Introduction to Cost Accounting

PROFESSORS
JASON L. BROWN & BRIAN P. MILLER

Things to consider
Strategy / Business Model

Reasonableness of Valuation Incentive Structure

Idea vs. Execution

What is unique about this business model?

What are the critical factors for the business to be profitable?

Would you invest in the business?

Strategy
Pricing $36 for 12 bars + $6 Ship flat rate 2nd Order price drops to $30 for 12 bars Competition Cliff Bars 12 Bars / $19.00 (1.58/ Bar) Youbars.com (Since 2006) 13 Bars / $38.37 Customization Cherry Charge $1.99/ Bar Promotions

The offers Jonathan received were:

$150,000 for 75% of company. $150,000 for 100% of company and 4% royalty based on sales.

Why did the Sharks offer different deals?

Structuring the compensation

1. Fixed contract - $100,000/Year 2. Variable contract 4% of Sales

3. Hybrid A - $50,000/Yr. & 2% of Sales 4. Hybrid B - $50,000/Yr. & 10% of Oper. Inc.

Principal Agent Problem

A principal (owner), hires an agent (manager or employee) to perform tasks on his behalf. However, he cannot ensure that the agent performs those tasks in the way the principal would prefer. The decisions and the performance of the agent are impossible to monitor every minute of the day. In most cases the incentives of the agent differ from those of the principal. Hence, the principal must create the proper incentives and performance reports to monitor the agent.

Principal Agent Problem

Shareholders & Bondholders

CEO

Board of Directors

Maximize firm value