Table of Contents Strategy. 1
Execution or Implementation. 1
Simulation Learning Lessons. 2
General Management Learning Lessons. 2
Peer Review of Your Team Members. 3
Throughout the game, our strategy was to be an integrated producer of the highest quality and sell to the open market; the consumers. By doing so, our company was following a strategy of vertically related diversification. The reason this strategy was chosen was to maximize the value creation of the final product by eventually controlling the entire value chain. Moreover, by following a vertical integration strategy, our company would be able to avoid …show more content…
As one may know, in a world of corporate taxes, according to the Modigliani-Miller theory, corporations can deduct interest payments from income and decrease tax payments. Therefore, by increasing the debt-equity ratio, corporations can increase their value by increasing corporate leverage. Following this notion and the requirement for liquid cash to pay for production, the team decided to increase our debt-to-equity ratio from 0.222 to 1.004 the next year. Eventually, we ended the simulation with a debt-to-equity ratio of 1.707 which is still well below the industry average. Furthermore, our debt to asset ratio prior to obtaining the loan in period 3 was 0.1821 and in period 4 it was 0.5012. At the end of the simulation, this ratio was 0.6305 which is very sustainable from a financial perspective.
There were a number of integrated producers, however, we produced in the most cost effective way possible. The key difference between ourselves and others is that we did not want to take on too much debt financing and we wanted to sell not only the best quality Y but the best quality of X on the open market. We also wanted to avoid shipping our product as much as possible, so we produced and sold within our production regions. We were a smaller production company compared to competition, but we were self-sufficient and stable. This lead to