BUSINESS FINANCE 2012 EDITION SAMPLE ROLE PLAYS AS USED IN DECA S INDIVIDUAL SERIES EVENTS

BUSINESS FINANCE SAMPLE ROLE PLAYS AS USED IN DECA S INDIVIDUAL SERIES EVENTS 2012 EDITION

Business Finance Individual Series Events DECA Images 1908 Association Drive Reston, Virginia 20191-1594 DECA Images Published 2012 by DECA Images. Copyright 2012 by DECA Inc. No part of this publication may be reproduced for resale without written permission from the publisher. Printed in the United States. 1

Business Finance TABLE OF CONTENTS Introduction...3 Role Plays Role Play #1...5 Role Play #2...13 Role Play #3...21 Role Play #4...27 INTRODUCTION This publication is designed to assist DECA members and their local chapter advisors in preparing for the Individual Series Events. This document will be useful in preparing students for local, state and international competition by familiarizing them with the format, structure and evaluation tools used in international competition. This series of events is presented as an example of the types of events in which a student might expect to participate at the International Career Development Conference. The competitive events found herein, however, are not representative of all performance indicators that the student may be expected to demonstrate on the international level. A complete list of performance indicators upon which the events are written can be found at www.deca.org/competitions/2/. PROCEDURE An individual series event consists of two major parts: a written comprehensive exam and two preliminary role-playing events. A third role-play activity will be given to finalists. The comprehensive exam is a 100-question multiple-choice test developed especially for each series based on the knowledge, skills and attributes associated with the particular occupation. Exams from previous years are available for sale through DECA Images at www.deca.org/shop. In the role-playing portion of the event, participants must accomplish a task by translating what they have learned into effective, efficient and spontaneous action. The participant is given a situation to review. It may indicate a product or service to sell, a merchandising decision or a problem in communication and interpersonal skills. Participants are allowed 10 minutes to review the situation and to develop a professional approach to solving the problem. Up to 10 minutes are then allowed for the participant to be examined by a competent judge and asked to explain how (s)he would solve the situation or problem. The judge is a qualified business executive playing the role of second party in the situation. Following the examination, the judge evaluates the participants responses and records the results on an evaluation form which has been developed specifically for each competitive event. 3

PREPARATION In order for DECA members to realize success in competition, DECA advisors are encouraged to carefully plan curriculum which will contribute to student success in the competency based competitive events and to provide real world experiences specifically necessary in the occupational area for which the student has a career interest. Competency based competitive events are intended to be a motivational tool used by the DECA advisor to encourage student learning. The success of the member s participation in competency based competitive events directly relates to the experiences (s)he has gained in the classroom and / or at the training station. As the local, district, state or international competitive event approaches, the advisors are encouraged to further prepare the competitor in tasks such as the following: Prepare yourself mentally. The competitor should get sufficient sleep the night before competition so that (s)he will be mentally alert and able to concentrate on the activities. Dress appropriately. Professional dress should be worn to all conference sessions. Please note: Competitors at the ICDC must wear an official DECA blazer during interaction with the judges. Official DECA blazers are sold through DECA Images. Follow the program agenda. Competitors should carefully follow the program agenda provided at the conference. (S)he should locate the event room beforehand and arrive at the site early enough to be acclimated to the environment, relaxed, etc. Competitors must be on time for each event. Use preparation time wisely. Competitors should take advantage of the time provided for each activity of the event. During the written tests, the competitor should think through each item completely and carefully while gauging the time appropriately. If time allows, recheck the answers. While preparing for role play events, competitors should use all the time allotted constructively. 4

CAREER CLUSTER Finance CAREER PATHWAY Corporate Finance INSTRUCTIONAL AREA Financial Analysis BUSINESS FINANCE SERIES EVENT PARTICIPANT INSTRUCTIONS PROCEDURES 1. The event will be presented to you through your reading of these instructions, including the Performance Indicators and Event Situation. You will have up to 10 minutes to review this information to determine how you will handle the role-play situation and demonstrate the performance indicators of this event. During the preparation period, you may make notes to use during the role-play situation. 2. You will have up to 10 minutes to role-play your situation with a judge (you may have more than one judge). 3. You will be evaluated on how well you meet the performance indicators of this event. 4. Turn in all your notes and event materials when you have completed the role-play. PERFORMANCE INDICATORS 1. Explain the nature of costing procedures. 2. Discuss the nature of depreciation. 3. Discuss the financial planning process. 4. Discuss the relationship between risk management and business finance. 5. Make capital expenditure decisions. 5

EVENT SITUATION You are to assume the role of treasurer at North American ChefWare, a manufacturer of consumer cookware. The president (judge) has asked you to recommend whether the company should buy or lease production machinery. North American ChefWare is a manufacturer and marketer of high quality stainless steel cookware. Marketed under the brand name ChefWare, the company produces a complete line of cooking vessels such as frying pans and sauce pans intended for use on a home stove or range top. Sales revenue has been steadily increasing but the company has found that it has inadequate production capacity to meet the growing demand. Production engineers report that some machinery is subject to frequent breakdowns and is terribly out of date and needs to be replaced soon. The president (judge) has given approval to replace the obsolete machinery to increase production capacity. The company can purchase the needed machinery at a cost of $90,000, borrowing the money at 7% over a five year period. The loan would be paid back at $21,780 per year. The machinery has a salvage value of $30,000 and North American will be able to depreciate the remainder over a five year useful life. Yearly maintenance costs are budgeted to be $3,000 a year. Leasing the same machinery would cost North American $21,000 for each of the next five years. Lease payments would come from company cash reserves; no financing will be necessary. North American will have the option to purchase the machinery at a cost of $18,000 at the end of the five-year period. The president (judge) has requested a meeting with you to obtain your analysis and recommendation regarding whether to buy or lease the machinery. Specifically: The five year costs associated with buying vs. leasing the machinery. The risks to North American of buying vs. leasing. Do you recommend buying or leasing the machinery? You will present your analysis to the president (judge) in a role-play to take place in the president s (judge s) office. The president (judge) will begin the role-play by greeting you and asking to hear your ideas. After you have presented your analysis and have answered the president s (judge s) questions, the president (judge) will conclude the role-play by thanking you for your work. 6

JUDGE S INSTRUCTIONS DIRECTIONS, PROCEDURES AND JUDGE S ROLE In preparation for this event, you should review the following information with your event manager and other judges: 1. Procedures 2. Performance Indicators 3. Event Situation 4. Judge Role-play Characterization Participants may conduct a slightly different type of meeting and/or discussion with you each time; however, it is important that the information you provide and the questions you ask be uniform for every participant. 5. Judge s Evaluation Instructions 6. Judge s Evaluation Form Please use a critical and consistent eye in rating each participant. JUDGE ROLE-PLAY CHARACTERIZATION You are to assume the role of president of North American ChefWare, a manufacturer of consumer cookware. You have asked your treasurer (participant) to recommend whether the company should buy or lease production machinery. North American ChefWare is a manufacturer and marketer of high quality stainless steel cookware. Marketed under the brand name ChefWare, the company produces a complete line of cooking vessels such as frying pans and sauce pans intended for use on a home stove or range top. Sales revenue has been steadily increasing but the company has found that it has inadequate production capacity to meet the growing demand. Production engineers report that some machinery is subject to frequent breakdowns and is terribly out of date and needs to be replaced soon. You have given approval to replace the obsolete machinery to increase production capacity. The company can purchase the needed machinery at a cost of $90,000, borrowing the money at 7% over a five year period. The loan would be paid back at $21,780 per year. The machinery has a salvage value of $30,000 and North American will be able to depreciate the remainder over a five year useful life. Yearly maintenance costs are budgeted to be $3,000 a year. 7

Leasing the same machinery would cost North American $21,000 for each of the next five years. Lease payments would come from company cash reserves; no financing will be necessary. North American will have the option to purchase the machinery at a cost of $18,000 at the end of the five-year period. You have requested a meeting with the treasurer (participant) to obtain an analysis and recommendation regarding whether to buy or lease the machinery. Specifically: The five year costs associated with buying vs. leasing the machinery. The risks to North American of buying vs. leasing. Do you recommend buying or leasing the machinery? The treasurer (participant) will present the analysis to you in a role-play to take place in your office. You will begin the role-play by greeting the treasurer (participant) and asking to hear about his/her ideas. Buying the Machinery: Possible Solution Interest Expense: $21,780 annual payment x 5 years = $108,900 principal + interest $108,900 - $90,000 principal = $18,900 five year interest expense Five Year Depreciation Expense: $90,000 - $30,000 salvage value = $60,000 Five Year Maintenance Costs: $3,000 x 5 years = $15,000 Costs of Buying the Machinery: Cost of machinery $90,000 Interest expense 18,900 Maintenance costs 15,000 $ 123,900 Leasing the Machinery: $21,000 x 5 years = $105,000 Option to purchase at end of lease = $18,000 (which is $12,000 less than salvage value) Impact on Taxes: (some advanced participants may address the tax issue) North American s taxable earnings and taxes paid would be reduced annually by interest expense, depreciation expense and maintenance expense if the machinery is bought. If the leasing option is selected, 8

lease expense would reduce taxable earnings and taxes paid. During the course of the role-play you are to ask the following questions of each participant: 1. How do interest rates impact a business s decision to spend money on capital improvements? 2. How would you respond to employee criticism that the latest state-of-the-art production machinery only serves to take away jobs? Once the treasurer (participant) has presented an analysis and has answered your questions, you will conclude the role-play by thanking the treasurer (participant) for the work. You are not to make any comments after the event is over except to thank the participant. 9

Evaluation Form Information JUDGE S EVALUATION INSTRUCTIONS The participants are to be evaluated on their ability to perform the specific performance indicators stated on the cover sheet of this event and restated on the Judge s Evaluation Form. Although you may see other performance indicators being demonstrated by the participants, those listed in the Performance Indicators section are the critical ones you are measuring for this particular event. Evaluation Form Interpretation The evaluation levels listed below and the evaluation rating procedures should be discussed thoroughly with your event chairperson and the other judges to ensure complete and common understanding for judging consistency. Level of Evaluation Exceeds Expectations Meets Expectations Below Expectations Little/No Value Interpretation Level Participant demonstrated the performance indicator in an extremely professional manner; greatly exceeds business standards; would rank in the top 10% of business personnel performing this performance indicator. Participant demonstrated the performance indicator in an acceptable and effective manner; meets at least minimal business standards; there would be no need for additional formalized training at this time; would rank in the 70-89 th percentile of business personnel performing this performance indicator. Participant demonstrated the performance indicator with limited effectiveness; performance generally fell below minimal business standards; additional training would be required to improve knowledge, attitude and/or skills; would rank in the 50-69 th percentile of business personnel performing this performance indicator. Participant demonstrated the performance indicator with little or no effectiveness; a great deal of formal training would be needed immediately; perhaps this person should seek other employment; would rank in the 0-49 th percentile of business personnel performing this performance indicator. 10

JUDGE S EVALUATION FORM BFS DID THE PARTICIPANT: 1. Explain the nature of costing procedures? 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to explain the nature of costing procedures were inadequate or weak. Adequately explained the nature of costing procedures. Effectively explained the nature of costing procedures. Very effectively explained the nature of costing procedures. 2. Discuss the nature of depreciation? 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to discuss the nature of depreciation were inadequate or weak. Adequately discussed the nature of depreciation. Effectively discussed the nature of depreciation. Very effectively discussed the nature of depreciation. 3. Discuss the financial planning process? 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to discuss the financial planning process were weak or incorrect. Adequately discussed the financial planning process. Effectively discussed the financial planning process. 4. Discuss the relationship between risk management and business finance? Very effectively discussed the financial planning process. 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to discuss the relationship between risk management and business finance were inadequate or weak. Adequately discussed the relationship between risk management and business finance. Effectively discussed the relationship between risk management and business finance. Very effectively discussed the relationship between risk management and business finance. 5. Make capital expenditure decisions? 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to make capital expenditure decisions were inadequate or weak. Adequately made capital expenditure decisions. Effectively made capital expenditure decisions. Very effectively made capital expenditure decisions. 6. Overall impression and response to the judge s questions. 0, 1, 2 3, 4, 5 6, 7, 8 9, 10 Demonstrated few skills; could not answer the judge s questions. Demonstrated limited ability to link some skills; answered the judge s questions adequately. Demonstrated the specified skills; answered the judge s questions effectively. Demonstrated skills confidently and professionally; answered the judge s questions very effectively and thoroughly. Judge s Initials TOTAL SCORE 11

CAREER CLUSTER Finance CAREER PATHWAY Corporate Finance INSTRUCTIONAL AREA Financial Analysis BUSINESS FINANCE SERIES EVENT PARTICIPANT INSTRUCTIONS PROCEDURES 1. The event will be presented to you through your reading of these instructions, including the Performance Indicators and Event Situation. You will have up to 10 minutes to review this information to determine how you will handle the role-play situation and demonstrate the performance indicators of this event. During the preparation period, you may make notes to use during the role-play situation. 2. You will have up to 10 minutes to role-play your situation with a judge (you may have more than one judge). 3. You will be evaluated on how well you meet the performance indicators of this event. 4. Turn in all your notes and event materials when you have completed the role-play. PERFORMANCE INDICATORS 1. Explain the nature of costing procedures. 2. Describe the relationship between economic conditions and financial markets. 3. Explain the nature of interest rate risk. 4. Explain the time value of money. 5. Make capital expenditure decisions. 13

EVENT SITUATION You are to assume the role of capital budgeting specialist at Crandall Safe Co. The chief executive officer (judge) has asked you to analyze and make a recommendation regarding options for financing a capital project. Crandall Safe Co is a manufacturer and marketer of a line of safes that are sold to the retail consumer market. Founded in 1954, Crandall s product line includes floor safes, wall safes and gun safes. The company continues to operate from its original manufacturing facility which today employs over 700 individuals. While Crandall has kept pace with technology inside the plant; the building itself has become very costly to maintain. The board of directors has granted its approval for Crandall to move the manufacturing operation from its present central city location to an industrial suburban location. The decision has been made to construct a new $30 million manufacturing plant on the suburban site. The options to finance the new construction are as follows: Option 1: Crandall Safe Co. will use $2 million of its cash reserves and borrow the remaining $28 million from a bank over a fifteen year period. The interest rate will remain fixed at 6.75% and quarterly payments over the fifteen year period will be $745,700 each. Option 2: Crandall Safe Co. will use $10 million of its cash reserves and borrow the remaining $20 million from a bank using a fifteen year adjustable rate loan. The first five years of the loan are guaranteed at 4.25% producing a quarterly payment of $452,500. At the start of year six, the principal remaining on the loan will be approximately $18,850,000. However, at the start of the sixth year, the bank will adjust the interest rate based on market conditions at that time. The rate could go up or down and will remain at that rate until the start of the eleventh year when the process repeats again. The chief executive officer (judge) has asked to meet with you to obtain your analysis and recommendations on financing the project. Specifically: the known costs of each financing option an explanation why the interest rate is higher for option one than for option two a recommendation as to which financing option should be selected with rationale You will present your analysis to the chief executive officer (judge) in a role-play to take place in the chief executive s (judge s) office. The chief executive (judge) will begin the role-play by greeting you and asking to hear your ideas. After you have presented the analysis and have answered the chief executive s (judge s) questions, the chief executive (judge) will conclude the role-play by thanking you for your work. 14

JUDGE S INSTRUCTIONS DIRECTIONS, PROCEDURES AND JUDGE S ROLE In preparation for this event, you should review the following information with your event manager and other judges: 1. Procedures 2. Performance Indicators 3. Event Situation 4. Judge Role-play Characterization Participants may conduct a slightly different type of meeting and/or discussion with you each time; however, it is important that the information you provide and the questions you ask be uniform for every participant. 5. Judge s Evaluation Instructions 6. Judge s Evaluation Form Please use a critical and consistent eye in rating each participant. JUDGE ROLE-PLAY CHARACTERIZATION You are to assume the role of chief executive officer at Crandall Safe Co. You have asked your capital budgeting specialist (participant) to analyze and make a recommendation regarding options for financing a capital project. Crandall Safe Co is a manufacturer and marketer of a line of safes that are sold to the retail consumer market. Founded in 1954, Crandall s product line includes floor safes, wall safes and gun safes. The company continues to operate from its original manufacturing facility which today employs over 700 individuals. While Crandall has kept pace with technology inside the plant; the building itself has become very costly to maintain. The board of directors has granted its approval for Crandall to move the manufacturing operation from its present central city location to an industrial suburban location. The decision has been made to construct a new $30 million manufacturing plant on the suburban site. The options to finance the new construction are as follows: Option 1: Crandall Safe Co. will use $2 million of its cash reserves and borrow the remaining $28 15

million from a bank over a fifteen year period. The interest rate will remain fixed at 6.75% and quarterly payments over the fifteen year period will be $745,700 each. Option 2: Crandall Safe Co. will use $10 million of its cash reserves and borrow the remaining $20 million from a bank using a fifteen year adjustable rate loan. The first five years of the loan are guaranteed at 4.25% producing a quarterly payment of $452,500. At the start of year six, the principal remaining on the loan will be approximately $18,850,000. However, at the start of the sixth year, the bank will adjust the interest rate based on market conditions at that time. The rate could go up or down and will remain at that rate until the start of the eleventh year when the process repeats again. You have asked to meet with your capital budgeting specialist (participant) to obtain an analysis and recommendation on financing the project. Specifically: the known costs of each financing option an explanation why the interest rate is higher for option one than for option two a recommendation as to which financing option should be selected with rationale 16 Cost of Financing Option 1: Cash reserves $ 2,000,000 Quarterly loan payments (60 quarters x $745,700) 44,742,000 Principal: $28,000,000 Interest: 16,742,000 Total cost $ 46,742,000 Option 2: Cash reserves $ 10,000,000 Year 1-5 quarterly loan payments (20 quarters x $452,500) 9,050,000 Year 6-15 quarterly loan payments?????? Known costs for first five years $ 19,050,000 The capital budgeting specialist (participant) will present the analysis to you in a role-play to take place in your office. You will begin the role-play by greeting the specialist (participant) and asking to hear about his/her ideas. During the course of the role-play you are to ask the following questions of each participant: 1. Which of the options offers the most risk? Why? 2. How should we deal with the likely criticism of leaving our long-time central city location for the suburbs? Once the budgeting specialist (participant) has presented the analysis and has answered your questions,

you will conclude the role-play by thanking the specialist (participant) for the work. You are not to make any comments after the event is over except to thank the participant. 17

JUDGE S EVALUATION FORM BFS DID THE PARTICIPANT: 1. Explain the nature of costing procedures? 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to explain the nature of costing procedures were inadequate or weak. Adequately explained the nature of costing procedures. Effectively explained the nature of costing procedures. Very effectively explained the nature of costing procedures. 2. Describe the relationship between economic conditions and financial markets? 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts at describing the relationship between economic conditions and financial markets were weak. Adequately described the relationship between economic conditions and financial markets. Effectively described the relationship between economic conditions and financial markets. Very effectively described the relationship between economic conditions and financial markets. 3. Explain the nature of interest rate risk? 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to explain the nature of interest rate risk were weak or incorrect. 4. Explain the time value of money? Adequately explained the nature of interest rate risk. Effectively explained the nature of interest rate risk. Very effectively explained the nature of interest rate risk. 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to explain the time value of money were inadequate or unclear. 5. Make capital expenditure decisions? Adequately explained the time value of money. Effectively explained the time value of money. Very effectively explained the time value of money. 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to make capital expenditure decisions were inadequate or weak. Adequately made capital expenditure decisions. Effectively made capital expenditure decisions. Very effectively made capital expenditure decisions. 6. Overall impression and response to the judge s questions. 0, 1, 2 3, 4, 5 6, 7, 8 9, 10 Demonstrated few skills; could not answer the judge s questions. Demonstrated limited ability to link some skills; answered the judge s questions adequately. Demonstrated the specified skills; answered the judge s questions effectively. Demonstrated skills confidently and professionally; answered the judge s questions very effectively and thoroughly. Judge s Initials TOTAL SCORE 19

CAREER CLUSTER Finance CAREER PATHWAY Corporate Finance INSTRUCTIONAL AREA Financial Analysis BUSINESS FINANCE SERIES EVENT PARTICIPANT INSTRUCTIONS PROCEDURES 1. The event will be presented to you through your reading of these instructions, including the Performance Indicators and Event Situation. You will have up to 10 minutes to review this information to determine how you will handle the role-play situation and demonstrate the performance indicators of this event. During the preparation period, you may make notes to use during the role-play situation. 2. You will have up to 10 minutes to role-play your situation with a judge (you may have more than one judge). 3. You will be evaluated on how well you meet the performance indicators of this event. 4. Turn in all your notes and event materials when you have completed the role-play. PERFORMANCE INDICATORS 1. Explain the nature and scope of purchasing. 2. Discuss the analysis of a company s financial situation using its financial statements. 3. Calculate financial ratios. 4. Describe the nature of cash flows. 5. Identify factors affecting a business s profit. 21

EVENT SITUATION You are to assume the role of financial analyst at PC Outdoor. The purchasing manager (judge) has asked you to analyze and make a recommendation regarding a special purchase. PC Outdoor is a manufacturer of consumer lawn care products that include both dry and liquid fertilizers and weed control sprays. The company markets its products under a few different brand names but the top selling product is the weed control spray NoWeedz. Last week, the purchasing department of PC Outdoor was contacted by its biggest chemical supplier, Horizon Chemical. The purchasing manager was given the opportunity to purchase an unusually large quantity of liquid dimethylamine salt, more commonly known as 2,4-D the primary ingredient in NoWeedz. As an incentive, Horizon offered a 25% discount off the normal 2,4-D bulk price. Horizon will not sell smaller shipments at the discounted price. Currently, PC Outdoor has a three month supply of the chemical 2,4-D. However, the purchasing manager believes space exists to store additional product and the discount is too attractive for the company to pass up. The purchasing manager (judge) has requested that the finance department evaluate the potential special purchase of 2,4-D. Horizon Chemical is charging $120,000 (after discount) for the special purchase of 2,4-D. Terms of sale are the usual net 30 days. PC Outdoor currently has cash of $165,000. A summarized balance sheet appears below: Current Assets 234,000 Non Current Assets 280,000 Total Assets 514,000 Current Liabilities 220,000 Non Current Liabilities 139,000 Total Liabilities 359,000 Equity 155,000 You will meet with the purchasing manager (judge) to provide your analysis and recommendation regarding the special purchase of 2,4-D. Specifically, you must: summarize the advantages and disadvantages of the special chemical purchase explain the current ratio and working capital ratio explain the current financial condition of PC Outdoor give your recommendation and rationale regarding the approval or rejection of the special purchase You will present your analysis to the purchasing manager (judge) in a role-play to take place in the manager s (judge s) office. The purchasing manager (judge) will begin the role-play by greeting you and asking to hear your ideas. After you have presented your analysis and have answered the manager s (judge s) questions, the manager (judge) will conclude the role-play by thanking you for your work. 22

JUDGE S INSTRUCTIONS DIRECTIONS, PROCEDURES AND JUDGE S ROLE In preparation for this event, you should review the following information with your event manager and other judges: 1. Procedures 2. Performance Indicators 3. Event Situation 4. Judge Role-play Characterization Participants may conduct a slightly different type of meeting and/or discussion with you each time; however, it is important that the information you provide and the questions you ask be uniform for every participant. 5. Judge s Evaluation Instructions 6. Judge s Evaluation Form Please use a critical and consistent eye in rating each participant. JUDGE ROLE-PLAY CHARACTERIZATION You are to assume the role of purchasing manager at PC Outdoor. You have asked PC s financial analyst (participant) to analyze and make a recommendation regarding a special purchase. PC Outdoor is a manufacturer of consumer lawn care products that include both dry and liquid fertilizers and weed control sprays. The company markets its products under a few different brand names but the top selling product is the weed control spray NoWeedz. Last week, the purchasing department of PC Outdoor was contacted by its biggest chemical supplier, Horizon Chemical. You were informed of the opportunity to purchase an unusually large quantity of liquid dimethylamine salt, more commonly known as 2,4-D the primary ingredient in NoWeedz. As an incentive, Horizon offered a 25% discount off the normal 2,4-D bulk price. Horizon will not sell smaller shipments at the discounted price. Currently, PC Outdoor has a three month supply of the chemical 2,4-D. However, you strongly believe space exists to store additional product and the discount is too attractive for the company to pass up. You have requested that the finance department evaluate the potential special purchase of 2,4-D. Horizon Chemical is charging $120,000 (after discount) for the special purchase of 2,4-D. Terms of sale are the usual net 30 days. PC Outdoor currently has cash of $165,000. A summarized balance sheet 23

appears below: Current Assets 234,000 Non Current Assets 280,000 Total Assets 514,000 Current Liabilities 220,000 Non Current Liabilities 139,000 Total Liabilities 359,000 Equity 155,000 You will meet with the financial analyst (participant) who will analyze and make a recommendation regarding the special purchase of 2,4-D. Specifically: a summary the advantages and disadvantages of the special chemical purchase an explanation of the current financial condition of PC Outdoor a recommendation with rationale regarding the approval or rejection of the special purchase Possible Solutions At least two financial ratios can be used to evaluate the purchase: Current Ratio = Total Current Assets / Total Current Liabilities A generally acceptable current ratio is 2 to 1. The minimum acceptable current ratio is obviously 1 to 1. PC OUTDOOR S current ratio is $234,000 / $220,000 or 1.06 to 1. Working Capital = Total Current Assets Total Current Liabilities More a measure of cash flow than a ratio; working capital determines a company s ability to weather a financial crisis. PC OUTDOOR S working capital is $234,000 - $220,000 or $14,000. (Zeromillion.com; 2009) The financial analyst (participant) will present an analysis to you in a role-play to take place in your office. You will begin the role-play by greeting the analyst (participant) and asking to hear about his/her ideas. During the course of the role-play you are to ask the following questions of each participant: 1. Is financing the purchase a viable option? How would you calculate the impact of financing the purchase? 2. How might the time of year (March vs. October) impact the decision on the special chemical purchase? Once the financial analyst (participant) has presented the analysis and has answered your questions, you will conclude the role-play by thanking the participant for the work. You are not to make any comments after the event is over except to thank the participant. 24

JUDGE S EVALUATION FORM BFS DID THE PARTICIPANT: 1. Explain the nature and scope of purchasing? 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to explain the nature and scope of purchasing were inadequate or weak. Adequately explained the nature and scope of purchasing. Effectively explained the nature and scope of purchasing. Very effectively explained the nature and scope of purchasing. 2. Discuss the analysis of a company s financial situation using its financial statements? 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to discuss the analysis of a company s financial situation using its financial statements were inadequate. Adequately discussed the analysis of a company s financial situation using its financial statements. Effectively discussed the analysis of a company s financial situation using its financial statements. Very effectively discussed the analysis of a company s financial situation using its financial statements. 3. Calculate financial ratios? 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts at calculating financial ratios were weak or incorrect. 4. Describe the nature of cash flows? Adequately calculated financial ratios. Effectively calculated financial ratios. Very effectively calculated financial ratios. 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to describe the nature of cash flows were inadequate or unclear. Adequately described the nature of cash flows. Effectively described the nature of cash flows. Very effectively described the nature of cash flows. 5. Identify factors affecting a business s profit? 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to identify factors affecting a business s profit were inadequate or weak. Adequately identified factors affecting a business s profit. Effectively identified factors affecting a business s profit. Very effectively identified factors affecting a business s profit. 6. Overall impression and response to the judge s questions. 0, 1, 2 3, 4, 5 6, 7, 8 9, 10 Demonstrated few skills; could not answer the judge s questions. Demonstrated limited ability to link some skills; answered the judge s questions adequately. Demonstrated the specified skills; answered the judge s questions effectively. Demonstrated skills confidently and professionally; answered the judge s questions very effectively and thoroughly. Judge s Initials TOTAL SCORE 26

CAREER CLUSTER Finance CAREER PATHWAY Corporate Finance INSTRUCTIONAL AREA Financial Analysis BUSINESS FINANCE SERIES EVENT PARTICIPANT INSTRUCTIONS PROCEDURES 1. The event will be presented to you through your reading of these instructions, including the Performance Indicators and Event Situation. You will have up to 10 minutes to review this information to determine how you will handle the role-play situation and demonstrate the performance indicators of this event. During the preparation period, you may make notes to use during the role-play situation. 2. You will have up to 10 minutes to role-play your situation with a judge (you may have more than one judge). 3. You will be evaluated on how well you meet the performance indicators of this event. 4. Turn in all your notes and event materials when you have completed the role-play. PERFORMANCE INDICATORS 1. Explain types of investments. 2. Analyze company resources to ascertain policies and procedures. 3. Determine economic utilities created by business activities. 4. Explain the nature of risk management. 5. Explain forms of dividends. 27

EVENT SITUATION You are to assume the role of financial analyst at YardMaster Industries, a lawn and garden equipment manufacturer. The vice-president of finance (judge) has asked you to analyze and make a recommendation regarding the frequency of dividend payments to stockholders. YardMaster Industries is a manufacturer of premium-priced lawn care and snow removal products. Started seventy-eight years ago as a producer of farm tractors, the company has moved out of the farm products market and into the consumer segment. Products today, which are all marketed under the YardMaster brand include: walk-behind lawnmowers, riding tractors, lawn edgers, weed trimmers and a full line of snow throwers. Over the decades, YardMaster Industries has proven to be a sound investment for stockholders during both good and bad economic periods. The company s stock has realized a long-term increase in value and has split three times over the past twenty-five years. In addition, YardMaster is proud of the fact that they have paid a dividend to stockholders for forty-one consecutive quarters. Given below are the earnings and dividend information from the past eight quarters: Quarter Sales Revenue Net Income Dividend Payment 2011 Q4 $68 (million) $3.9 (million) $0.10 (per share) 2011 Q3 $58 $2.1 $0.10 2011 Q2 $78 $4.8 $0.09 2011 Q1 $61 $1.2 $0.08 2010 Q4 $70 $4.1 $0.08 2010 Q3 $62 $2.7 $0.08 2010 Q2 $74 $4.9 $0.08 2010 Q1 $59 $1.8 $0.07 YardMaster Industries has approximately 14,000 stockholders. The vice-president of finance (judge) is exploring the possibility of paying dividends once a year instead of on the current quarterly basis. For example, a stockholder who held YardMaster shares for the last four quarters would receive $0.37 per share at the end of the fourth quarter. The vice-president (judge) has requested a meeting with you to obtain your analysis and recommendation regarding changing the frequency of dividend payments. Specifically: the advantages and disadvantages to both stockholders and YardMaster in continuing to pay the dividend on a quarterly basis benefits to stockholders and YardMaster by changing to an annual dividend payment a recommendation regarding the frequency of dividend payment You will present your analysis to the vice-president of finance (judge) in a role-play to take place in the vice-president s (judge s) office. The vice-president (judge) will begin the role-play by greeting you and asking to hear your ideas. After you have presented your analysis and have answered the vice-president s (judge s) questions, the vice-president (judge) will conclude the role-play by thanking you for your work. 28

JUDGE S INSTRUCTIONS DIRECTIONS, PROCEDURES AND JUDGE S ROLE In preparation for this event, you should review the following information with your event manager and other judges: 1. Procedures 2. Performance Indicators 3. Event Situation 4. Judge Role-play Characterization Participants may conduct a slightly different type of meeting and/or discussion with you each time; however, it is important that the information you provide and the questions you ask be uniform for every participant. 5. Judge s Evaluation Instructions 6. Judge s Evaluation Form Please use a critical and consistent eye in rating each participant. JUDGE ROLE-PLAY CHARACTERIZATION You are to assume the role of vice-president of finance at YardMaster Industries, a lawn and garden equipment manufacturer. You have asked your financial analyst (participant) to analyze and make a recommendation regarding the frequency of dividend payments to stockholders. YardMaster Industries is a manufacturer of premium-priced lawn care and snow removal products. Products are all marketed under the YardMaster brand and include: walk-behind lawnmowers, riding tractors, lawn edgers, weed trimmers and a full line of snow throwers. YardMaster Industries has proven to be a sound investment for stockholders during both good and bad economic periods. The company s stock has realized a long-term increase in value and has split three times in the past twenty-five years. In addition, YardMaster is proud of the fact that they have paid a dividend to stockholders for forty-one consecutive quarters. Given on the next page are the earnings and dividend information from the past eight quarters: 29

Quarter Sales Revenue Net Income Dividend Payment 2011 Q4 $68 (million) $3.9 (million) $0.10 (per share) 2011 Q3 $58 $2.1 $0.10 2011 Q2 $78 $4.8 $0.09 2011 Q1 $61 $1.2 $0.08 2010 Q4 $70 $4.1 $0.08 2010 Q3 $62 $2.7 $0.08 2010 Q2 $74 $4.9 $0.08 2010 Q1 $59 $1.8 $0.07 YardMaster Industries has approximately 14,000 stockholders. You are exploring the possibility of paying dividends once a year instead of on the current quarterly basis. You have requested a meeting with your financial analyst (participant) to obtain his/her analysis and recommendation regarding changing the frequency of dividend payments. Specifically: the advantages and disadvantages to both stockholders and YardMaster in continuing to pay the dividend on a quarterly basis benefits to stockholders and YardMaster by changing to an annual dividend payment a recommendation regarding the frequency of dividend payment The financial analyst (participant) will present the analysis to you in a role-play to take place in your office. You will begin the role-play by greeting the financial analyst (participant) and asking to hear about his/her ideas. During the course of the role-play you are to ask the following questions of each participant: 30 1. Describe the difference between record date and payment date in regard to corporate dividends. 2. Is it possible for a corporation to pay a dividend to its stockholders even though the business had a net loss for the quarter or year? Please explain. Once the financial analyst (participant) has presented the analysis and has answered your questions, you will conclude the role-play by thanking the analyst (participant) for the work. You are not to make any comments after the event is over except to thank the participant.

JUDGE S EVALUATION FORM BFS DID THE PARTICIPANT: 1. Explain types of investments? 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to explain types of investments were inadequate or weak. Adequately explained types of investments. Effectively explained types of investments. Very effectively explained types of investments. 2. Analyze company resources to ascertain policies and procedures? 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to analyze company resources to ascertain policies and procedures were inadequate. Adequately analyzed company resources to ascertain policies and procedures. Effectively analyzed company resources to ascertain policies and procedures. Very effectively analyzed company resources to ascertain policies and procedures. 3. Determine economic utilities created by business activities? 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to determine economic utilities created by business activities were weak. Adequately determined economic utilities created by business activities. 4. Explain the nature of risk management? Effectively determined economic utilities created by business activities. Very effectively determined economic utilities created by business activities. 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to explain the nature of risk management were inadequate or unclear. Adequately explained the nature of risk management Effectively explained the nature of risk management. Very effectively explained the nature of risk management. 5. Explain forms of dividends? 0, 1, 2, 3, 4, 5 6, 7, 8, 9, 10, 11 12, 13, 14, 15 16, 17, 18 Attempts to explain forms of dividends were weak or unclear. Adequately explained forms of dividends. Effectively explained forms of dividends. Very effectively explained forms of dividends. 6. Overall impression and response to the judge s questions. 0, 1, 2 3, 4, 5 6, 7, 8 9, 10 Demonstrated few skills; could not answer the judge s questions. Demonstrated limited ability to link some skills; answered the judge s questions adequately. Demonstrated the specified skills; answered the judge s questions effectively. Demonstrated skills confidently and professionally; answered the judge s questions very effectively and thoroughly. Judge s Initials TOTAL SCORE 32

NOTES 33

34 NOTES

NOTES 35

36 NOTES

BUSINESS FINANCE 2012 Sample Role Plays This publication is designed to assist DECA members and their local chapter advisors in preparing for the ALSO AVAILABLE Individual Series events. This booklet will be useful in preparing students for local, state and international competition by familiarizing them with the format, structure and evaluation tools used in competition. DECA Images offers a full range of competitive event preparation materials including: Comprehensive Exams Sample Role Plays & Case Studies Instructor s Guides Bell Ringer Activities INSTRUCTOR S GUIDE Written Event Winners Flash Cards 2012 EXAM SET Business Management and Administration Finance Hospitality Marketing Principles of Business Administration Build Students Competency Levels Use as Classroom Practice Tests ORDERING INFORMATION 703-860-5006 8:30 AM 4:30 PM EST 100 Questions and Answers Prepare Students For Competition www.deca.org/shop PRACTICE EXAM CD SET To learn more about DECA visit us online at W W W. D E C A. O R G YOUR SOURCE FOR DECA PREPARATION MATERIALS.