Evaluation of Potential Joint Venture

Evaluation of Potential Joint Venture

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Our group believes that the joint venture is not only feasible within the given budget, but also has the potential to set the standard for the interaction of educational institutions and profit driven entities. The long and short-term goals of the School of Business can be met within the $1 million dollar budget. Our research has found that businesses are reluctant to hold on to an asset with fixed costs attached to it and that also does not produce any revenue. The private company, Wawa, has recently been involved in an expansion project that includes the construction of new and larger stores. In the process, Wawa has abandoned the older, smaller stores and have been attempting to sell the property. There are several properties that Wawa has had trouble selling because of the recent real estate crisis. In the mean time, Wawa has been absorbing unavoidable fixed cost from holding on to the abandoned properties. We approached Wawa with the proposition of donating the property and land from an abandoned site located on route 30, so that they can cut their fixed cost and receive a tax benefit. “Corporations and individuals are allowed to deduct contributions made to qualified domestic charitable organizations”. (Smith, 5-14) Educational institutions are considered qualified charitable organizations. This will result in Wawa, a corporation, saving large sums of money and the School of Business acquiring the land and property without a cash outlay. “For any one year, a corporate taxpayer’s contribution deduction is limited to 10% of taxable income.” (Smith, 5-15) The land and property historical cost was more than a $1 million dollars, which is why we have assets in excess of a $1 million.

Along with the land and property, our group believes that the salaries are an important part of the budget. “Liberal arts colleges spend approximately 40% of their general and educational budget on faculty salaries.” (Lugt, pg 3) Because of this fact, we have allocated $300,000 for faculty salaries. This is slightly under 40% because the School of Business will be at its fledgling stage and will not require a large number of faculty members.

Accounts receivable should also be highlighted because it will be our primary source of income. According to the National Center for Education Statistics, “63% of all college undergraduates in 2003-2004 received some type of financial aid.

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” (Whiteboard) This number was up from 55% the year before. This indicates that more and more students are relying on financial aid. Since financial aid disburse funds during and through out the semester, illustrates why accounts receivable is so important. Also there are more students who have opted to pay in installments. We will admit 100 students to the School of Business and of those 100, we expect about 88% to pay on account either through financial aid or installments. It currently cost about $5,030 for a full-time undergraduate to attend Richard Stockton per semester.

We plan on raising additional funds by issuing equity and debt securities. We expect that this investment opportunity will be attractive to investors. “Announcements of joint venture formation generally increase market value.”
(Koh and Venkatraman, pg 1)

There are three primary reasons why organizations engage in joint ventures: “(1) the creation of greater market power by combining resources or generating economies of scale; (2) the avoidance, reduction, or sharing of risk; and (3) the acquisition or sharing of information.” (Kent, pg 2) Our group believes that Richard Stockton College and Boyd Gaming will benefit from the joint venture because of these reasons. The joint venture between Boyd and Richard Stockton College will allow both entities to tap into each other’s resources, while remaining autonomous while simultaneously minimizing the risks. Boyd Gaming will directly benefit from the intellectual capital produced from the joint venture, therefore giving Boyd a competitive advantage.

BALANCE SHEET FOR THE SCHOOL OF BUSINESS DECEMBER 31, 2007

Assets:
Current Assets:
Cash and Cash Equivalents $55,000
Accounts Receivable, net $440,125
Short Term Investments $25,000
Inventory $20,000
Supplies $100,000
Prepaid Insurance $25,000
Total Current Assets $665,125

Property, Plant, and Equipment:
Land $2,000,000
Building
Less: Accumulated Depreciation $1,000,000
$100,000 $900,000
Furniture, Fixtures & Equipment (Net of Depreciation $50,000) $200,000
Total Property, Plant, and Equipment $3,100,000

Intangibles:
Goodwill $50,000
Total Assets $3,815,125

Liabilities:
Current Liabilities:
Accounts Payable $200,000
Salaries and Wages Payable $300,000
Utilities Payable $15,000
Total Current Liabilities $515,000
Long Term debt:
Long-term Notes Payable $500,125
Twenty-year 8% debentures, due January 2, 2027 $500,000
Total Liabilities $1,515,125
Stockholders Equity:
Paid in on capital stock
Preferred, 7%, cumulative
Authorized, issued, and outstanding
50,000 shares of $10 par value $500,000
Common-
Authorized, 200,000 shares of
$5 par value; issued and outstanding $1,000,000
Additional paid-in capital $785,000
Retained Earnings $15,000
Total Stockholders’ Equity $2,300,000
Total Liabilities and Stockholders’ Equity $3,815,125
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