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The Imago Institute is a start-up venture, focusing primarily on the development of an integrative mind/body/spirit center that leverages the interconnectedness of emotions and thoughts to the body and personal development. The Institute is envisioned to include three primary services; personal and organizational coaching, educational seminars and workshops, and a luxurious mind/body spa. Its target customers are corporate leaders and healthcare providers as well as catering to the residents of Minneapolis' expanding high-end urban residential development. The mission of the institute is to restore, rejuvenate, and re-ignite the passion of purposeful and conscious living. The goal is to provide service, support and access to cutting-edge therapies and programs based on mind/body wellness, personal empowerment, and conscious leadership.

The goal of our project on behalf of this business venture was fourfold:

• Create a complete business plan for the Institute, with particular attention paid to two issues
  
  • Is it possible to position the business so that, as in other medical applications, an insurance entity would be willing to pay the membership fees for the members, due to its ability to reduce ongoing health care costs
  • Assess different legal structures and considerations given that the Institute, as proposed, consists of three different businesses
    
• Provide a complete set of financial forecasts for the Institute, based on the business plan
• Estimate the future funding needs for the Institute
• Provide a list of financing alternatives for the Institute
  

A Nicholas team prepared a financial model that was used to demonstrate to a CFO the value of outsourcing a publisher's warehousing and fulfillment operations versus buying, building or leasing their own operations.

Banta then requested a second project that was designed to clarify their own costs of providing these services as well as to provide insights into pricing arrangements for the outsourcing services provided. In particular, the goals of this project included:

• Clarify Banta's own costs of providing warehousing and fulfillment operations to publishers;
• Identify cost drivers in Banta's managed facilities for providing the warehousing and fulfillment operations services
• Link the cost estimates and drivers with pricing decisions for the provision of the outsourcing services
• Identify situations and/or customers in which pricing should take the form of a gain sharing or risk sharing arrangement between Banta and the customer rather than a traditional single price quote

Rachel Nielsen (Nicholas 2006) at Banta Corporation

Titan is a major polymer producer located in Malaysia. The primary feedstock used by Titan in its production processes is a commodity known as naphtha, a petroleum-based product. Titan asked the Nicholas students to explore the risk management opportunities that might be available to manage the risks created by dependence on this commodity, and to provide management with a recommendation regarding the design and implementation of a hedging and risk management program.

The Nicholas students obtained company, market and industry data in order to evaluate the dependence of Titan on naphtha as well as the efficiency of Titan's overall operating performance. After careful analysis of the data, the students determined that naphtha price risk, although significant for Titan, would be best managed by implementation of a new pricing policy, rather than an elaborate risk management program. In addition, the Nicholas students used industry benchmarking analysis to identify other areas of cash flow improvement that should be pursued prior to the implementation of a complex hedging program.

Best Buy has, to date, largely been a US-focused retail business. Going forward, the company expects to derive an increasing significant portion of its revenue stream and profits from international operations. A key part of this global expansion strategy is to understand the different ways in which capital allocation decisions and cost of capital for funding these operations should be estimated. Accordingly, Best Buy requested that Nicholas students address the following key questions for their global expansion:

• Valuation modeling
• What are the benefits/trade-offs of the following methods:
• Forecasting cash flows in local currency, converting cash flows in forecasted exchange rates, and discounting those cash flows in the Parent (USD) cost of capital.
• Forecasting cash flows in local currency, discounting those cash flows in a local cost of capital, and converting to Parent (USD) at the current spot rate.
• How should countries with hyper inflation be handled?  What are the risks/benefits of using real vs. nominal cash flows and discount rate?
• Projected cash flows, versus remitted cash flows:
• How would the NPV of a project be affected if remittance of cash flows was restricted?
• What assumptions must be made not to change the valuation, when cash flow remittance is restricted, i.e. reinvestment versus passive investment portfolio?
• Residual value calculation:
• Does the residual value calculation need to be adjusted for high inflationary countries, i.e. where inflation exceeds projected economic growth?
• If cash flow remittance is restricted, does this impact the residual value calculation?  If not, what must be assumed?
• Foreign exchange risk:
• While accounting translation can affect reported EPS, it is the economic cash flow risk that impacts value and NPV.  Where cash flows are anticipated to be remitted, it may be possible to hedge anticipated cash flows.  Ignoring the technical mechanics (complex), what factors should be considered in assessing whether to do so?

• Cost of Capital
• What guidelines should a firm follow in setting required return for foreign investments?  Specifically, how should the following factors be incorporated?
• Project (business/systematic) risk
• Political risk
• Liquidity risk
• Capitalization and debt capacity
• How is a USD cost of capital converted to a local currency (1a above)?
• How should subsidies (financing or tax rate) be handled in the cost of capital calculation, and project cash flows?
• Examples (Mexico, Brazil, Turkey)
• What are some examples of other firms?
• Starbucks
• 3M
• GE

Past Consulting Engagements
Fall '08 Projects		1st Round Projects	2nd Round Projects	Spring '09 Projects	3rd Round Projects
Fall '07 Projects		1st Round Projects	2nd Round Projects	Spring '08 Projects	3rd Round Projects	4th Round Projects
Fall '06 Projects		1st Round Projects	2nd Round Projects	Spring '07   Projects	3rd Round Projects	4th Round Projects
Previous Nicholas Projects		Fall 2005 Projects	Past Projects	Spring '06 Projects	3rd Round Projects	4th Round Projects