Management Case Study Exam - Mock 1 · 4/27/2017 · months proﬁts of approximately E$ 22.0m...

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Management Case Study Exam - Mock 1Maximum time allowed: 3 hours This exam is structured as follows:

The time available for each section is for reading, planning and writing your answer(s).

You may consult a clean copy of the pre-seen during the exam. Please ensure it is not marked or altered in any way.

1

Section Number Number of Tasks Time for Section (minutes)1 1 452 1 453 1 454 1 45

May 2017

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From: Peter Vitesse, Business Development DirectorTo: Finance ManagerSubject: Introduction of Drugs without prescription at our outletsHi,I have attached a circular from Food and Drug Administration Authority (FDAA) giving over the Counter (OTC) approval to sell drugs without a doctor’s prescription. Following the success story of introducing E$1 reading spectacles Mark Adams proposes we enter this market as quickly as possible before our competitors take this action.At the last board’s meeting, when this matter was discussed, our NED Michelle Petit raised few questions on this matter and they are detailed below:1. When considering an Rx-to-OTC switch, the key question is whether patients alone can achieve the desired medical result

without endangering their safety and are there any risks associated with this proposal for our reputation.?2. Do we need to employ qualified pharmacists in our stores to help our customers select their drugs and dosage etc? None of

our managers or staff has any experience of handling pharmaceutical products. Isn’t the proposal for us to sell drugs OTC therefore unethical?

Please let me have your thoughts on the two matters raised by Michelle with any suggestions you have to overcome the issues.Peter

Section 1 - 45 minutes

You have received following email:



Reference Material

Food and Drug Administration Authority (FDAA) Circular on OTC drugs without a prescription Rx

The Government of E country has approved a list of drugs that could be sold OTC without Rx effective from 1st July 2017.

The FDAA has given OTC approval to drugs with such household names as Children's Advil and Children's Motrin (ibuprofen), Orudis KT and Actron (ketoprofen), and Aleve (naproxen sodium) for pain relief and fever reduction; Femstat 3 (butoconazole nitrate) for vaginal yeast infection; Pepcid AC (famotidine), Tagamet HB (cimetidine), Zantac 75 (ranitidine hydrochloride), Axid AR (nizatidine), and Prilosec OTC (omeprazole magnesium) for heartburn; Rogaine (minoxidil) for hair growth; and Claritin (loratadine), the first non-sedating antihistamine.

The FDAA believes that there is an important trend toward consumer participation in their own health care. It's part of the agency's mission to keep up with the consumers' wish to be more involved.

Switches will have a huge impact on the health care economy of country E. The greater availability of medicines over the counter saves billions of E$ each year. The E$ billion takes into account prescription costs, doctor visits, lost time from work, insurance costs and travel.

OTC drugs may be advertised directly to consumers without the many restrictions placed on prescription products. OTC status provides a greater opportunity for direct communication with the consumer, not only by advertising in magazines and on the television, but also with packaging, brochures and retail displays.



Provide a reply to Peter’s email in the box below.From: Finance Manager To: Peter Vitesse, Business Development Director Subject: RE: Introduction of Drugs without prescription at our outlets



“Hi FM. I need your urgent help. The board is considering exploring the possibility of entering the OTC drugs market through our 235 outlets in our country almost immediately. We are not planning to open a pilot or two project and to experiment but we want to open counters over all our 235 stores within the next one month and to be in business from day one 1st July 2017.

If we decide to go ahead, we need to move quickly. We will have to buy exclusive refrigerators to stock some of those FDAA listed products and along with refurbishments will cost us per each stores E$ 250,000.

I need two things from you right now. The board is going to start looking for figures soon and the first thing I want is a clear and credible project appraisal. What will be the difficulties associated with predicting cash flows from this project and how do you propose to deal with them?

Secondly we need to raise approximately E$ 60m to go though the capital expenditure expansion program. Looking at our financial statements of 31st December 2016 which has not changed significantly to date since then except for our first five months profits of approximately E$ 22.0m what ideas you have to raise finances and also what impact it will have on the accounting ratios”


Today is the 1st June 2017 and two weeks have passed by since your reply to Peter. You are called by Maria Isabella to her office. Maria addresses you:



Draft a response to Maria in the box below.From: Finance ManagerTo: Maria Isabella, Finance DirectorSubject: OTC drugs



From: Maria Isabella, Finance DirectorTo: Finance ManagerSubject: Funding the OTC Drugs Sales projectHi,Thanks for your report on our project and your cooperation on this urgent matter.As you know the board decided on a split vote to proceed with the OTC drugs project. Most of the NEDs were not favourable towards the project.As said earlier the setting up of this project will require at least E$ 60m. Board needs a report on the funding implications of this project in a comprehensive form now. What would be the impact of borrowing the required cash? What about additional working capital requirements? How would borrowing E$ 60m affect our weighted average cost of capital and our future flexibility?Our NED Michelle was of the view that we reduce the need to borrow and use retained earnings of E$ 160.3m as of 31st December to finance the project. Mark Adams wants us to explain the implications of Michelle’s suggestion and how this idea might be perceived by the shareholders. Regards,Maria


Two weeks have passed since your meeting with Maria Isabella and you receive the following email.



Write a requested report in the box below.



“Since it was a split decision with most of the NEDS not in favour of the new proposal, I do not want this project to be a flop. FM, let me have your thoughts on risks associated with this project. I want an explanation of each of the major risks that you perceive and how each could and should be mitigated”.Isabella suggested that we create a separate company to offer OTC drugs called “Pharma”. She said till we are certain of its viability, we could exclude Pharma from BES’s consolidated financial statements by forbidding the acceptance of the instructions from the BES’ directors. Pharma’s directors would be under a contractual obligation to operate in an autonomous manner, selling drugs through BES stores and paying dividends as they deem fit. If BES cannot control Pharma, then Pharma is not a subsidiary and so our group financial statements will not reflect Pharma’s business risks.Adams wants your views on Maria Isabella’s idea of excluding Pharma.


Next day you meet Maria Isabella and Mark Adams at the Board room and Mark wants advice of you and Maria.



Draft a paper for Mark in the box below.


Management Case Study Exam - Mock 1 · 4/27/2017 · months proﬁts of approximately E$ 22.0m...

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