Beano Ice Cream

Amanda Dundee BEANO CASE QUESTIONS 1. Harriss union proposal is non fair for metalworker. He completely revised the original investiture quantity and giveword deal that they had original discussed. He is asking to raise his partake in to 49%, which would pose many problems for smith in the control condition of the company. exceed Harris that high of a stake in the immunity would be cock-a-hoop him a lot more money, and half of the control. Smith would be unfree on Harris, and if something suddenly happened to him, or the deal didnt end up going through, then Smith would be out of business.His SCORE proponent recommended that he does non give up more than 20% dowery to one investor, and this is above and beyond that. He is as well asking to be paid back his full loan of $95,000 over the first quintuplet forms. This is completely unreasonable, since it is a brand new company and they go away not be returning high profits in those primary years. With that expectation , Smith is expected to not wholly pay back his SBA loan, but also an extra $19,000 per year, with an added prime rate of interest, to Harris.With estimated incomes of only $41,000 after their first year in business, his entire salary for the year would be $8,695. Not only that, but Harris would give his loan back in five years, rundown an extra $111,867. This is an extra 22 times the amount he devote in, while Smith would be left with close to nothing. 2. Even though the estimated net incomes are increasing at a steady pace, it will take him at least five years to get to an average salary point around $60,000. Even then, he will strike his SBA loan and Harriss personal loan to pay back, which would be a huge detriment into his salary.It would be much more rewarding for him if he could come to a negotiation with Harris as an investor, or find a new investor all together. This way he could pay off his loan over a longer period of time, and maybe not give up a lot of his control. With the equity stake and loan that Harris is offering, Smith would not be getting a great salary or return from all his hard work. This particular prerogative seems to be attractive stable with only a 5% failure rate. Once he gets past those first few years, he will start sightedness more of a rofit, with some stores even reaching $500,000 in sales, and they are number three in market position in sales. The franchisee course comes with a lot of perks that will make it much easier for Smith to be successful in his ventures, and the company has a solid competitive vantage with specifics that include superior ingredients, new product and market development, and environmentally apprised behavior. 3. I would not recommend Smith to go into a partnership with Harris.He does not seem very fair in his projections of what his is putting into the company, and seems to be attempting to connive Smith into giving up a ton of his control for not a great amount of return. His financials exp ectations are completely unsportsmanlike and not warranted. Smith will be left with an extremely base salary, and Harris will be making 22 times the amount of his investment in a short period of time. While Smith wants to get started as soon as possible on this first franchise due to his financial problems, if he chooses to go with Harris he could be getting himself into much deeper trouble.The franchise itself seems to be a decent option, with its great location, franchise support, and competitive advantage, but Smith should wait to find a fracture partner. This business will not succeed if the two owners do not get along. It would ruin their entire organizational and managerial structure. FINANCIAL appurtenance 51% Cash flow Distributions Smiths share 1997 with loan $ 17,050 $ 17,050 $ 8,695 1998 with loan $ 37,050 $ 24,350 $ 12,418 1999 with loan $ 55,650 $ 41,750 $ 21,292 1997 1998 1999 2000 2001EBT $ 29,000 $ 49,000 $ 67,600 $ 87,100 $ 87,800 Add deprecia tion $ 12,000 $ 12,000 $ 12,000 $ 12,000 $ 12,000 Cash flow $ 41,000 $ 61,000 $ 79,600 $ 99,100 $ 99,800 Price earning ration (3) 3 3 3 3 3 Company value(average of cash flows from previousyears x 3) $ 123,000 $ 153,000 $ 181,600 210525 $ 228,300 Investor ownership 49% 49% 49% 49% 49% vitiate out amount $ 60,270 $ 74,970 $ 88,984 $ 103,157 $ 111,867