"The Lanzettas had already spent S10.500 before incorporation on obtaining patent approval for their invention in the United States and Canada. Patents were also being processed in Italy, Germany, France and the United Kingdom. With initial capital of $18.000 raised from personal loans of SI0.500 from the Confederation Bank and $7.500 from Best Finance Ltd, the Lanzettas had established an office at their home in Ann Arbor, Michigan, and had purchased production equipment. Capital expenditures consisted of $750 for office equipment, $20,250 for a single cavity mould, $3,750 for tools and dies and $3,750 for a blister pack mould..."

This means that the Lanzettas have already invested $28,500 in the business. They invested $10,500 of their own funds to get the patent, and then took out personal loans totaling $18,000 to finance the purchase of other assets for the business. Thus, the $18,000 debt is personal debt, not business debt, so it is NOT included in Kitchen Helper’s balance sheet. In other words, they went into debt themselves in order to finance their equity stake in the business.

Note that financial modeling is an essential part of the course; failure to use call referencing throughout your work on the Kitchen Helper case will result in a failing grade on the final project, even if all of your numbers are otherwise correct. Also, please use multiple worksheets rather than trying to arrange the entire model in a single Excel worksheet. This greatly enhances flexibility in organization, column widths and row heights.

 In addition to the information given in the case, please incorporate the assumptions in the table below. Use of these assumptions will ensure consistency in your results. Failure to adopt these assumptions will have a significant negative impact on your grade.

Requirements:

The minimum requirements for the final project include:

1. an executive summary [maximum of TWO pages] supporting your application for the credit line (do NOT include basic facts from the case except as necessary to explain your analysis). The executive summary should describe the business enterprise, your experience and qualifications [make up some reasonable ones if you want to]. Insofar as possible, we want to replicate the experience of seeking financing for a real business. In the "interview," you can role play Ken, Richard, or someone who represents their interests [e.g., an accountant or consultant].
2. a complete and accurate cost-volume-profit analysis, with appropriate graphs and data tables
3. a full, accurate master budget, including
   1. an accurate balance sheet as of the start of the business
   2. an accurate cost summary for product costs and for fixed and variable costs
   3. monthly income statements and a summary income statement for the year]
   4. monthly cash budgets and a summary column for the total for the year]
   5. a year-end balance sheet
   6. a summary of anticipated performance, referencing appropriate critical operating ratios and statistics

Note that these are minimum requirements. Completion of 1 through 3, above, cannot get you an A on the project; if you do all of these, and do them extremely well, you would probably get a B, subject to the qualifications below.

Weak performance on the above items will result in a commensurately lower grade. In evaluating your work I look particularly for an understanding of the conceptual material related to the assignment. Incorrect cell references and clerical errors are a problem, but they are typically easily corrected. However, evidence of a lack of understanding of basic concepts [e.g., contribution margins, what goes on the balance sheet and where, cash vs. accrual, having the content and organization of the income statement correct] is far more serious. Equally serious is the inability to interpret or use numerical results, when the results themselves are correct. The presence of one or more conceptual errors will differentiate between B papers and those which descend to the C [or lower] category. One or two major conceptual errors can have an enormous impact on your grade, so your ability to demonstrate a thorough understanding of the concepts is critical. Remember that quantitative and graphical exhibits do not stand for themselves. They require interpretation and understanding. You cannot assume that the bankers will see what you want them to see.

Professional appearance in your printed report is essential. Use appropriate page orientations [landscape or portrait] as necessary; fit the content to the page. If rows or columns hang over on the next page, use the Excel capability to repeat row titles or column headings on successive pages. Use the "wrap text" capability to fit text into a single cell. Do not use extra columns to "allow space" for text.

By this time, you should have developed enough expertise in financial modeling using Excel so that evaluation of alternative scenarios is facilitated by thoughtful workbook organization, use of Excel functions, and other techniques.

Another differentiating factor will be credit awarded for things like the items below, based on thoroughness, creativity, and quantitative accuracy. Bear in mind that all analyses must be reasonable; for example, it would be highly unrealistic to assume that the sales revenues could be double the amount given in the case, or that the cost of goods sold could be half the amount given.

Discussion of such issues must be supported by appropriate quantitative analysis. It must be reasonable and based on an understanding of the industry and of relevant market phenomena. Professional presentation is expected. Poorly written, badly organized, sloppy work will receive no credit.

Each group will have a separate meeting with the "bankers." Craig Chance, our guest speaker on December 7th will join us for the final exam period to assist me with the "interviews." Please bring enough copies of your work so that EVERYONE has a copy in front of them. DO NOT try to memorize what you are going to say, and DO NOT bring note cards. It's perfectly OK to refer to your Excel worksheets, but don't just read from them, either. You need to be familiar enough with the business concept and with your numbers so that you can just talk about it intelligently, just as you would if you sitting around a table over pizza and beer with a friend. If you were really applying for financing at a bank and brought note cards with you, the banker would probably not be very impressed with your level of confidence in what you proposed to do.

The final is a team or group project. Groups will consist of 2 or 3 [NOT 4] people. Each group will be constituted by November 9th. You are free to make up your own groups. I will not serve as a matchmaker. Each group will meet to agree upon their own "rules of engagement," which are to be submitted to me in writing no later than November 9th. Each member of the group must sign the group policies document, which I will retain in the event of a group "blow-up." Your "rules" should address such things as [but are not restricted to] sharing of effort, attendance at meetings and procedures for arranging meetings. Each person will be asked to provide a confidential evaluation of the group's work.

In the event of a blow-up, the entire team is to meet with me. At this meeting, I will present you with the document that you all signed and try to get to the root of whatever problems may be occurring. If the problems cannot be resolved, the team has the right to fire a member who is uncooperative, although that action should be a last resort. If your team is experiencing problems, PLEASE report the situation to me BEFORE you get to the "breaking point."  I cannot force you to cooperate if you don't want to, but I do insist that major problems be reported to me immediately simply to ensure that I know what is going on. In the event of a "firing," the "firee" will complete the entire project alone. Yes, that means starting over again, even if the "divorce decree" is filed the day before the final is due. Consequently, there are significant incentives for cooperation and learning to work together. [Welcome to the real world. We seldom get to choose our professional colleagues, and we may well wind up working with folks who are irritating or downright nasty.]