University of Chicago Sunny Vacations Informed Decisions Paper
Question Part:
Sunny wants specific advice on what he should do. If it is a good idea to pursue the Sunny Vacations business, he wants detailed advice on business strategy, financing, ethical considerations, etc. He is open to advise beyond what is discussed in this case, but it should be relevant to his situation.
Request Part:
1. All of the key issues were identified and fully discussed in detail.
2. Provided a thorough and balanced analysis of the Company's strengths, weaknesses, opportunities, and threats and synthesized this with the rest of the paper.
3. Provided an accurate calculation that compared each job offer and a detailed qualitative analysis that helped the user make an informed decision.
4. Provided a flawless quantitative and qualitative analysis for opening the travel agency. Thoroughly assessed the risk and rewards and had an in-depth discussion of risks and rewards. External research regarding the industry was synthesized alongside case facts. The advertising differences are included and accurate. There is sufficient detail on how the different advertising schemes will impact operations and net income.
5. Discusses the alternatives of purchasing vs. renting thoroughly both qualitatively and quantitatively. Depreciation is discussed and calculated and reflected in the overall net income calculations for the user to understand.
6. Thoroughly explains accounting concepts. These are detailed with easy-to-understand examples and meet the users' needs.
7. The analysis was informative to the user and sufficient in detail and comparison. A balanced discussion of the differences between debt and equity and calculations were provided to defend the recommendation. The calculations and discussion were accurate and complete.
8. Fully discussed short and long-term business strategy, and ethical considerations that were relevant, detailed, and realistic. Makes clear, reasonable, relevant recommendations and plots them on a timeline for ease of implementation. The recommendations include potential risks or downfalls.
9. Successfully summarized the paper and noted any additional questions that may have been outstanding. This is thorough, summarizes all items discussed in the paper, and does a good job of highlighting key points.
Sunny Vacations
Sunny, who graduated from college last year with a Bachelor of Business Administration degree with a Marketing concentration, is at a career crossroad. Last year, after some job hunting, Sunny managed to get a job as a marketing assistant for a prominent realtor in the area, Diane. With a colourful, outgoing personality, Sunny was a natural fit to host home viewings and even going door-to-door talking to homeowners, brochures in hand.
Diane quickly realized that Sunny was a bigger help to her than anyone she had hired before and bumped up his compensation from an hourly minimum wage to $28,000 a year (they agreed on about twenty-four hours a week, mostly on weekends). Sunny believes he can earn $50,000 a year working full-time in real estate, but that would be long, slow climb up- perhaps over five years.
Diane also reimburses Sunny for his driving at the prescribed CRA rate (61¢ per kilometre for the first 5,000 kilometres driven in 2022). While Sunny has strictly tracked his kilometres driven for work purposes in the past, he has been a bit concerned about the rising fuel and vehicle maintenance costs. He is wondering if he should add some of his personal driving to the weekly mileage totals he reports to Diane- she doesn’t really ask for details and he does tend to talk about her new listings quite a bit outside of work hours. For instance, he discussed juicy details of specific buyers and sellers with his friends at a busy birthday party last Tuesday.
Sunny is considering taking a second job which would pay him $17 an hour for six hours of work per day, four weekdays per week. While this would mean immediate cash in his pocket (he is currently living paycheck to paycheck), the job doesn’t really relate to his career, nor does it have potential for promotion in the field (waste management). Due to his tight cash situation, Sunny was about to accept the job on the spot after calling the number his friend had given him. However, he decided to hold off for a bit as the manager wanted him to start this week, which would conflict with his scheduled hangout with friends.
Sunny is also considering his own start-up, a travel agency business. While scheduling a family vacation at age 15 (his parents were swamped with their bakery business at the time), Sunny realized he had a natural knack for booking flights, applying for tourist visas, researching the best resort deals, etc. He managed to negotiate his way to such a great and affordable trip that his parents and sister insisted that he plan all their vacations each year. Furthermore, his uncles and aunties also insisted on getting his help!
Sunny believes he can finally monetize on his abilities. With $3,000 worth of one-time advertising (brochures and social media ads), Sunny estimates that he can book $200,000 worth of vacation activity in his first year. From this, he can charge a fee of 5%. While this wouldn’t mean much money immediately, especially considering he would be spending about ten hours a week on the business, Sunny does believe he can double the $200,000 number in the second year once word-of-mouth really kicks in.
Then, he would be in a position to raise the fee to 6% and benefit from 10% year-over-year growth for three years. After that, the fee would be raised to 7% at that point with flat revenues for the following five years. He has run some rough numbers and believes business expenses (mostly car-related) can be held to only 12% of business revenues with this plan- he hasn’t considered borrowing costs yet, though. Luckily, Sunny has no student loan debt and pays a very low monthly rent to his parents. However, that could change if he decides to start his own business- he has talked to his bank and was offered a $15,000 line-of-credit at a 7.05% annual rate. He believes that, if needed, he can renegotiate the line-of-credit to $25,000, but maybe with an 8% interest rate.
Another option is to advertise more aggressively. Sunny is thinking about renting a billboard for $500 per month at a busy corner in town (the initial sign would have a $2,000 upfront cost). With the billboard, Sunny anticipates his projections getting boosted by 50% (same fee percentages) over the next decade. There is also the option of buying the billboard outright for $20,000. Sunny believes the billboard will last ten years with yearly maintenance of $1,000- he isn’t sure how expensing an asset such as this works.
Sunny isn’t great with projections and numbers, so he is asking you for help in deciding if this business is lucrative enough to pursue. He is also wondering about the importance about maintaining accurate records in general. He doesn’t really know much about accounting, so he wants some quick advice on journal entries, T-accounts, and the like.
Sunny is thinking of one final consideration- bringing in a business partner who is willing to cover the costs of the billboard in exchange for a 25% share in his business. His friend, Nina studied accounting and he would be willing to give her a 33.3% share if she took care of all accounting/finance tasks along with the billboard. Sunny hasn’t mentioned this idea to her yet he wants your thoughts first.
