Harvard Case - Vincent Buys a Lawn Mower
"Vincent Buys a Lawn Mower" Harvard business case study is written by Gregory B Fairchild, Stephen E. Maiden. It deals with the challenges in the field of Finance. The case study is 7 page(s) long and it was first published on : Jan 8, 2019
At Fern Fort University, we recommend Vincent to carefully consider the financial implications of purchasing a lawnmower, analyzing his needs, budget, and potential return on investment (ROI). This analysis should include a thorough assessment of the costs associated with ownership, including maintenance, fuel, and potential repairs, alongside the value proposition of a lawnmower in terms of time saved, improved lawn aesthetics, and potential resale value.
2. Background
The case study 'Vincent Buys a Lawn Mower' presents a scenario where Vincent, a college student, is considering purchasing a lawnmower to maintain his lawn. The case highlights the financial considerations involved in this decision, including the initial purchase price, ongoing maintenance costs, and potential resale value. Vincent is also presented with the alternative of hiring a lawn care service, which offers convenience but comes at a higher cost.
The main protagonists of the case study are Vincent, the decision-maker, and the lawn care service provider.
3. Analysis of the Case Study
This case study can be analyzed through the lens of personal finance and capital budgeting.
Personal Finance:
- Financial Analysis: Vincent needs to analyze his current financial situation, including his income, expenses, and available savings. This analysis will help him determine if purchasing a lawnmower fits within his budget.
- Cash Flow Management: The purchase of a lawnmower represents a significant upfront expense. Vincent needs to consider the impact of this expense on his cash flow, ensuring he has sufficient funds to cover other essential expenses.
- Risk Assessment: Purchasing a lawnmower comes with inherent risks, such as potential breakdowns, maintenance costs, and the possibility of needing to replace it in the future. Vincent needs to assess these risks and weigh them against the benefits.
Capital Budgeting:
- Return on Investment (ROI): Vincent needs to calculate the potential ROI of the lawnmower. This involves comparing the cost of purchasing and maintaining the lawnmower with the value of the services it provides, such as time saved and improved lawn aesthetics.
- Capital Budgeting Techniques: Vincent can use various capital budgeting techniques, such as net present value (NPV) and internal rate of return (IRR), to evaluate the financial viability of the lawnmower purchase.
- Break-Even Analysis: Vincent can perform a break-even analysis to determine how many hours of lawn care he needs to perform to offset the initial cost of the lawnmower.
4. Recommendations
Based on the analysis, we recommend the following:
- Conduct a Comprehensive Financial Analysis: Vincent should carefully analyze his income, expenses, and savings to determine if purchasing a lawnmower is financially feasible. He should consider the initial purchase price, ongoing maintenance costs, fuel costs, and potential repair expenses.
- Evaluate the Value Proposition: Vincent should assess the value proposition of a lawnmower, considering the time saved, improved lawn aesthetics, and potential resale value. He should compare this value with the cost of hiring a lawn care service.
- Consider Alternative Financing Options: Vincent should explore alternative financing options, such as a loan or a credit card, if the initial purchase price presents a financial challenge.
- Negotiate with the Lawn Care Service: Vincent should negotiate with the lawn care service to explore potential discounts or package deals, potentially reducing the overall cost.
- Research and Compare Models: Vincent should research and compare different lawnmower models based on features, performance, reliability, and price. He should prioritize quality and durability to minimize future repair costs.
- Develop a Maintenance Plan: Vincent should develop a proactive maintenance plan for the lawnmower, including regular servicing and cleaning, to extend its lifespan and minimize unexpected repairs.
- Monitor and Evaluate: Vincent should regularly monitor the performance of the lawnmower and assess its ROI. If the lawnmower proves to be a financial burden or if his needs change, he should consider selling it or switching to a lawn care service.
5. Basis of Recommendations
These recommendations consider the following:
- Core Competencies and Consistency with Mission: The recommendations align with Vincent's personal financial goals and his desire to maintain his lawn efficiently.
- External Customers and Internal Clients: The recommendations consider the needs of Vincent as the decision-maker and the potential impact of his decision on his personal finances.
- Competitors: The recommendations consider the alternative of hiring a lawn care service, providing Vincent with a comparative analysis.
- Attractiveness - Quantitative Measures: The recommendations emphasize the importance of using quantitative measures, such as ROI, break-even analysis, and financial modeling, to evaluate the financial viability of the lawnmower purchase.
- Assumptions: The recommendations are based on the assumption that Vincent values time savings, improved lawn aesthetics, and financial efficiency.
6. Conclusion
Purchasing a lawnmower can be a financially sound decision for Vincent if he carefully analyzes his needs, budget, and potential ROI. By conducting a thorough financial analysis, evaluating the value proposition, and developing a proactive maintenance plan, Vincent can maximize the benefits of owning a lawnmower while minimizing potential financial risks.
7. Discussion
Other Alternatives:
- Sharing a Lawn Mower: Vincent could consider sharing a lawnmower with a neighbor or friend, reducing the initial purchase cost and potentially lowering maintenance expenses.
- Using a Manual Lawn Mower: Vincent could opt for a manual lawnmower, which is significantly cheaper than a gas-powered or electric model, but requires more physical effort.
Risks and Key Assumptions:
- Depreciation: The lawnmower will depreciate in value over time, impacting its resale value.
- Maintenance Costs: Maintenance costs can be unpredictable and may vary depending on the lawnmower model and usage.
- Repair Costs: Repair costs can be significant, especially for major breakdowns.
- Time Commitment: Maintaining a lawnmower requires time and effort, which may not be feasible for Vincent's busy schedule.
8. Next Steps
- Step 1: Conduct a comprehensive financial analysis (within 1 week).
- Step 2: Research and compare different lawnmower models (within 2 weeks).
- Step 3: Negotiate with the lawn care service (within 1 week).
- Step 4: Make a final decision and implement the chosen solution (within 1 month).
By following these steps, Vincent can make an informed decision that aligns with his financial goals and personal preferences.
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Case Description
Vincent Chin's first "temporary" job after high school was with the lawn crew of Holiday Lawn Service. Ten years later, Chin has become a trusted employee and the company's second-in-command. His boss, Sam Holiday, has decided to retire and has worked out a deal with Chin to take over the business. In preparing Chin for his new role, Holiday explains that there are important choices ahead related to capital expenditures (like lawn mowers) and their depreciation. Although Chin is determined to build on the company's success, accounting sometimes confused him, and the mention of terms like taxes and cash flow always intimidated him. Can Holiday help his successor better understand the links among accelerated depreciation, maintenance expense, salvage value, and tax liabilities to ensure that he's ready for his new business responsibilities?
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