DeVry ECON545 – Business Economics

DeVry University – Keller Graduate School of ManagementECON545 – Business EconomicsJuly Term 2016 Team Project Report #1Written Report and Presentation FormatThe following outline should be used to complete the first team project report. The purpose of theproject is to identify the microeconomic basis of a company (to be determined by the team), describingthe background of how the company got started and what the competitive environment is like for theindustry of the company. The market research required in the first project can be accomplished by athorough review of public information available from corporate websites and public databases. Thereport should focus on understanding how the company became successful or perhaps unsuccessful, inthe chosen business and determining what a suggested growth path would be for the future of thecompany. The report format is as follows: 1.2.3.4.5.6.7.8.9.10. Standard Cover SheetReport Title PageTable of ContentsIntroductionCompany Background and HistoryMarket AssessmentOperations AssessmentFinancial PerformanceFuture Growth PotentialConclusions and Recommendations Comments from Professor:Need more content next time. noElasticity calculation, No profitmaximization, minimal on determinantsAbstractCindy wants to invest in a new business thatinvolves the installation of solar panels. Inorder to make an informed decision on thisbusiness venture, she will need to reviewpotential profit/loss in the solar panel industryby considering future prospects for this typeof business. Cindy also needs to decidewhether she will invest her own funds orborrow the money to start the business.The imminent growth of the solar photovoltaic(PV) industry is almost certain. Whenobserving the rising costs of coal and naturalgas prices, the decrease of PV system costs,and the government support of solartechnology, the PV market looks to have asignificant increase in volume over the nextfew years. According to SolarBuzz, a websitededicated to Solar Power and Energy, Thesolar PV industry has reached a critical tippingpoint, with end-market demand hitting record levels almost every quarter. This growth isbeing driven by leading module suppliers andproject developers that returned toprofitability during 2013, and which have nowestablished highly-effective global sales andmarketing networks.” (NPD Group, Inc., 2013)The article also states that “demand in Q1’14will also achieve record-breaking status, asthe strongest first-quarter ever seen by the PVindustry.” (NPD Group, Inc., 2013)The cost of production for solar panels hasdecreased significantly. “The average cost fortier 1 solar photovoltaic manufacturers isexpected to fall 6% during 2014, continuingthe downward trend set in place since 2008,bringing the overall cost to a record low of$0.20 per watt, according to the latestresearch from NPD. (NPD Group, Inc., 2013)Further consumer incentives include lowerutility bills, increased tax credits and higherresale values. “Homes with solar-powersystem using photovoltaic (PV) panels sell foran average of $24,705 more than homeswithout PV systems, research finds.” (Tanaka,2014)The government supports the concept of solarpower and aims to make it a major energy source. “Solar power as cheap as coal… thatis the holy grail of the solar power industry”(R. Glenn Hubbard, 2012) Governmentsupport includes generous subsidies to theconsumer and producers of the PV industry.“Government agencies, utilities and othersoffer a variety of tax credits, rebates andother incentives to support energy efficiency,encourage the use of renewable energysources, and support efforts to conserveenergy and lessen pollution.” (Energy, 2014)I see four main factors influencing the priceelasticity of demand:* Availability of close substitutes.Are there many available close substitutes forsolar panels? The demand will tend to beelastic if Cindy and her customer can switchamong the various types of PV’s for the samedesired feature.* Are PV’s a necessity or a luxury?Currently, PV’s would be considered an elasticform of energy because there are other formsof electricity (coal/power plants). We onceconsidered personal computers a luxury andthey are now a necessity. Perhaps PV’s will beviewed the same way in the future.* How much of my income will PV’s consume? A large portion of consumer’s income equalselasticity. What portion of income can yourclient devote to the cost of solar panels? If itis a large share (elastic), what tradeoffs willclient need to consider to make it aworthwhile purchase?* What is the time horizon when makingdecisions on PV’s?PV systems have productive life cycles of 3050 years. (Brownson, 2014) A longer timehorizon is said to be elastic.RecommendationsUpon review of various criteria such aselasticity of demand, cost of production, etc, Iwould encourage Cindy to pursue thisbusiness venture. This sector is set to growexponentially in the future. The fall in solar PVprices as well as other incentives will causehigher demand for installation. This willbenefit Cindy’s new business venture bybringing more installation business and lowerinput costs. This can be seen in the demandsupply figure:It also makes good economic sense for Cindyto borrow money for her solar panel business venture as the government provides varioussubsidies to businesses involved in cleanenergy. “In total, the federal energy taxsubsidies will cost more than $16 billion in2013, up from only $5 billion in 2005.”(Bastach, 2013) Cindy can benefit from apiece of the clean energy subsidy pie.BibliographyBastach, M. (2013, March 13). Most energytax subsidies go toward green energy, energyefficiency. Retrieved from The Daily Caller:http://dailycaller.com/2013/03/14/cbo-mostenergy-tax-subsidies-go-toward-green-energyenergy-efficiency/Brownson, J. (2014, May 25). Department ofEnergy and Mineral Engineering. Retrievedfrom Penn State University: https://www.eeducation.psu.edu/eme810/node/593Energy, U. D. (2014, may 25). Tax Credits,Rebates, and Savings. Retrieved fromEnergy.gov: http://energy.gov/savingsNPD Group, Inc. (2013, December). Solarbuzz.Retrieved from Solarbuzz:http://www.solarbuzz…./news/recentfindings/strong-growth-forecast-solar-pvindustry-2014-demand-reaching-49-gw R. Glenn Hubbard, A. P. (2012). Economics.VitalSouce bookshelf version.Tanaka, S. (2014, May 22). Payback Time forSolar-Power Energy Systems. Retrieved fromThe Wall Street Journal:http://online.wsj…./news/articles/SB10001424052702304198504579571960667560156?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj….%2Farticle%2FSB10001424052702304198504579571960667560156.html