrecentlysittingontheboardofanoverseasoiland gascompany.However,hewasunderqualifiedforthepositionandwaseventuallyletgo.Since then,Harryhasalsosoldsomeofhispaintingsforlargesumsofmoney.Harryfeelsfrustratedby ongoingchatterthathehasonlydonewellinhiscareerasaresultofhisfather,whoholdsa prestigiouspositionwiththefederalgovernment.

Fortunately,Harryhasanewidea.Hewantstoopenacomputerretailandrepairshop.He recentlyhadaproblemwithhisownlaptoprepair.AfterdroppinghislaptopatEric'sElectronics Repairandneglectingtopickitup,Harryunfortunatelydiscoveredthatsomesensitive informationabouthispersonallifehadbeenleakedtothepress.FeelingangryaboutEric'slack ofprofessionalism,Harryfeelsthathecanopenamoreethicalrepairshopwhichwillcompete withEric.Harryisaskingyouforadviceonbusinessethics,specificallywhichwouldapplytoa computerrepairbusiness.

Harryspokentoafriend,Hermione,aboutthisbusinessideaandshehasdeterminedthathecan feasiblyselleighty-fivelaptopsinhisfirstyearofbusinessatanaveragepriceof$505perlaptop. Harryhascontactedamajorcomputermanufacturerwhohasquotedhim$1,700forfivelaptops, $3,200fortenlaptops,or$29,000for100laptops.

Hermionealsoprojectsone-hundred-and-fiftylaptoprepairsinthebusiness'sfirstyear,witheach repairpricedat$100.Onaverage,alaptoprepairwouldcostHarry$40inlabourcosts(hecan't dorepairshimselfbutishopinghecanlearnovertime),$10inmaterials,and$5invariable overheadcosts.Hermioneisn'tconfidentprojectingnumbersbeyondtwoyearsbutthinksHarry shouldbeabletogrowsaleandrepairnumbersby50%inyeartwoandatleastsustainthatlevel infollowingyears.Hermionehasstressedthattrendanalysisisimportant.

Harry'sadditionalexpenseswouldbe$1,300amonthforrent,$350amonthforutilities,and $200amonthforadvertising.Harryplanstouseacombinationofdebtandequityfinancing-he planstopayinterestof$150amonthanddividendstotalling$15,000attheendoftheyear.Since Harryknowsmanywealthybusinesspeoplearoundtheworld(mainlythroughafamilyfriend namedBarack),heforeseesnoissueswithgettingmoney-heisplanningtojustcallpeopleand askthemiftheywanttobuysharesorloanmoneytohisnewcompany.

Harryiswonderinghowmuchmoneyhemightbeabletowithdrawattheendofthebusiness's firstyear-hedoesn'twanttowithdrawanycashwhichwasn'ttechnically"profit".Hewantsyou toprepare,usingproperformatting,afirst-yearprojectedincomestatementandstatementof retainedearningsforhim.Anyinsightabouthisprojectednumbersisgreatlyappreciated.Heis especiallyinterestedinafewratioswhichwillhelphimwithimportantdecisionshimrunabetter business-hehasaskedforspecificscenariosandexplanations.

Harryalsowantsfeedbackonhisplantouseacombinationofdebtandequityfinancing.Whatis anoptimalfinancingmixforabusinesslikehis?Whatspecificallyshouldheknowaboutsucha decision?Arethereanybenefitsanddrawbacksofusingequity?Whataboutdebt?

Ifthebusinessdoeswell,Harrymightconsiderbuyinga$30,000machinewhichwouldcutthe laborcostofalaptoprepairtoonly$15.Themachinecanrepairanestimated1,500laptops beforeitneedstobereplaced.Afterdoingsomeroughmathheisnotreallyconfidentin,Harry iswonderingifheshouldbuythemachinenowinsteadofwaiting.Heisalsonotsurehowthe machinewillbedepreciated-hewantsyoutoadvisehimonthebestdepreciationmethodfor thissituationandhowtheinformationwillbepresentedontheincomestatementandbalance sheet.

Finally,Harryhighlyvaluesthelocalindigenouscommunityandwantstohelpitsmembers, especiallychildren.Heisthinkingaboutgatheringvolunteerhelptoproducefiftylaptopstosell toalocalschoolatcost(infuture,hehopestodonatethemforfree).Harrywantsyoutoexplain, indetail,howcostscanbetrackedforthesefiftylaptops,assumingsomespecializedworkerssuch assupervisorsarepaidhourly.Healsowantsyoutotakeintoconsiderationassemblylineworker costs(assuminghecan'tfindenoughvolunteers),utilitiescosts,etc.BesuretogiveHarryanidea aboutthenecessaryjournalentriesandotherimportantelements.

Harryacknowledgesthathehasgonethrougharealstruggleinhislifebutisdedicatedtoturning thingsaroundwithanethical,well-runlaptopretailandrepairbusiness.Inabusinessmemo draftedbyyourself(andnotanyoneelsenorartificialintelligence)tohim,giveHarrydetailed adviceonallissuesraisedinthecase.Feelfreetoaddgeneralbusinessorlifeadvicewhichmay benefitHarry.