Fin442 Case1

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Case 1 Capital Budgeting Cash Flows Questions 3-5
3.) There are a few option values that we noticed when reading through the ZZolt business plan. The first one being that Doug has equipment that Saira can use in addition to the equipment that she is already purchasing. If Saira doesn’t want it then Doug is going to sell the equipment which has a market value of $3,000 and no book value. Another value option that was in the business plan is the babysitter dilemma. Saira could use her mother as a babysitter for free or she would have to spend $6,000 a year.
4.) One of the biggest aspects of the ZZoltt business plan that could be an ethical trap is Saira’s plan to recommend three contractors to each client. There could be a conflict concerning Saira’s recommendation of contractors and her husband’s contracting business. If her husband is getting a lot more business than any other contractor that she recommends, people will think she is purposely giving her husband business. People might also think that she is giving bad recommendations about other companies just for the sake of her husband’s business. Another piece of ZZolt’s business plan that can be an ethical trap is the requirement of all franchises to be out of the state of Michigan. Saira’s company can make more money than any other franchise because she is the only one that receives the Michigan Energy Incentives. Also, no other state has a rule that limits the number of franchises so all franchisee could face competition from one another while Saira is alone with business guaranteed for herself.
5.) The greatest risk that ZZOLT faces is that the company is going to rely on making a lot of money from franchising. Saira is expecting to add five franchises each year after year four and this would generate a considerable amount of money. The problem is actually getting people to take on a franchise and those…...

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