Once there were two towns, both of which had companies that provided employment for most of their residents and provided support for the towns economies. One town was the home of “People’s Products, Inc.” and the other had “Wonderful World of Widgets, Inc.” The companies were pretty much equal in size, produced neat products for national consumption, and had talented engineering and management staffs. They did share one problem. Their success depended to some degree on new product development with just enough stable products to insure survival should a product fail for some reason.
The marketing organizations of both companies located products that met their criteria for the next great opportunity for their companies to grow and make their respective towns more prosperous. During July and August both companies did the engineering and planning required to make a decision as to whether they should proceed.
“Wonderful Widgets, Inc” took the additional step of checking the Felix Magic Model that, based on a number of parameters, projected the future effects of the project. The two major political parties had laid out an economic plan, including a corporate tax of either 20% or 28%, the party planning the 28% claiming that corporations were not paying their fair share. Another issue was that of the minimum wage. It was fairly certain that if one party won, a national minimum wage would be imposed on all corporations. Option 1 assumed the party of the 20% tax won. Option 2 assumed the party of the 28% tax won, and Option 3 assumed a lower ROI for investors, lower average labor cost, a positive growth rate near 0 for the company and the town.
|Option 1||Option 2||Option 3|
|Investor Dividend Rate||10%||10%||6%|
|Labor, Average Hourly Rate||$20||$20||$19.68|
|Corporate Tax Rate||20%||28%||28%|
|Depreciation per Unit||$6||$6||$6|
|Cost of Sales Rate||50%||50%||50%|
|Price per Unit||$126.99||$126.99||$126.99|
|Start-Up Delay||1 month||1 month||1 month|
|Initial Build (units)||1000||1000||1000|
Results(after 1st Year)
|Option 1||Option 2||Option 3|
The party pushing the 28% corporate tax wins the election. “Wonderful Widgets” suggested the plan incorporating Option 3 to its Board of Directors and the citizens of the town, many of which, because of a generous stock option plan, owned stock in the company. Although there was a lot of grumbling, the town accepted the plan and changed political colors.
“People’s Products” did not change their operation plans even though the Board of Directors recommended they cancel the project. The citizens sued the company with the familiar mantra “It is the primary responsibility of the company to provide jobs for the workers” and won, forcing the company to produce a product at a loss. In order to survive, the company raised the price of their product. Unfortunately, the new price, while enough to sustain the company, turned out to be too high and sales collapsed. Below are the views of the three options as produced by Felix’s Crystal Ball for each of the options. Barring further operation of the party in power, like restrictive regulations, “Wonderful Widgets” would survive, but just barely. We often look at profits to tell us about the financial health of a company. But in this instance, Growth was the determinant.