Financial Planning and Forecasting

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University of Pangasinan
PHINMA Education Network
Dagupan City

SCHOOL OF GRADUATE STUDIES AND PROFESSIONAL STUDIES
Master in Business Administration

CASE STUDY ON FINANCIAL PLANNING AND FORECASTING

Submitted by:

NARVI M. MONTANO
MBA Student

Submitted to:

PELILIA C. VELOSO, CPA, LLB, DBA
Professor

First Semester
Academic Year 2010-2011

Financial Planning and Forecasting Case Study
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ENTREPRENEURIAL DECISION MAKING:
CONNECT CABLE CONTRACTORS

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Caldwell Cable Company is responsible for providing and maintaining cable services to Lexington County in South Carolina. To reduce expenses and remove the burden of providing insurance and company vehicles, Caldwell Cable hires outside contractors to perform installations and initial connection of cable service. Every three years the cable contract expires and anyone can submit a closed-bid in an attempt to get the contract. Until recently, P&R Cable, owned by Bob Martin, held the contract. Five years ago, Bob promoted an installer from within the company, named Steve Seiler, to run the business. Since then, Steve has taken on full responsibilities at P&R. On March 15, the contract came up for bid again. Over-burdened by the additional responsibilities and displeased with Bob's unwillingness to share in the profits of P&R, Steve decided to submit a closed bid under the company name "Connect Cable Contractors." Connect Cable underbid P&R by 2% (This figure was discovered later when all the bids became public record after the contract was awarded). This coupled with Caldwell Cable's preference for working with Steve, caused Caldwell to award the contract to Connect Cable. In the course of complying with industry regulations, Steve found that Bob's treatment of worker's compensation was not in compliance with IRS regulations. Under the previous contract, Bob had passed on worker's compensation premiums to his three sub-contractors by deducting 12% from their gross weekly paycheck. By law, Bob should have paid a fixed amount of approximately $6,000 a year. This amount is the responsibility of P&R, not of each sub-contractor. Steve now has to pay the $6,000 at the beginning of the year and cannot pass on the charges to his sub-contractors. Each sub-contractor is paid on a per job basis and Steve is given an override on each job. Exhibit 1 lists the various jobs that can be performed and the amount both Steve and his sub-contractors earned under the previous contract.

Exhibit 1
Various jobs that can be performed and the price Bob paid for each under the previous contract
Type of jobBob's price
Overhead Install$14.50
Underground Install$14.50
A/O(unwired)$5.50
A/O( wired)$5.50
VCR (w/ install)$1.50
Long Drop$10.00
Replace Drop$14.50
Wired$10.00
Unwired$10.00
Reconnect$10.50
VCR (w/ reconnect)$1.50
VCR Hook-Up Only$6.50
Upgrades$6.50
Trip Charge$5.00
TOTAL= $ 115.50
With the removal of the 12% charge, the current amounts that are paid to sub-contractors per job are too high. Therefore, Steve must decide on a new level of prices to pay each person per job. His goal is to pay the sub-contractors more, in real terms, but less in nominal terms. For example, if Steve reduces the pay on a job by exactly 12%, this would be a decrease of 12% in nominal terms, but no change in pay in real terms because the 12% decrease is offset by the sub-contractors not having to pay 12% for worker's compensation. Steve would prefer to give them a raise of between 7%-8%, in real terms. To show the resulting increases in real income, Steve asked each sub-contractor for a copy of their invoices since the "time window" system was initiated in January of this year. Steve felt that using records prior to January would be misleading since the time windows have caused a permanent decrease in everyone's income. Due to constraints, such as incompletely kept...
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