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    Question: (please post answers inside body of an email as i do not have excel or word on my computer. thanks!)

    Yves Richard faces a decision that will determine the future strategic direction of Caron Furniture. It is the role of the accountant to not only provide relevant information to facilitate the decision-making process, but to be a valuable member of the decision-making team. The primary issue is what role the U.S. market should play in Caron's future. Your responsibility is to examine this issue from a purely financial perspective and to provide sound advice to Yves Richard.


    List the options that should be considered.
    The average overall margin on sales is 38%. How profitable is the U.S. market compared to the Canadian market? What are their relative profit margins?
    Does further expansion into the U.S. make sense financially? How would expansion benefit Caron in terms of profitability? (Note: Where financial information is lacking in the case, use Steelcase, Inc. as a benchmark.)
    What are the financial risks of expansion into the U.S.?
    What is your financial recommendation? Provide support for your recommendation.

    Your performance as a financial manager is evaluated, in part, on your ability to communicate in an organized, clear, and concise manner. You should use tables and point form where appropriate. Also, be sure that your computations are properly labelled. Lastly, be sure that your answer stays focused on financial issues.

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    Solution Preview

    The question requires you to examine the Caron Furniture case from the financial perspective.
    <br>There are some assumptions, which the question makes; first the question presupposes that the overriding aspect of business is sales. However this is not substantiated by evidence, in fact in the financial information there is ample evidence that the collections are lethargic and this can play havoc with the companies finances. Second the question assumes that higher profitability should be the overriding concern for all decisions. This is not the case, the actual profit should be adjusted for the additional debt burden and for the extra fixed cost. Third, the question does not mention the rate of dividend the company pays on its equity. Then the cost of capital should be calculated and the real benefits to the company for its expansion can be calculated.
    <br>Given below is a template to help you answer your question.
    <br>1. Expand the US market nationally.
    <br>2. Expand the local market (Canadian).
    <br>3. Expand the US market regionally.
    <br>The overall profitability is 38%, however because of the exchange rate benefit, the profitability increases in case of the US market by 40% so the effective profitability for the US market is 140% of 38% that is 53%. From this has to be deducted the extra cost of transportation and the cost of employing sales representatives. The current high commission of 8% being paid to agents in the US if subtracted from 53% still makes it relatively profitable than expansion in the Canadian market. However, since sales representatives who are company employees are combined with the cost of show rooms, then the effective extra cost could be about 5% which would still make the US operations more profitable and keep a ...