1.
Compute the income in case only the results of the financial plan are considered.
1.
Answer to Problem 52P
Income of IT and SM regions are $54,945,900 and $65,937,500 respectively.
Explanation of Solution
Business Sustainability:
Business sustainability is increasing the business worth for a long term, by analyzing and managing threats and opportunities of the organization for achievement of organizational strategic plans and communicating the results transparently.
Computation of income:
| Particulars | IT ($) | SM ($) |
| Year one | 9,000,000 | 5,000,000 |
| Year two | 9,900,000 | 7,500,000 |
| Year three | 10,890,000 | 11,250,000 |
| Year four | 11,979,000 | 16,875,000 |
| Year five | 13,176,900 | 25,312,500 |
| Total operating income | 54,945,900 | 65,937,500 |
Table (1)
Thus, income of IT and SM regions are $54,945,900 and $65,937,500, respectively and based on the results of financial plan only, SM region should be chosen as the operating income is higher in this region.
Working Notes:
Income of IT region is computed by adding 10% of the income of the previous year. Income of SM region is computed by adding 50% of the income of the previous year.
2.
Compute the impact on operating income, according to the results of business sustainability analysis.
2.
Answer to Problem 52P
Income would reduce by $15,000,000 and $36,000,000 in IT and SM regions due to the four key stakeholders.
Explanation of Solution
Computation of impact on operating income:
| Particulars | IT ($) | SM ($) |
| Suppliers: | ||
| Creation of adequate supply chain | 10,000,000 | |
| Employees: | ||
| Training of store managers | 10,000,000 | |
| Regulators: | ||
| Environmental regulations | 5,000,000 | |
| Ethical training | 15,000,000 | |
| Local community: | ||
| Spending on community | 7,500,000 | |
| Approvals | 3,500,000 | |
| Reduction in operating income | 15,000,000 | 36,000,000 |
Table (2)
Thus, income would reduce by $15,000,000 and $36,000,000 in IT and SM regions due to the four key stakeholders. Therefore, operating income would reduce by $21,000,000
3.
Compute operating income in both the options considering both the financial plan as well as key stakeholder’s impact.
3.
Answer to Problem 52P
Adjusted income would be $39,945,000 and $29,937,600 in IT and SM regions respectively.
Explanation of Solution
Computation of impact on operating income:
| Particulars | IT ($) | SM ($) |
| Operating income: | ||
| Year one | 9,000,000 | 5,000,000 |
| Year two | 9,900,000 | 7,500,000 |
| Year three | 10,890,000 | 11,250,000 |
| Year four | 11,979,000 | 16,875,000 |
| Year five | 13,176,900 | 25,312,500 |
| Total operating income (A) | 54,945,900 | 65,937,500 |
| Reduction in operating income: | ||
| Less: Impact due to suppliers: | ||
| Creation of adequate supply chain | 10,000,000 | |
| Less: Impact due to employees: | ||
| Training of store managers | 10,000,000 | |
| Less: Impact due to regulators: | ||
| Environmental regulations | 5,000,000 | |
| Ethical training | 15,000,000 | |
| Less: Impact due to local community: | ||
| Spending on community | 7,500,000 | |
| Approvals | 3,500,000 | |
| Total Reduction in operating income (B) | 15,000,000 | 36,000,000 |
| Adjusted operating income | 39,945,000 | 29,937,600 |
Table (3)
Adjusted income would be $39,945,000 and $29,937,600 in IT and SM regions respectively. Therefore, IT region would be selected since it would have higher operating income.
4.
Discuss one qualitative factor that could be considered before making the decision. Also, explain how the factor could potentially affect the answer computed based on the quantitative data.
4.
Explanation of Solution
A qualitative factor that could be considered before making the decision is lack of completion in SM region. Also, since, the region is less developed; incurring costs to provide value addition to the community, conducting ethical training and establishing supply chain management would benefit the society which would have positive impact on
Therefore, company may opt for SM region after considering all these factors.
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