Case Study

The Kitchen Conundrum

Ann Hackert, Idaho State University, Stephen Byer, Idaho State University
December 1, 2022
North America
Accounting & Finance
3 pages
risk, personal finance, interest rates, financial decision
Student Price: 
$4.00 (€3.69)
Average rating: 

This Critical Incident requires that students identify and assess the various risks associated with a personal financial decision. A kitchen remodel is not as simple as it seems on the surface due to the uncertainty associated with increasing supply costs, supply chain bottlenecks, and volatile interest rates. The prices and amount to borrow are uncertain. If Emma and Jim borrow too little, they will not be able to complete the project, or they may have to significantly compromise the quality and style of materials. Borrowing too much is an additional risk. As the family started their research, they discovered various cost estimates. They also found that local and national interest rates increased frequently.

Learning Outcomes: 

After completing the Critical Incident, students will be able to:

1. Identify the sources of real-world uncertainty for a home improvement project.

2. Develop a method to calculate costs under uncertainty for materials, labor, and interest rates.

3. Identify the data and information the bank would require for its underwriting process.

4. Analyze the costs of materials, the financing costs, and the risks of the estimates in order to make a decision.