13.

Employee Morale  To take advantage of lower leverage (and interest rate)

when applicable, I/C loans can be made between
The Employee morale is regional. Keep in mind that the subsidiaries.
discontinuity of employment by decreasing budget, merging
departments and by selling plants will have a high negative
impact on employee morale.
16. Share Price and Dividend
The capital of the company in region 2 is made up of 1000 shares.
14. The Manufacturing Operations
The share price of each subsdiary will change during the exercise.
a. The specific manufacturing cost sensitivities are: The changes in price will be influenced by the subsidiary's
performance in terms of:
Eco-
FACILITY Low Cost Family Image
Friendly  The shareholders' equity, i.e. capital plus accumulated
retained earnings
Economies of
HIGH MEDIUM HIGH V. LOW  The return on equity, i.e. profit per share
scale
Learning Curve LOW MEDIUM HIGH LOW  The revenue growth
 Dividend payments

THE CUSTOMER
By changing car specifications, Engineering can have various
impacts on fixed and variable costs. The dividend is paid regionally.

b. Facility Capacity Data for region 2 If your company wishes to issue a dividend to its shareholders, the

VALUE CHALLENGE
payment must be shared between the subsidiaries and may only be
FACILITY Low Cost Family paid out of the initial cash of each subsidiaries. Cash constraints
apply to the payment of dividends in each region.. No dividend can
Initial Facility Investment $4484 $3600
be paid if accumulated retained earnings are negative in the region
Depreciation rate (per per.) 4% 6% it is paid.
An opportunity to lead and manage
At the merger, the specifications of the cars have been defined by 17. Cash Constraints a global car manufacturer from
the engineering department of region 1; these specifications will
be different between the competitors leading to different CAPEX You have to respect cash availability in each of the two regions. a general management perspective
per unit and different capacities in region 2.
Initial cash available
After the merger the Worldwide engineering department will
At the beginning of each period, Mega defines the cash available as
define the car specifications for both regions and modify the
the cash at the end of the previous period. This is the amount shown
CAPEX per unit.
at the end of the cash flow statement as “Current Cash”.
Companies can build a new plant in region 2. The minimum
capacity is 30, but at that size, the fixed costs may be too big. The Remember Loans are not available for use during the period in
CAPEX per unit and the depreciation rates are the same than in which they are taken.
region 1.
The sum total of all the expenses, production budgets, investments
d. Non-use of a Facility and dividend MUST NOT EXCEED THE INITIAL CASH AVAILABLE.

Companies may decide not to utilise a facility in any period, if they
so wish. HOWEVER, AN EXTRAORDINARY CHARGE CALLED
“NON OPERATING RESULTS” WILL BE MADE AGAINST PROFIT
FOR THAT PERIOD EQUAL TO THE FIXED COST OF THAT
FACILITY.
15. Loans
 Same rules as in Region 1.
As I/C Loans are available in the same period, it may help to solve
some cash shortage in one of the regions.
18. Tax Rate & Inventory Charges
You pay tax in both regions. Corporate Tax rate is 50%. There is a Tax
credit for any loss carried forward.
BUILDING GLOBAL LEADERSHIP

 You can take loan in both regions.

 The leverage (Total Loans/Shareholders’ equity) is

computed regionally and impacts the regional interest rate:
o Below 40% 2%
© MEGA Learning 2019 All Rights Reserved
o From 40% to <60% 4%
Aide mémoire_Cars_Phase2
o From 60% to <80% 6% www.megalearning.com
o From 80% to 100% 8%
1. Merging with a company selling two  The worldwide budget is apportioned to the regions on MARKUP & TRANSPORTATION COST
the basis of each facility’s capacity
lines of business in a “BRIC” region  This is a unique moment to analyse differences between CARS Low Cost Family
Eco-
Image
Friendly
The Top Management of the other company has resigned and regions and re-evaluate your perception of customer
you have now become the Corporate Management Committee sensitivities Markup 15% 15% 20% 25%
of the new entity. Transport 5%
6. Product Transfers
Based on the forecast of demand in each regions and differences in
production capacity, it may be usefull to tranfer some products from
7. Intercompany Loans
one region to the other:  Any amount within cash available
 Volumes are entered in the transfer sheet  Instant cash transfer
 Vendor may export goods manufactured during current  Immediate deduction from issuers’ available cash
period
 Available to beneficiary within same period
 Buyer may sell goods purchased during current period
 No interest
 Buyer pays at the end of the period out of operating cash
 Enter I/C loan in transfer sheet
 Transfer price is based on:
Teams may decide to enter the new markets Eco-Friendly and 8. Sale of a Facility
Image in region 2 but it may need some time to create these new Production cost + markup + transportation cost
markets; the car models already exist but the dealers’ network  Sale proceeds equal 80% of current facility value
and the brand have to be established.  An Extraordinary charges of 20% of current facility value will be
The logic used to set the Transfer Price (TP) is based on a fair break made
2. Product Market Growth Rates down of the profit between the subsidiairies:
 Usable capacity reduced by 25% during current period
ESTIMATED GROWTH RATE PER PERIOD  Where sold? : Outside the game environment
Eco-  When sold? : End of current period
CARS Low Cost Family Image
Friendly
 How to decide? : Enter “1” in the “summary” sheet
Region 1 +10% -5% +15% +5%
 When is cash available? : End of current period
Region 2 +20% +5% +5% +15%
9. HR & Quality
3. Customer Purchasing Criteria HR & Quality is regional and you have to take a decision for both regions.
Same in both regions Impact are the same as in phase 1.

4. Car Product Lines Profiles 10. Business Index

Same in both regions According to many economic experts, the economic environment looks
quite healthy in Region 2, with higher growth expected in Region 2 than in
Region 1.
5. Engineering
5.1 Role of Engineering 11. Production Cost Index
Same in both regions The Production Cost Index in Region 2 currently amounts to 75% of same
index in Region 1. Some economists think this difference will decrease over
5.2 Engineering Impacts
time, as costs increase faster in Region 2, due to faster increase of the
Same in both regions The markup has been set to reflect the difference in investments Business Index.
(which impact depreciation) and the percentage of revenue
5.3. One Engineering Department allocated to the engineering department.
12. Gas Price Index
The merge is a unique opportunity to combine the two Transportation cost is a percentage of the cost of each car, markup
engineering departments into a WORLDWIDE ENGINEERING included. As the Gas Price Index is worldwide, the impact on customer sensitivities
department: to consumption will be the same in the two regions.

 One worldwide engineering decision per line of

business