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CSU MSL5080 Unit II case study




Read the Case Study on pages 110-111 of the textbook entitled “Starting Right Corporation.”



Once you have finished reading the Case Study, answer the associated Discussion Questions 1-6 in a minimum three-page paper.Your paper should be appropriately cited using APA style. You should also include a minimum of two scholarly sources



After watching a movie about a young woman who quit a successful


corporate career to start her own baby food company, Julia Day decided


that she wanted to do the same. In the movie, the baby food company was


very successful. Julia knew, however, that it is much easier to make a


movie about a successful woman starting her own company than to actually


do it. The product had to be of the highest quality, and Julia had to


get the best people involved to launch the new company. Julia resigned


from her job and launched her new company- Starting Right.



Julia decided to target the upper end of the baby food market by


producing baby food that contained no preservatives but had a great


taste. Although the price would be slightly higher than for existing


baby food, Julia believed that parents would be willing to pay more for


a high-quality baby food. Instead of putting baby food in jars, which


would require preservatives to stabilize the food, Julia decided to try


a new approach. The baby food would be frozen. This would allow for


natural ingredients, no preservatives, and outstanding nutrition.



Getting good people to work for the new company was also important.


Julia decided to find people with experience in finance, marketing, and


production to get involved with Starting Right. With her enthusiasm and


charisma, Julia was able to find such a group. Their first step was to


develop prototypes of the new frozen baby food and to perform a small


pilot test of the new product. The pilot test received rave reviews.



The final key to getting the young company off to a good start was to


raise funds. Three options were considered: corporate bonds, preferred


stock, and common stock. Julia decided that each investment should be


in blocks of $30,000. Furthermore, each investor should have an annual


income of at least $40,000 and a net worth of $100,000 to be eligible to


invest in Starting Right. Corporate bonds would return 13% per year for


the next five years. Julia furthermore guaranteed that investors in the


corporate bonds would get at least $20,000 back at the end of five


years. Investors in preferred stock should see their initial investment


increase by a factor of 4 with a good market or see the investment worth


only half of the initial investment with an unfavorable market. The


common stock had the greatest potential. The initial investment was


expected to increase by a factor of 8 with a good market, but investors


would lose everything if the market was unfavorable. During the next


five years, it was expected that inflation would increase by a factor of


4.5 % each year.



Discussion Questions:



Sue Pansky, a retired grade-school teacher, is considering investing in


Starting Right. She is very conservative and is a risk avoider. What


do you recommend?



Ray Cahn, who is currently a commodities broker, is also considering an


investment, although he believes that there is only an 11% chance of


success. What do you recommend?



Lila Battle has decided to invest in Starting Right. While she believes


that Julia has a good chance of being successful, Lila is a risk avoider


and very conservative. What is your advice to Lila?



George Yates believes that there is an equally likely chance for


success. What is your recommendation?



Peter Metarko is extremely optimistic about the market for the new baby


food. What is your advice for Pete?



Julia Day has been told that developing the legal documents for each


fund-raising alternative is expensive. Julia would like to offer


alternatives for both risk-averse and risk-seeking investors. Can Julia


delete one of the financial alternatives and still offer investment


choices for both risk seekers and risk avoiders?


Paper#46131 | Written in 23-Jan-2016

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