UNIVERSITY OF TORONTO

FACULTY OF APPLIED SCIENCE AND ENGINEERING

FINAL EXAMINATION, Thursday April 27th 2017

CHE 488 and CIV 488

ENTREPRENEURSHIP and BUSINESS for ENGINEERS

Examination is 2 hours 30 minutes

Examiner: CHE 488 -Adjunct Professor Joseph Orozco CIV 488 - Mrs. Judy Paradi

CANDIDATES MAY BRING TO THE EXAM/NA TIONAND USE ANY BOOKS, NOTES OR OTHER PRINTED OR WRITTEN MATER/AL AND ANY TYPE OF CALCULATOR MAYBE USED. BUT LAPTOP COMPUTERS, CELL PHONES OR ANYTHING THAT CAN COMMUNICATE WITH OTHERS OR THE INTERNET ARE NOT PERMITTED!!

There are 12 questions in this examination and you must complete all of them. The exam is not long, Keep the answers short and to the point.

Please start each question on a separate PAGE. The questions are designed to test your understanding of the principles taught. All questions can be answered in point form or in one or two sentences, as applicable, and therefore do not require verbose text. READ THE QUESTIONS CAREFULLY before starting to answer them.

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488 Exam Business Case - 2017 Exam This is a case based Exam. The case has been sent to you in advance of the exam, a review would be useful before you start answering the questions below. Note that all 11 questions are based on this case (unless there is an addition to it embedded in a question).

Tilt-Tech Inc.

Background and Trend

Winter sports trends are changing. In Europe and North America it is expected that the interest will translate into more novice skiers from Asia at the resorts. The fact that these new skiers do not own their own equipment and a lack of understanding of the current infrastructure will challenge the resorts to implement new technologies. Accelerating the learning curve and teaching the skiers becomes a priority of the resorts to guarantee the best experience and avoid serious incidents that could deter the new skiers' appetite to take up the sport.

Some experts also claim that winter adventure trips used to be more than a week-long where consumers enjoyed full-day trips to the slopes. In the last few years, this trend has changed where a "ski week is reduced to a few days, the daily trip to the slopes is reduced to an evening." Says Laurent Vant on her 2016 International Report on Snow and Mountain Tourism.

Trend

How to prepare and accommodate to the customers' needs and pains becomes the challenge of ski hill owners. It is widely known that the beginner's first experience can be unpleasant and deters customers from returning.

Take a look at the ski resort world map for 2016:

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What to do?

Problem Solvers

Terence, Laura, Maya and Peter met at the U of T. Terence graduated as a Mechanical engineer; Laura earned her degree in Computer Engineering at ECE; and is getting ready to defend her PhD thesis in radio communications and spread spectrum technologies; Maya has an MBA from the Rotman Business School; while Peter is a talented skier and winter sports fanatic who earned a psychology degree a couple of years ago. The four of them have been influenced by the entrepreneurial mindset from courses and programs available at their University and have been "itching" to start their own start-up - the question was what?

During some social encounters and while exchanging ideas in the Hatchery's "Idea Market" Peter and Laura met and learned about the trends in winter sports. After a couple of interactions, others attending similar events connected with them and their interest in winter sports became the common denominator. Although Laura was not an avid winter-sport fan she had personal connections with owners of a ski resort in Vail, Colorado.

The initial trends shared with them in the Idea Market triggered their interest. Through market research and interviews with industry leaders they came up with a hypothesis of the problem they wanted to solve.

They focused initially on the skiing community rather than snowboards. Studies indicated that snowboarding is fading in popularity.

They believed that by developing a ski sensorial real-time feedback system for the goggles of skiers they could indicated the right center of gravity and stance (the green zone) and reduce the learning curve of novice skiers by half. Additionally, the unpleasant first experience will be something of the past increasing new skier retention rates.

The system will also allow the resort owners to have a real-time location of skis and skiers guaranteeing their wellbeing while avoiding losses and misplacement of equipment. This becomes very important having in mind that the resorts expect very few of the new skiers to bring their own equipment.

Market Validation

In order to truly validate their hypothesis, they went to trade shows, talked to users, and interviewed ski resorts managers. They were hoping to have the opportunity to meet with the owners of resorts in Italy, Austria, France and Germany.

Besides the novelty of their solution they knew that according to trends and studies, this will be an

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excellent way of improving the quality of the skiing industry revenues at large. They where sure they were helping their customers increase their revenues.

They started pitching to investors...

Investors

With their business plan and canvas in hand and a clear pitch they found an angel group interested in supporting the team. They formed a company under the name "Tilt-Tech Inc.". The terms they agreed to included a 10% ownership for the pool of investors while they retained 90%.

Team

Tilt-Tech Inc. started recruiting the talent they needed for the development of their solution and to ensure the success of the company at large.

They had the technical knowledge but soon realized that they needed much more: a mechanical engineer, an industrial designer, production coordinator, marketing staff, sales people, not to mention the services of an accountant and lawyer.

The Future for Tilt-Tech Inc.

The hard work had just begun. They knew that key partners were vital in penetrating the market. Alpbach ski resort in Germany agreed to sign a Letter of Intent (LOI) under a 6 month exclusivity agreement. Now they were ready to set milestones and develop a timeline.

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Question 1. The Canvas and The Entrepreneur— 9 Marks

Before creating a comprehensive Business Plan, Tilt-Tech team went through several iterations of their modified canvas. For 2 marks each answer the following:

In 200 words define Tilt-Tech's problem statement (2 Marks) What is their value proposition? (2 Marks) Who is their customer segment? (2 Marks) Name two key partners they may need to succeed? (2 Marks) What is their revenue source? (1 Marks)

Question 2. Business Plan - 8 Marks

Tilt-Tech business plan and pitch to investors helped them get the funding they needed. Briefly explain how and for whom will the business plan provide value as a blue print when? (2 Marks each):

Providing Direction Instilling Confidence Communicating Providing a clear picture of the financials of the business.

Question 3. Market Research - 8 Marks

In the business case it is said that "...Through market research and interviews with industry leaders they came up with a hypothesis of the problem they wanted to solve."

List the four main objectives of their market research (what to look for?) (2 Marks)

Describe three things Terence, Laura, Maya and Peter uncovered regarding the marketing environment - briefly defend your choices? (6 Marks)

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Question 4. Marketing Strategies - 8 Marks

Given Maya's MBA background she knew that their success depended on developing a winning long term Marketing and Sales Strategy.

Define 2 different business model options for Tilt-Tech and give examples of potential sources of revenue? (6 Marks) Is Tilt-Tech selling B to B or B to C? Why? (2 Mark)

Question 5. Sales -9 Marks

There is no question that they have to hire a competent sales team.

What value would a CRM system bring to Tilt-Tech? (4 Marks) What type of sales will they be doing - transactional or Complex. Briefly define both. (4 Marks) What is meant by Prospecting? (1 Marks)

Question 6. Managing the Business- People -8 marks

Managing people is always a challenge, especially for young start-ups.

The team decided to manage by Delegation. Briefly define what that mean and state two benefits of this style of management. (2 Marks) Is it important to provide new employees with a job description? Yes or No - defend your answer. (2 Marks) Although the company as a start-up is too small for an HR Department - they knew that eventually they would have to have one. What does HR mean in this context and what are the responsibilities of an HR department - list four. (4 Marks)

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Question 7. Finance -12 Marks - attached Tilt-Tech Inc. Financial Statements

(a) What is Tilt-Tech's Fiscal Year based on the information on the statements? [1 Mark] (b) Calculate the values for the following items for Tilt-Tech LLC. based on the attached financial

statements: Working Capital [2 Marks] Current Ratio [2 Marks] What is the meaning of the current ratio for Tilt-Tech? [2 Marks] What is the Percentage of Taxes paid at the end of the fiscal year in 2019 [1 Marks] What is the Net Income for Tilt-Tech at the end of the fiscal year in 2019. [1 Marks]

(c) What is the meaning of Fiscal Year? [1 Mark] (d) Why is the Cash Flow statement so important for an Entrepreneur? Briefly explain [2 Mark]

Question 8. e-Business -8 marks

Tilt-Tech needs assistance defining their on-line presence.

How would you recommend Tilt-Tech to use the Internet as a "support tool" of their business? (list two recommendations). [4 Marks] Would e-commerce be useful for Tilt-Tech to trigger new channels and boost sales? (Why?) [4 Marks]

Question 9. Legal issues -11 marks

Lets go back in time. Terence, Laura, Maya and Peter haven't decided what type of legal form they will use to conduct business under.

What would be the use of a "shotgun clause" in Tilt-Tech's shareholders agreement? [4 Marks] Should they be a Partnership or Corporation? Why? [4 Marks] What are the rights of shareholders in a corporation? List 3 [3 Marks]

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Question 10. Buying/Selling, Franchising -10 marks

Before Tilt-Tech closed the investment round they went through a Due Diligence process. What does Due Diligence mean in this context. [4 mark] List 3 very important elements investors explored during Tilt-Tech acquisition [3 Marks] Why should Tilt-Tech entertain the idea to file for a Patent? List 3 reasons [3 Marks]

Question 11. Exit -9 marks

What do you think motivated Terence, Laura, Maya and Peter to negotiate a 10% : 90% split with the investors? [3 Marks] Tilt-Tech may entertain a Management Buyout option as an exit strategy down the road? List 1 pro and I con [3 Marks] In the insurance world what is the meaning of the rule of "utmost good faith" [3 Marks]

Question 12. Bonus Question - I mark

(a) What is a Business Model as defined in class?

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Tilt-Tech Inc

Balance Sheet as of July 31st 2019

Assets

Current Assets

Cash

Accounts Receivable

Raw Materials

Finished Good Inventory

Total Current Assets

$3,800,000

$1,945,000

$1,820,000

$3,905,500

$11,470,500

Long Term Assets

Equipment

Less Accumulated Depreciation Equipment

$7,435,000

$7,000,000 $435,000

Land

Total Long Term Assets

TOTAL ASSETS

$7,500,000

$7,935,000

$19,405,500

Liabitlitites and Owners Equity

Curretn Liabilities

Accounts Payable

Short Term Loan

Bank Overdraft

Total Current Liabilities

Long Term Liabilities

Long Term Loan

Mortage Payable

Total Long Term Liabilities

TOTAL LIABILITIES

Common Stock

Retain Earnings

TOTAL OWNERS EQUITY

TOTAL LIABILITIES AND OWNERS EQUITY

$3,460,000

$2,312,500

$1,000,000

$1,838,500

$1,700,000

$6,435,000

$2,659,500

$6,772,500

$3,538,500

$10,311,000

$9,094,500

$19,405,500

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Tilt-Tech Inc.

Income Statement

for the Year Ended July 31st 2019

Revenues

Sales $38,188,000

Total Revenues $38,188,000

Expenses

Cost of Goods Sold $23,012,250

Marketing and Selling Expenses $498,750

Administration Expenses $1,324,750

Interests Paid $150,500

Total Expenses $24,986,250

Income Before Taxes $13,201,750

Taxes $1,320,175

Net Income (Loss) ??

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