1. BSAD 102 Mike’s Bikes Business Simulation
St. Francis Xavier University
Professor Neil Maltby

2. Carpe Diem: A Time of Decision
Gather ye rosebuds while ye may,
Old time is still a-flying;
And this same flower that smiles today,
Tomorrow will be dying.
Robert Herrick (1648)
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3. Overview The Year Ahead St. Francis Xavier University
The President of your firm has retired and you have now assumed full control. Your design team has announced the completion of three new bike designs.
Your first major decision is to decide whether to invest in one of the new designs.
You also have full control of financing the firm
Issuing bonds
Issuing/repurchasing shares and paying dividends.
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4. Concepts New Product Development St. Francis Xavier University
Key factors for successful products
Unique, superior product
Strong market orientation
International orientation
Why do new products fail?
Not delivering what is promised
Poor marketing research
Technical problems
Insufficient marketing effort
Bad timing
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5. Launching New Product Development re: Mike’s Bikes
Is there an opportunity for a new bike?
Scenario report
Your company’s positioning (price, awareness/public relations, quality, distribution) vs competitors (see next slide)  good forecast?
Cost (development and marketing)
Do you have the resources – financial position and capacity
Opportunity cost
Foregone benefits of the next best alternative
What are you going to do with your mountain bike?
Keep, re-design ($) or abandon?
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6. Launching Positioning Map St. Francis Xavier University
Projecting competitive launches
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High Price
Open Market Space A D A B F G
Mountain
Road
Youth C C D D X
Open Market Space E E
Low Price

7. Decision New Product Development re: Mike’s Bikes Product Marketing
Adv 1 (existing)
Pricing & Promotion
Development
maintain current design, redevelop or abandon
Product slot (empty)
Note costs, design specifications, and SCUs
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8. Application Financing re: Mike’s Bikes St. Francis Xavier University
How much money do you have?
How much money do you need?
Bike launch(es)
Marketing to customers and vs competitors
Which method of raising money meets your short-term and long-term needs?
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9. Concepts Financing Debt financing through selling bonds
A bond is a:
Certificate indicating the owner has lent money to the issuer of the bond
Contract of indebtedness issued by a corporation that promises payment of regular interest payments and the principal amount at a specific future time
Source of long-term financing (long term obligation)
Advantage – no loss of ownership (bondholders are creditors); opportunity to generate funds to invest in profitable ventures
Disadvantage – increase debt and market’s perception of risk
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10. Application Issuing Bonds St. Francis Xavier University
Financial Management
Bonds
Bond issue limit – 50% of assets less existing bonds
Note interest rates, amount (listed on I/S) and repayment date
Higher levels of debt will increase your D/E ratio and could result in lower SHV because the market (and your investors) perceive your firm to be riskier
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11. Concepts Equity St. Francis Xavier University
Financing through issuing/repurchasing equity
Equity financing is another form of long-term financing
Equity financing is the sale of shares of ownership in the corporation
Dilutes concentration of ownership, therefore firms “manage” the number of outstanding shares via issuing and repurchasing
Dividends
Payment made out of a firm’s earnings to its investors (shareholders)
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12. Application Issuing Equity St. Francis Xavier University
Financial Management
Equity
Firms that need money may consider issuing Equity
Equity issue limit – 50% of issued shares to a limit of $5,500,000
Firms that have money may consider repurchasing Equity and/or issuing dividends to shareholders
Equity repurchase limit – 10% of issued shares to a limit of $1,100,000
Dividend limit – 50% of retained earnings to a limit of $3.61/share
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13. Application Managing SHV with Equity St. Francis Xavier University
Dividends
Firms that issue dividends inflate their SHV beyond the impact of net income
Earnings per Share
Firms that increase their Earnings per Share inflate their SHV beyond the impact of net income
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Net
1,000,000
# of shares
1,100,000
900,000
EPS
$1 per share
$0.91 per share
$1.11 per share

14. Next Have your decisions input by 4pm Friday Next Class
Prepare for discussion the Maple Leaf Hardware case.  Review the past performance of Maple Leaf Hardware Ltd.
What have been the major sources of financing and the major uses (both short and long-term)?
Has Maple Leaf Hardware been financially successful?
Prepare projected income statement for the next two years. 
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