KFC and the Colonel Case Study

KFC and the Colonel Case Study

FIN/486

KFC and the Colonel Case Study

Introduction

Colonel Sanders, who is now famous, did not have the best start to his life. His father died at a young age, which left his mom to raise three kids on her own. By the age of six, Sanders had learned to cook by helping his mom with cooking for the family. Sanders had only completed school at seventh grade and after that he held a number of odd jobs. During this time, he learned that sales was his passion when he was working for Prudential Insurance Company. He had earned an opportunity to run his own business, but unfortunately had to close shop during the Great Depression of the 30s. After this, he moved to Kentucky to run a Shell station, which is where he decided he would also open a café inside the gas station. This is where he developed the recipe for his specialty fried chicken.

Discuss issues raised concerning Sanders’ approach in connection with the sale to Brown and Massey.

An issue that raised concern in regards to Sanders’ approach is that Sanders did not sell the compete ownership of the company to Brown and Massey. Sanders remained involved as an ambassador of the company while promoting sales. After Sanders sold the company to Brown and Massey, he was still keeping track of the company while also enjoying the benefits. Sanders also remained a member of the committee after the sale.

Another issue is that Sanders did not discuss the sale with the other members of the company, including his partners. This was a decision that he chose to make very quickly and likely considered the $2 million a lot of money for the company.

Include some of the other options that Sanders may have considered other than the $2,000,000 cash price.

Instead of selling for $2 million cash, Sanders could have asked to be partners with Brown and Massey by asking them to invest in the company. By doing this method, he would have control over the company still with even better benefits.

Another option that Sanders could have considered is selling the complete ownership of the company to Brown and Massey. With this option, Sanders could have asked for more money and then just enjoy the profit from the sale of the company.

Explain the reasons for regulatory control over financial markets.

Regulatory control over financial markets is important to help with protecting the interests of both the investors and the organization. These regulatory controls help ensure the financial markets are both stable and fair for all parties involved. One of the most common examples is to restrict the import of certain products to promote the home grown products.

The regulatory control also acts as a mediator when handling any disputes that may arise between stakeholders. This could be a dispute between two organizations or a dispute between the customer and the organization.

Explain how the American bank could lose on this transaction assuming no hedging.

The American bank has authorized the loan with a term of 6 months in Canadian dollars, with the loan also to be repaid in Canadian dollars. If the value of the Canadian dollar drops in this 6 month time frame, especially during the time of repayment, then the American bank would be paid back in the currency that has a lower value that at the time of the loan starting. With this in mind, the American bank could lose on this transaction given that no hedging has been done.

Assume the bank does hedge with the forward contract, what is the maximum amount it can lose?

The total amount lent by the bank is $150,000 Canadian dollars. To convert that in today’s spot rate for US dollars, it would be:

$0.8995 * $150,000 = $134,925 US dollars

It would be beneficial for the bank to enter contract to buy the Canadian dollars now and then sell these Canadian dollars after the 6 months. The forward rate after 6 months is $0.8930/CAD, thus making the total amount in US dollars after 6 months:

$0.8930 * $150,000 = $133,950

The maximum loss is:

$134,925 – $133,950 = $975 US dollars

Conclusion:

As you can see, Sanders may not have always made the best decisions when it comes to the ways that he handled the sale to Brown and Massey. He could have gone about it better to where the other partners could have been included in the decision making process. It is also possible the Sanders could have asked for more than $2 million dollars and enjoyed the profit of the sale, instead of remaining relatively involved in the business. We also got to look at how regulatory controls over financial markets work and why they are important when it comes to the financial markets as well. Lastly, we evaluated the scenario of Sanders obtaining a six month loan of $150,000 Canadian dollars from an American bank and how hedging verse no hedging works and changes the impact on the American bank.

References:

University of Phoenix. (2018). KFC and the Colonel. Retrieved from University of Phoenix, FIN486 website.