MINISTRY OF EDUCATION & TRAINING

UEH UNIVERSITY

SCHOOL OF BUSINESS

REPORT YEAR 6

BUSINESS SIMULATIONS

COMPANY F-FABULOUS

LECTURER: PH.D Ha Quang An

Ho Chi Minh City

April, 2024
BOARD OF DIRECTORS

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 TABLE OF CONTENTS
I. MARKET OVERVIEW........................................................................................................ 3
1.1. AC camera ........................................................................................................................... 3
1.2. UAV Drone.......................................................................................................................... 4
II. Y6 ROUND DECISION – RESULT .................................................................................... 5
2.1. Product Decision.................................................................................................................. 5
2.1.1. AC Camera ...................................................................................................................... 5
2.1.2. UAV Drone...................................................................................................................... 7
2.2. Marketing........................................................................................................................... 10
2.2.1. AC Camera Decision ..................................................................................................... 10
2.2.2. UAV Drone Decision .................................................................................................... 12
2.2.3. Marketing Results Based on Performance Highlight .................................................... 14
2.3. Compensation .................................................................................................................... 15
2.3.1. AC Camera .................................................................................................................... 15
2.3.2. UAV Drone.................................................................................................................... 16
2.4. Facility ........................................................................................................................... 16
2.4.2. UAV Drone.................................................................................................................... 18
2.5. Corporate Citizenship ........................................................................................................ 18
2.6. Finance............................................................................................................................... 18
III. Y7 PLAN .............................................................................................................................. 21
3.1. Product Design .................................................................................................................. 21
3.1.1. AC Camera .................................................................................................................... 21
3.1.2. UAV Drone.................................................................................................................... 21
3.2. Marketing........................................................................................................................... 22
3.2.1. AC Camera .................................................................................................................... 22
3.2.2. UAV Drone.................................................................................................................... 22
3.3. Compensation .................................................................................................................... 22
3.4. Facility ............................................................................................................................... 22
3.5. Corporate Citizenship ........................................................................................................ 22
3.6. Finance............................................................................................................................... 22

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I. MARKET OVERVIEW
1.1. AC camera

- The average selling price in year 6 increased significantly than in year 5, specifically in
the Europe - Africa market ( increased 24% compared to Y5). The remaining markets
also had an increase of more than 20%, specifically 23.1% in North America, and 21.3%
in the Asia-Pacific and Latin America markets.
- Demand for AC Camera is 3.4% lower than forecast
- Total unit sales increased by 3.3% compared to the 5th year.
- Because of AC Camera's out-of-stock status, the company has some unsatisfied
demand, specifically 2 in Asia-Pacific and the same quantity in the Latin America
market.
- Demand for AC Camera is expected to increase year over year, about 7% per year

- Based on the graph, it can be seen that the industry average features and P/Q rating in
year 6 increased slightly compared to year 5. The industry average price level increased
sharply from year 5 to year 6 as analyzed above. This clearly shows that companies
competing for market share will compete strongly in the mid-range market segment and
above, aiming to create a competitive advantage for themselves compared to their
competitors.
+ The industry average price is $276/product.

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+ The industry average P/Q rating is 4.7 stars, up from the 5th year (4 stars).
+ The features level changes from year 5 to year 6 when increasing from 3 to 3.7
1.2. UAV Drone

- The average selling price in year 6 increased sharply compared to year 5, specifically
the highest increase in the North American market (36.4% compared to Y5); The lowest
was the Asia-Pacific market (30.1%), and the remaining two markets, Europe-Africa
and Latin America, similarly 34.5% and 30.6%.
- Demand for UAV Drones is lower than forecast (-13.1%)
- Units Sold up by 4.3% from year 5.
- Assembly capability industry-wide was adequate to satisfy Year 6 demand.
- Demand for UAV Drones is expected to increase by about 14.1% annually.

- Based on the graph, we can see that the industry average price in year 6 increased at
$1,4289/unit
- The P/Q rating also increased from year 5 to year 6 (from 4 stars in year 5 to 5 stars in
year 6).
- The features level changes from year 5 to year 6 when increasing from 5 to 6.1.

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ð From the Global Trends of UAV Drones, it's apparent to see a sharp price increase, but
on the contrary, the P/Q rating and Features Level are not too outstanding. That can lead
to the actual demand not being able to keep up with expectations.
II. Y6 ROUND DECISION – RESULT
2.1. Product Decision
2.1.1. AC Camera
● The situation of AC Camera in Y5

In Y5, all companies have the same settings in Components as well as P/Q Rating in AC
Camera Product Design. Therefore, this is where the differences begin in Y6, each company
will have a different strategy to aim for the first ranking in the industry.
● Reasons for the Decisions in Product Design
Our strategy is “More value for money”. But in the first few years, we’ve agreed that we
will strive to gain market share as much as possible, therefore, we would like to start the
Y6 with not a very high P/Q rating score so that the components cost would not increase
too much. This had facilitated us to set up low prices in the marketing sections later.
● How we set up the decisions

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We decided to increase the Product Enhancement (including Camera Housing and Editing/
Sharing Capabilities) since after several tryings, we realized that this is the most possible
way to increase P/Q rating score with the cheapest cost.
Moreover, we also increased the R&D expenditures as we knew from previous year trials
that if the team spends an appropriate amount of money on this criterion, in the following
years, even without adjusting component costs, the P/Q rating score will still increase. This
was beneficial to the group goals, so we decided to adjust R&D expenditures from $20,000
(Y5) to $45,000 in Y6.

Y5 Components’ Costs Y6 Projected Components’ Costs

As we can see from the above tables from 2 years Y5 and projected Y6, the increase in
“Camera Housing” and “Editing/ Sharing Capabilities” (each increased $2/ unit) had
changed the components cost from $72/ unit to $76/ unit.
These changes combined with the increase in R&D expenditures has also contributed to the
increase in total Camera Production/ Assembly Cost. Final P/Q rating score increased from
4.0* to 4.5*.
● Result

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Based on the Benchmarks of AC Camera Industry, the industrial camera components,
image sensor, and camera assembly generally have higher average costs compared to
company F. For camera components and features, the average cost per unit is $88.93 and
ranges from $63.00 to $168.50 for the industry, while company F has an average cost of
$76.00 per unit, lower than the industry’s average.
In terms of R&D expenditures, industry 19 has a range of $6,000 to $50,000. The
cumulative R&D expenditures ranged from $51,000 to $95,000 while company F’s
expenditures were $90,000. This suggests that company F invests more in R&D compared
to the industry average.
Overall, company F has lower costs in camera components, image sensor, and camera
assembly compared to the average costs of the industries. Only R&D Expenditures are
significantly higher than overall industry average values.
2.1.2. UAV Drone
● The situation of UAV Drone in Y5

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In Y5, as the same to AC Camera, all companies had the same setting and each company
will have a different strategy in Y6 Round.
● Reasons for the Decisions in Product Design
Based on the big difference in demand between 2 products, we decided to emphasize AC
Camera. However, we still keep the UAV Drone Design at a stable price and quality which
can still create revenue for the company. Therefore, we would like to start the Y6 with not
a low P/Q rating score so that the components cost would not increase too much.
● How we set up the decisions

We decided to increase the Body Frame Construction to Carbon Fiber; Obstacle Sensors
from Front/Rear into 360 Basic and Camera Stabilization Device from Enhance to
Advance. Meanwhile, we increase Number of UAV Drone Models to 3 Models.
Moreover, we also slightly increased the R&D expenditures from $15000 to $24000
because keeping it at the lowest level is not a good choice.

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 Y5 Components’ Costs Y6 Components’ Costs

As we can see from the above tables from result in years Y5 and projected Y6, the increase
in “Built-in Camera”, “Body Frame Construction”, “Obstacle Sensors” and “Camera
Stabilization” had changed the components cost from $506.31/ unit to $595.41/ unit.
These changes combined with the increase in R&D expenditures has also contributed to the
increase in total Camera Production/ Assembly Cost. Final P/Q rating score increased from
4.0* to 4.1*.
● Result

Based on the Benchmarks of UAV Drone, all of the average industrial Drone Components
and Features have higher average costs compared to company F.

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In terms of R&D expenditures, industry 19 has a range of $6,000 to $50,000. The
cumulative R&D expenditures ranged from $36,000 to $80,000 while company F’s
expenditures were $54,000. But this lower is reasonable because the company's strategy is
not focused on this product
2.2. Marketing
2.2.1. AC Camera Decision
● North America:
In line with our Cost Leadership strategy, we strategically adjusted our selling prices to
maintain competitiveness within the North America region. In Year 6, we slightly increased
the Average Wholesale Price to Retailers from $225 to $235 per unit, ensuring our offering
remains attractive to consumers while preserving profitability.
Recognizing the potential of the North American market for our product, we substantially
bolstered our marketing efforts in Year 6. Our investments in marketing activities involve
an increase of $2,500 to $3,000 (in thousands of dollars) in the Advertising Budget.
Additionally, we allocated an extra $100,000 towards enhancing our online presence
through Website Displays. We also extended our Sales Promotion Period by an additional
week in Year 6, and increased the number of warranty periods from 60 to 120 days.

● Europe - Africa

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In alignment with our strategic objectives, we adjusted the Average Wholesale Price to
Retailers in the Europe-Africa region, raising it to $235 per unit in Year 6 from $225 per
unit in Year 5. In our Advertising Budget, it had an additional $600,000 allocation. We also
extended the Sales Promotion Period by an extra week in Year 6. In addition to our
marketing initiatives, we enhanced our customer value proposition by extending the
Warranty Period from 60 to 120 days in Year 6.

● Asia-Pacific & Latin America

Based on the research and some elements, we realized that Asia-Pacific and Latin America
are not potential regions for selling the products, therefore, we decided not to increase much
in Marketing activities in those regions to keep the cost as low as possible. First of all, we
adjusted the Average Wholesale Price to Retailers in both regions, raising it to $240 per
unit in Year 6 from $225 per unit in Year 5. After that, we extended the Sales Promotion
Period by an extra 2 weeks in Year 6. Finally, we expanded the Warranty Period from 60
to 90 days in Year 6.

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2.2.2. UAV Drone Decision
● North America
Although pursuing a Cost Leadership strategy, we acknowledge limited demand for UAV
Drones. In Year 6, we raised the price in North America from $1100 to $1400, with the
goal of reducing sales but increasing profits.
Recognizing the market's potential, we increased marketing spending to $1500 - $2300 for
search engine advertising while keeping website display costs at $1500. In addition, we
provided a 13% discount to online retailers and increased the warranty period from 60 to
120 days.

● Europe - Africa

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For Europe-Africa, we will keep the UAV Drone price at $1,400, as we did in North
America. However, given the lower market potential, we have reduced Website Display
and Search Engine Advertising costs to $1300 and $1800, respectively. Despite this, we
continue to provide a 13% discount to online retailers and maintain a 120-day warranty.

● Asia-Pacific
Recognizing Asia-Pacific's limited potential, we reduced marketing investments to keep
costs under control. We've reduced product prices to $1,250 per unit while lowering
Website Display and Search Engine Advertising costs to $800. Nonetheless, we're retaining
the 120-day warranty period and increasing online retailer discounts by 15%.

● Latin America

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Like in the Asia-Pacific market, we're maintaining the product price at $1,250 per unit, with
Website Display and Search Engine Advertising costs reduced to $700 and $500
respectively. Additionally, we're keeping the 120-day warranty period and raising online
retailer discounts by 15%.

2.2.3. Marketing Results Based on Performance Highlight

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Based on the marketing decisions implemented in Year 6, our company's primary goal was
to bolster our market share. Reviewing the Performance Highlight table, we observe that
AC Camera successfully achieved increased market share, especially in North America and
Europe-Africa, aligning with our strategic objectives for year 6. However, in the remaining
regions where our marketing efforts were not as concentrated, the growth in market share
did not happen during Year 6. In contrast, the market share of UAV drones in Y6 decreased
considerably compared to Y5, which had a total of just 13.6%.
2.3. Compensation
2.3.1. AC Camera
● Decision

Year 5 Year 6

In Year 6, our company forecast that the demand of AC Camera will not increase too
strongly, so we decided to remain all the criteria the same as Year 5.
● Result

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It's obvious that the Actual Demand Units Gained is 15.5% which means there was no
stockout. Furthermore, not investing in Compensation in Y6 is a right choice that creates
no surplus and helps save cost for the company.
2.3.2. UAV Drone
● Decision

Year 5 Year 6

Similar to AC Camera, we also keep everything the same here.

● Result

The Actual Demand Units Gained is 13.3% and it's a preparation for the next year.
2.4. Facility
2.4.1. AC Camera
● Decision

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 Year 5 Year 6

Compared to Y5, we also expanded 40 new Workstation Spaces and 40 new Installed
Workstation Table. Besides that, we haven’t upgraded the Robotic to save cost and avoid
depreciation. The decision is based on the Expected ACC Unit Shortfall.
● Result

Due to the investment in Facility, we can see on the figure that the company can not only
prevent the stockout but also gain from the stockout of the rivals.

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2.4.2. UAV Drone

Year 5 Year 6

In Year 6, Company F did not invest in any components in UAV Drone Facility.
2.5. Corporate Citizenship

In Year 6, Company F did not invest in any components in CSR.

2.6. Finance
● Decision

- Sources of Additional Cash: We decided to borrow an amount of $100 million within

5 years, for investment purposes (building factories, facilities,...). The explanation for

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 these numbers of 100 million and 5 years is that we want to ensure our company's
ability to pay in the future without any risks and at the best cost (6%).
- Uses for Excess Cash: With the purpose of increasing EPS and ROE, we decided to
buy back as many stocks as possible, in this case 200k shares at $12.12
● Result

In year 6, we recorded a total profit of $11,674,000, resulting in an increase in EPS

compared to year 6 ($3.61 in year 7 and -$1.2 in year 6)
- Revenue: with a total revenue of $403.839.000, with the largest contribution coming
from the North America market ($141.758.000)
- Costs: Total cost of goods sold for sales in year 6 is $315.407.000, with the heaviest
investment in the North American market ($109.224.000)
ð In general, the business results of year 6th were only at a stable level with quite a small
profit, leading to a decline in EPS even though our initial goal was to increase EPS.

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- Cash: At the end of year 6, company F's Cash on Hand was $84,323,000. This number
can ensure some activities for the company next year.
- Total Assets: The investment on Gross Investment in Plant and Equipment accounts
for a large part in Total Assets ($272,000,000), plus the company's current assets are
also quite good ($165,782,000) => the company's total assets are currently
$376,682,000
- Liabilities: This year the company has no Overdraft loans and 1-year bank loan
payables, so current liabilities only come from Account Payables and the Current
Portion of Long-term loans, plus Long-term bank loans from previous years, so
company F's total liabilities are $252,897,000.
- Return on Average Equity: The ROE that investors expect is 17,5%, but the actual
number that company F achieved is 9,8%, lower than investors' expectations, proving
that the company is not using shareholder's capital effectively.

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- Current ratio: As a general rule, a current ratio below 1.00 could indicate that a
company is in a negative financial situation, likely unable to pay its debts when due,
whereas ratios above 1.00 might indicate a company is able to pay its current debts as
they come due. Our current ratio is 2.1, which shows that our company is fully capable
of meeting short-term obligations.
- Credit rating: At the end of year 6, our credit rating is B+, which satisfies investors'
expectations. This not only pleases investors but also helps keep interest rates low next
year (year 7).
- Interest Coverage Ratio: An interest coverage ratio of 1.5 is considered the standard
ratio for a business. If the Interest Coverage Ratio is lower than 1.5, it is likely that
investors will refuse to invest further in the business, because the business's default risk
is considered too high. This ratio of company F is 2,62. This number is higher than 1,5,
showing that the company currently has no liquidity problems.
III. Y7 PLAN
3.1. Product Design
3.1.1. AC Camera
From the results of year 6, the company realizes that the price and the design are quite
reasonable to attract customers and gain market share. However, the problem was that with
the same P/Q rating, our competitors sold at lower prices for 4 regions, which led to a
decrease in demand for our product in Y6 compared to projected demand. Thus, in Y7, we
will evaluate our competitor's strategies to adjust our P/Q rating to offer competitive prices.
3.1.2. UAV Drone
Based on the result of year 6, we realized that our competitor increased the P/Q rating of
UAV Drones much higher compared to our P/Q rating. They strategically positioned their
product, with P/Q ratings all exceeding 5*, at a very competitive price. Therefore, in Y7,

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we will adjust our UAV drone's P/Q rating again; it could be a little bit higher compared to
our old rate, to catch more customers and compete with our competitors.
3.2. Marketing
3.2.1. AC Camera
In Y7, we will continue to follow the Mass Marketing strategy with relatively high
marketing costs in 2 main markets - North America, Europe - Africa and try to gain more
market share there. To ensure achievements of those goals, the wholesale price of the
products must be lower than the industry’s averages and offer higher quality than Y6. We’ll
also put more focus on how to adjust, optimize the appropriate cost for advertising budget,
website displays as well as sales promotions. Moreover, we still have to notice the
indicators in this section when making decisions to make sure that we can maintain the
profit like in Y6.
3.2.2. UAV Drone
In Y7, we want to enhance and adhere to the Mass Marketing approach with relatively high
marketing costs in 2 main markets - North America, Europe - Africa and try to gain more
market share there. We will make sure our products are always reasonably priced, and of
excellent quality than Y6, and we'll put more focus on figuring out how to offer the right
amount of cost for website displays, sales promotions, and advertising budgets.
3.3. Compensation
This is the second year of the strategy so our effort is to increase the market share and
units sold. So we decided to increase the base wage to 2% change and remain the other
components. The reason is that last year our total compensation was already higher than
the industry.
3.4. Facility
In year 6, our company invested to extend the Workstation Spaces and Installed
Workstation Table. So this year, the demand will certainly increase. We will initiate an
upgrade to Robotics to reduce the number of persons per PAT from 4 to 3.
3.5. Corporate Citizenship
We have still not invested in this activity yet.
3.6. Finance

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In year 7, we will not take out any additional loans because the cash at the end of year 6
still covers operations in the coming year.
Besides, we will try to buy back as many stocks as possible in the hope of increasing EPS
and ROE.

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