Read the Case Study on pages 110-111 of the textbook entitled “Starting Right Corporation.”Once you have finished reading the Case Study, answer the associated Discussion Questions 1-6 in a minimum three-page paper.Your paper should be appropriately cited using APA style. You should also include a minimum of two scholarly sourcesAfter watching a movie about a young woman who quit a successfulcorporate career to start her own baby food company, Julia Day decidedthat she wanted to do the same. In the movie, the baby food company wasvery successful. Julia knew, however, that it is much easier to make amovie about a successful woman starting her own company than to actuallydo it. The product had to be of the highest quality, and Julia had toget the best people involved to launch the new company. Julia resignedfrom her job and launched her new company- Starting Right.Julia decided to target the upper end of the baby food market byproducing baby food that contained no preservatives but had a greattaste. Although the price would be slightly higher than for existingbaby food, Julia believed that parents would be willing to pay more fora high-quality baby food. Instead of putting baby food in jars, whichwould require preservatives to stabilize the food, Julia decided to trya new approach. The baby food would be frozen. This would allow fornatural ingredients, no preservatives, and outstanding nutrition.Getting good people to work for the new company was also important.Julia decided to find people with experience in finance, marketing, andproduction to get involved with Starting Right. With her enthusiasm andcharisma, Julia was able to find such a group. Their first step was todevelop prototypes of the new frozen baby food and to perform a smallpilot test of the new product. The pilot test received rave reviews.The final key to getting the young company off to a good start was toraise funds. Three options were considered: corporate bonds, preferredstock, and common stock. Julia decided that each investment should bein blocks of $30,000. Furthermore, each investor should have an annualincome of at least $40,000 and a net worth of $100,000 to be eligible toinvest in Starting Right. Corporate bonds would return 13% per year forthe next five years. Julia furthermore guaranteed that investors in thecorporate bonds would get at least $20,000 back at the end of fiveyears. Investors in preferred stock should see their initial investmentincrease by a factor of 4 with a good market or see the investment worthonly half of the initial investment with an unfavorable market. Thecommon stock had the greatest potential. The initial investment wasexpected to increase by a factor of 8 with a good market, but investorswould lose everything if the market was unfavorable. During the nextfive years, it was expected that inflation would increase by a factor of4.5 % each year.Discussion Questions:Sue Pansky, a retired grade-school teacher, is considering investing inStarting Right. She is very conservative and is a risk avoider. Whatdo you recommend?Ray Cahn, who is currently a commodities broker, is also considering aninvestment, although he believes that there is only an 11% chance ofsuccess. What do you recommend?Lila Battle has decided to invest in Starting Right. While she believesthat Julia has a good chance of being successful, Lila is a risk avoiderand very conservative. What is your advice to Lila?George Yates believes that there is an equally likely chance forsuccess. What is your recommendation?Peter Metarko is extremely optimistic about the market for the new babyfood. What is your advice for Pete?Julia Day has been told that developing the legal documents for eachfund-raising alternative is expensive. Julia would like to offeralternatives for both risk-averse and risk-seeking investors. Can Juliadelete one of the financial alternatives and still offer investmentchoices for both risk seekers and risk avoiders?
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