Audience Decision-Making Expertise 17management team of the simulated fi rm. In the board meeting the MBA students presented their
report of last year’s performance and their plans for the next year to a board of directors composed
of experienced top managers. The board members’ questions in bold and italics are requests for
benchmark information.
The fact that the board members had to request benchmark information from the studentteam indicates the students were unaware of the crucial role benchmarks play in the audience’s
decision-making process (note: the names of the students have been changed). In the fi rst excerpt,
a board member requests benchmark information in order to evaluate the interest rate and type
of loan the team secured. Given that interest rates rose the previous year, locking in the lower
rate seemed to be a good decision for the team. In the second excerpt, the chairman of the board
requests benchmark information about competitors’ fi nancial results. Initially the team’s fi nancial
results sound outstanding. But when compared to their competitors’ results, the team’s results turn
out to be about average.
TWO EXCERPTS FROM A PRESENTATION GIVEN BY MBA
STUDENTS TO AN EXPERIENCED BOARD OF DIRECTORS
Excerpt 1: A Request for Interest Rate BenchmarksStudent VP of Finance: Just give you a quick overview of the way we went about funding
our expansion. Cost of our expansion was approximately $36.6 million. We had 15 million
of long-term debt that we renewed at 14% fixed rate amortized for the next five years. We
wanted to finance construction [of a plant expansion] with as much internal generated funds
as possible. And we had $19.2 million in cash from market securities at the end of last year.
We negotiated a $20 million line of credit with the bank to help us finance the expansion and
also to help with the operating expenses. As a result, using our cash and our line of credit we
were able to fund the expansion, and since then the line of credit has now been reduced to
$12.5 million. And if we can, we hope to continue to reduce this as fast as possible.
Board Member: How does the 14% fixed rate compare to what benchmark rates or govern-
ment rates were at the time for the same term?
Student VP of Finance: The prime rate at the time was 12% with a prime plus two. And
talking to people in our bank this was an average and much more favorable rate in relation
to our competitors.
Board Member: You have prime plus two fixed though for five years, not floating with
the prime?
Student VP of Finance: Right, yes. Prime was at 12% at the time that we negotiated.
Student VP of Marketing: It is now at 19.
Board Member: It’s now 19. So the outlook for rates was that they were going to be rising.
Student VP of Finance: Right. Inflation was running at a fairly good clip, and we thought
the best thing to do was to try to lock in a rate. If you don’t have any questions I would like to
go over the results of the labor negotiations.Excerpt 2: A Request for Competitive BenchmarksStudent CEO: Okay. Fine. Okay. Very quickly I want to just give you the highlights from last
year. That is on July 1 we opened the new $38 million factory and warehouse. Also during the