capital – investments
resources
Market
plan
profitable – projections – 1st y-2yer3year
Henry’s Laptop Retail and Repair
suppliers
/dealers
ethical issues
Henry is between jobs right now. He was most recently si ng on the board of an overseas oil and gas
company. However, he was underqualified for the posi on and was eventually let go. Since then, Henry
has also sold some of his pain ngs for large sums of money. Henry feels frustrated by ongoing cha er
that he has only done well in his career because of his father, who holds a pres gious posi on with the
federal government.
Fortunately, Henry has a new idea. He wants to open a computer retail and repair shop. He recently had
a problem with his own laptop repair. A er dropping his laptop at Eric’s Electronics Repair and neglec ng
to pick it up, Henry, unfortunately, discovered that some sensi ve informa on about his personal life had
been leaked to the press. Feeling angry about Eric’s lack of professionalism, Henry feels that he can open
a more ethical repair shop which will compete with Eric. Henry is asking you for advice on business
ethics, specifically which would apply to a computer repair business.
Henry has spoken to a friend, Michelle, about this business idea and she has determined that he can
feasibly sell eighty-five laptops in his first year of business at an average price of $495 per laptop. Henry
has contacted a major computer manufacturer who has quoted him $1,650 for five laptops, $3,150 for
ten laptops, or $29,000 for 100 laptops.
challenge – average price
Michelle also projects one-hundred-and-fi y laptop repairs in the business’s first year, with each repair
priced at $95. On average, a laptop repair would cost Henry $40 in labour costs (he can’t do repairs
himself but is hoping he can learn over me), $10 in materials, and $5 in variable overhead costs.
Michelle isn’t confident projec ng numbers beyond two years but thinks Henry should be able to grow
sales and repair numbers by 50% in year two and at least sustain that level in the following years.
Michelle has stressed that trend analysis is important.
Henry’s addi onal expenses would be $1,300 a month for rent, $350 a month for u li es, and $200 a
month for adver sing. Henry plans to use a combina on of debt and equity financing- he plans to pay
interest of $150 a month and dividends totaling $15,000 at the end of the year. Since Henry knows many
wealthy businesspeople around the world (mainly through a family friend named Barack), he foresees no
issues with ge ng money- he is planning to just call people and ask them if they want to buy shares or
loan money to his new company.
Henry is wondering how much money he might be able to withdraw at the end of the business’s first
year- he doesn’t want to withdraw any cash which wasn’t technically “profit”. He wants you to prepare,
using proper forma ng, a first-year projected income statement and a statement of retained earnings
for him. Any insight about his projected numbers is greatly appreciated. He is especially interested in a
few ra os which will help him with important decisions, so he runs a be er business- he has asked for
specific scenarios and explana ons.
Henry also wants feedback on his plan to use a combina on of debt and equity financing. What is an
op mal financing mix for a business like his? What specifically should he know about such a decision?
Are there any benefits and drawbacks of using equity? What about debt?
If the business does well, Henry might consider buying a $30,000 machine which would cut the labor
cost of a laptop repair to only $15. The machine can repair an es mated 1,500 laptops before it needs to
be replaced. A er doing some rough math he is not confident in, Henry is wondering if he should buy
the machine now instead of wai ng. He is also not sure how the machine will be depreciated- he wants
you to advise him on the best deprecia on method for this situa on and how the informa on will be
presented on the income statement and balance sheet.
Finally, Henry highly values the local indigenous community and wants to help its members, especially
children. He is thinking about gathering volunteer help to produce fi y laptops to sell to a local school at
cost (in the future, he hopes to donate them for free). Henry wants you to explain, in detail, how costs
can be tracked for these fi y laptops, assuming some specialized workers such as supervisors are paid
hourly. He also wants you to take into considera on assembly line worker costs (assuming he can’t find
enough volunteers), u lity costs, etc. Be sure to give Henry an idea about the necessary journal entries
and other important elements.
Henry acknowledges that he has gone through a real struggle in his life but is dedicated to turning things
around with an ethical, well-run laptop retail and repair business. In a business memo dra ed by
yourself (and not anyone else nor ar ficial intelligence) to him, give Henry detailed advice on all issues
raised in the case. Feel free to add general business or life advice which may benefit Henry.
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