Hunter’s Laptop Retail and Repair Hunter is between jobs right now. He was most recently sitting on the board of an overseas oil and gas company. However, he was underqualified for the position and was eventually let go. Since then, Hunter has also sold some of his paintings for large sums of money. Hunter feels frustrated by ongoing chatter that he has only done well in his career as a result of his father, who holds a prestigious position with the federal government. Fortunately, Hunter has a new idea. He wants to open a computer retail and repair shop. He recently had a problem with his own laptop repair. After dropping his laptop at Eric’s Electronics Repair and neglecting to pick it up, Hunter unfortunately discovered that some sensitive information about his personal life had been leaked to the press. Feeling angry about Eric’s lack of professionalism, Hunter feels that he can open a more ethical repair shop which will compete with Eric. Hunter is asking you for advice on business ethics, specifically which would apply to a computer repair business. Hunter spoken to a friend, Michelle, about this business idea and she has determined that he can feasibly sell eighty-five laptops in his first year of business at an average price of $495 per laptop. Hunter has contacted a major computer manufacturer who has quoted him $1,625 for five laptops, $3,150 for ten laptops, or $28,500 for 100 laptops. Michelle also projects one-hundred-and-fifty laptop repairs in the business’s first year, with each repair priced at $95. On average, a laptop repair would cost Hunter $40 in labour costs (he can’t do repairs himself but is hoping he can learn over time), $10 in materials, and $5 in variable overhead costs. Michelle isn’t confident projecting numbers beyond two years but thinks Hunter should be able to grow sale and repair numbers by 50% in year two and at least sustain that level in following years. Michelle has stressed that trend analysis is important. Hunter’s additional expenses would be $1,300 a month for rent, $350 a month for utilities, and $200 a month for advertising. Hunter plans to use a combination of debt and equity financing- he plans to pay interest of $150 a month and dividends totalling $15,000 at the end of the year. Since Hunter knows many wealthy businesspeople around the world (mainly through a family friend named Barack), he foresees no issues with getting money- he is planning to just call people and ask them if they want to buy shares or loan money to his new company. Hunter is wondering how much money he might be able to withdraw at the end of the business’s first year- he doesn’t want to withdraw any cash which wasn’t technically “profit”. 

Required

He wants you to prepare, using proper formatting, a first-year projected income statement and statement of retained earnings for him. 

Any insight about his projected numbers is greatly appreciated. He is especially interested in a few ratios which will help him with important decisions him run a better business- he has asked for specific scenarios and explanations. Hunter also wants feedback on his plan to use a combination of debt and equity financing. 

What is an optimal financing mix for a business like his? 

What specifically should he know about such a decision? 

Are there any benefits and drawbacks of using equity? What about debt? 

If the business does well, Hunter might consider buying a $30,000 machine which would cut the labor cost of a laptop repair to only $15. 

The machine can repair an estimated 1,500 laptops before it needs to be replaced. After doing some rough math he is not really confident in, Hunter is wondering if he should buy the machine now instead of waiting. He is also not sure how the machine will be depreciated- he wants you to advise him on the best depreciation method for this situation and how the information will be presented on the income statement and balance sheet. Finally, Hunter highly values the local indigenous community and wants to help its members, especially children. He is thinking about gathering volunteer help to produce fifty laptops to sell to a local school at cost (in future, he hopes to donate them for free). Hunter wants you to explain, in detail, how costs can be tracked for these fifty laptops, assuming some specialized workers such as supervisors are paid hourly. He also wants you to take into consideration assembly line worker costs (assuming he can’t find enough volunteers), utilities costs, etc. Be sure to give Hunter an idea about the necessary journal entries and other important elements. Hunter acknowledges that he has gone through a real struggle in his life but is dedicated to turning things around with an ethical, well-run laptop retail and repair business. 

Required

In a business memo drafted by yourself (and not anyone else nor artificial intelligence) to him, give Hunter detailed advice on all issues raised in the case. Feel free to add general business or life advice which may benefit Hunter.

 Brief Guidelines 

1. You will perform an analysis on the projects described in the case and write a memo addressing to the company’s CEO. 

2. You should present your analysis in a professional manner such as nicely/professionally drawn graphs and tables are encouraged. 

3. Draw your final conclusion and make your recommendations.