EduNinja1. Piper Industrial (PI)
Piper Industrial (P I) manufactures pipe. The company is highly profitable and its corporate tax rate is 20 % . P I is forecasting major capital expenditure for 2019.
Table 1: Selected forecast financial information for the year ending 31 December 2019
Table 2: Annual cash flow forecast for the year ending 31 December 2019
Define the term capital expenditure.
Describe one capital expenditure and one revenue expenditure for MSS (lines 16-17).
3. Hums Athletics (HA)
Hums Athletics (HA) manufactures running shorts, sweat shirts, and sports bras. Operating only in the secondary sector, HA has a head office and three manufacturing facilities, one for each product. These are located in its home country in Europe. Labour costs are high. The quality of labour is excellent.
HA produces goods under its own HA brand, which it sells to wholesalers. HA also manufactures for other sportswear companies. HA puts the other sportswear companies' logos on the running shorts, sweat shirts, and sports bras. Sales to other sportswear companies are an important revenue stream for H A.
HA has many levels of hierarchy. Managers at each level have a narrow span of control, and the company is organized by product. HA's management believe that these features of organizational structure ensure product quality, which they view as essential for brand loyalty.
The sportswear manufacturing industry is becoming more competitive. Some foreign manufacturers have begun using penetration pricing to gain market share. For three years, none of HA's revenue streams have increased, despite increasing unit sales. HA's gross and net profit margins have declined. However, its sales have increased for the last three years. HA has had to raise additional external finance to increase production.
In response to the increasing competition, H A is considering two options:
- Option 1: Outsourcing some of its manufacturing overseas.
- Option 2: Entering the rapidly growing online business-to-consumer (B2C) retail market.
Market research has shown that consumers increasingly expect to buy online.
Explain:
why HA had to raise additional external finance to increase production.
5. Office Supplies (OS)
Office Supplies (OS) is a family-owned private limited company that, for 40 years, has operated three retail office supply stores in a small city. OS offers a wide range of office products (such as computer paper and stationery) and office machinery (such as computers and printers). When each store opened, OS purchased the buildings using long-term loan capital. OS's objective is to have enough profit to finance the company's working capital and pay annual dividends.
OS has no clear marketing strategy. Traditionally, OS competed with several other office supply stores operating in the same city. The market was not competitive, however, and most customers went to the nearest office supply store. OS's prices were comparable to those of other retail office supply stores, and the company did little promotion.
Nationally, the retail office supply store industry is declining. Many retail office supply stores have had to close, and new competitors have entered the market, many of which benefit from some or all of the following:
- Specialization in particular office products
- Economies of scale leading to more competitive prices
- Greater convenience, including e-commerce with door-to-door delivery
Like other physical retail stores, OS has seen its sales decline. Gross and net profit margins have fallen. Last year, to ensure enough funds for capital expenditure and revenue expenditure, OS's board of directors chose not to pay dividends. OS also anticipates the need for additional finance next year. OS's board is considering changes to the company's marketing mix in response to new competitors.
With reference to O S, explain the difference between capital expenditure and revenue expenditure.
4. Red Squirrel Apple Juice (RS)
Red Squirrel Apple Juice ( RS) is a cooperative of apple farmers. RS was named after the red squirrel, whose population is declining because of growing numbers of grey squirrels. Originally from North America, grey squirrels are aggressive and take over red squirrels' habitats. RS's founders thought that the red squirrel would be a good symbol to reverse the declining popularity of traditional apple juice due to consumer preference for high-sugar American-style beverages. With the symbol, R S aimed to appeal
to environmentally aware and health-conscious consumers.
Originally, R S only sold apple juice in bulk to beverage companies. These companies bottle the juice and sell it under their own labels. R S requires these companies to place R S 's logo of a red squirrel on their labels. Although R S only sells to a small number of beverage companies, its logo is on juice bottles in stores across the country.
Awareness of the R S brand grew. The cooperative's managers recently opened another channel of distribution: direct sales of bottled juice to consumers at the cooperative's processing plant. R S charges lower prices than stores. The new channel of distribution required capital expenditure for bottling equipment and additional revenue expenditure. R S experienced increased labour and promotion costs, which some farmers complained about.
In recent decades, R S 's home country has experienced rising anti-immigrant sentiment. Some politically motivated organizations have begun to use images of red squirrels to symbolize this sentiment, so some beverage companies no longer want to use R S's logo on their labels.
Some of RS's stakeholders are concerned.
With reference to R S, explain the difference between capital expenditure and revenue expenditure.