Case summary:
W Incorporation was founded by Person N. Person N and his friends made investments in the form of equity, and short- and long-term debt. Recently, the company has developed a virtual keyboard with more advanced technology. The VK was more advanced and beneficial compared to the current developments.
The company needs more outside investments to introduce the VK to the open market. Person N decides to seek outside financing in the form of new equity and bank loans. A LLC, the outside financer, asked Person X to analyze the financial statements of W incorporation to know the financial position of W Incorporation.
Characters in the case:
Person N: The founder of W Incorporation and a computer programmer.
Person X: The employee of A LLC.
A LLC: The new investor
To discuss: Whether the financial statement of cash flows or the accounting statement of cash flows accurately describes the cash flow of the company.
Want to see the full answer?
Check out a sample textbook solutionChapter 2 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
- Imagine that your firm is looking to replace its AIS application. The AIS application has been around for 10+ years. You are a member of the team that will select the new AIS application. There is discussion among the team that the new AIS should only focus on producing financial statements while other reports should be designed and developed by the internal IT team. What are the advantages and disadvantages of following this advice?arrow_forwardSuppose you decide (as did Steve Jobs and Mark Zuckerberg) to start a company. Your product is a software platform that integrates a wide range of media devices, including laptop computers, desktop computers, digital video recorders, and cell phones. Your initial market is the student body at your university. Once you have established your company and set up procedures for operating it, you plan to expand to other colleges in the area and eventually to go nationwide. At some point, hopefully sooner rather than later, you plan to go public with an IPO and then to buy a yacht and take off for the South Pacific to indulge in your passion for underwater photography. With these issues in mind, you need to answer for yourself, and potential investors, the following questions. 9. What is block ownership? How does it affect corporate governance?arrow_forwardSuppose you decide (as did Steve Jobs and Mark Zuckerberg) to start a company. Your product is a software platform that integrates a wide range of media devices, including laptop computers, desktop computers, digital video recorders, and cell phones. Your initial market is the student body at your university. Once you have established your company and set up procedures for operating it, you plan to expand to other colleges in the area and eventually to go nationwide. At some point, hopefully sooner rather than later, you plan to go public with an IPO and then to buy a yacht and take off for the South Pacific to indulge in your passion for underwater photography. With these issues in mind, you need to answer for yourself, and potential investors, the following questions. 4. Suppose your company raises funds from outside lenders. What type of agency costs might occur? How might lenders mitigate the agency costs?arrow_forward
- Suppose you decide (as did Steve Jobs and Mark Zuckerberg) to start a company. Your product is a software platform that integrates a wide range of media devices, including laptop computers, desktop computers, digital video recorders, and cell phones. Your initial market is the student body at your university. Once you have established your company and set up procedures for operating it, you plan to expand to other colleges in the area and eventually to go nationwide. At some point, hopefully sooner rather than later, you plan to go public with an IPO and then to buy a yacht and take off for the South Pacific to indulge in your passion for underwater photography. With these issues in mind, you need to answer for yourself, and potential investors, the following questions. 3. Suppose you need additional capital to expand, and you sell some stock to outside investors. If you maintain enough stock to control the company, what type of agency conflict might occur?arrow_forwardSuppose you decide (as did Steve Jobs and Mark Zuckerberg) to start a company. Your product is a software platform that integrates a wide range of media devices, including laptop computers, desktop computers, digital video recorders, and cell phones. Your initial market is the student body at your university. Once you have established your company and set up procedures for operating it, you plan to expand to other colleges in the area and eventually to go nationwide. At some point, hopefully sooner rather than later, you plan to go public with an IPO and then to buy a yacht and take off for the South Pacific to indulge in your passion for underwater photography. With these issues in mind, you need to answer for yourself, and potential investors, the following questions. 6. What is corporate governance? List five corporate governance provisions that are internal to a firm and under its control. What characteristics of the board of directors usually lead to effective corporate…arrow_forwardSuppose you decide (as did Steve Jobs and Mark Zuckerberg) to start a company. Your product is a software platform that integrates a wide range of media devices, including laptop computers, desktop computers, digital video recorders, and cell phones. Your initial market is the student body at your university. Once you have established your company and set up procedures for operating it, you plan to expand to other colleges in the area and eventually to go nationwide. At some point, hopefully sooner rather than later, you plan to go public with an IPO and then to buy a yacht and take off for the South Pacific to indulge in your passion for underwater photography. With these issues in mind, you need to answer for yourself, and potential investors, the following questions. 2. If you expanded and hired additional people to help you, might that give rise to agency problems? Explain your answerarrow_forward
- Suppose you decide (as did Steve Jobs and Mark Zuckerberg) to start a company. Your product is a software platform that integrates a wide range of media devices, including laptop computers, desktop computers, digital video recorders, and cell phones. Your initial market is the student body at your university. Once you have established your company and set up procedures for operating it, you plan to expand to other colleges in the area and eventually to go nationwide. At some point, hopefully sooner rather than later, you plan to go public with an IPO and then to buy a yacht and take off for the South Pacific to indulge in your passion for underwater photography. With these issues in mind, you need to answer for yourself, and potential investors, the following questions. 5. Suppose your company is very successful, and you cash out most of your stock and turn the company over to an elected board of directors. Neither you nor any other stockholders own a controlling interest (this is the…arrow_forwardZumo Wang came to Northern Ireland from China six years ago to study at university for a degree in Computing and Electronics. After graduating he worked as an information technology manager for a computer company and saved his wages to build up the capital needed to invest in his own business. Zumo’s friend Charles Wu, had recently put his computing consultancy business up for sale – ‘PC: IT’. PC: IT was set up ten years ago, and seemed quite successful. The premises were located on a busy street in the town centre of Enniskillen, and operated a ‘collect and return’ service, enabling computers to be serviced without the customer having to leave their home. Upon purchase of the business from Charles, Zumo acquired a number of fixed assets for use in the business. These included a personal computer, a laptop computer and various machines facilitating welding and electronic engineering to be carried out on computer circuit boards, rebuilding computers and other assembly activities. The…arrow_forwardZumo Wang came to Northern Ireland from China six years ago to study at university for a degree in Computing and Electronics. After graduating he worked as an information technology manager for a computer company and saved his wages to build up the capital needed to invest in his own business. Zumo’s friend Charles Wu, had recently put his computing consultancy business up for sale – ‘PC:IT’. PC:IT was set up ten years ago, and seemed quite successful. The premises were located on a busy street in the town centre of Enniskillen, and operated a ‘collect and return’ service, enabling computers to be serviced without the customer having to leave their home. Upon purchase of the business from Charles, Zumo acquired a number of fixed assets for use in the business. These included a personal computer, a laptop computer and various machines facilitating welding and electronic engineering to be carried out on computer circuit boards, rebuilding computers and other assembly activities. The main…arrow_forward
- To verify their calculations, Carrington and Genevieve have hired Josh Schlessman as a consultant. Josh was previously an equity analyst, and he has covered the HVAC industry. Josh has examined the company’s financial statements as well as those of its competitors. Although Ragan currently has a technological advantage, Josh’s research indicates that Ragan’s competitors are investigating other methods to improve efficiency. Given this, Josh believes that Ragan’s technological advantage will last for only the next five years. After that period, the company’s growth will likely slow to the industry average. Additionally, Josh believes that the required return the company uses is too high. He believes the industry average required return is more appropriate. Under Josh’s assumptions, what is the estimated stock price?arrow_forwardAscendex Sdn Bhd is an online company that supplies a range of IT products. Its product line includes IT hardware and software. Their main customers are government agencies and private company. The company employs a combination of manual procedures and a networked accounting system with distributed terminals in several departments. After years of satisfactory performance, however, Ascendex Sdn Bhd is now experiencing operational inefficiencies and accounting errors. Your firm has been hired to evaluate Ascendex’s business processes and internal controls. Ascendex’s expenditure cycle is described in the following paragraphs. PURCHASE SYSTEM PROCEDURES Ascendex’s transactions are initiated when the purchasing department clerk reviews the inventory file for items that need to be replenished. The clerk selects a vendor, adds a record to the digital purchase order (PO) File, and prints four hard copies of the PO. One copy is filed in the department; the second copy is sent to the receiving…arrow_forwardClamShell Security (CSS) is a division of a large, listed company, X3Cate Limited (X3L). The CSS Division produces software products to protect customer’s computers from infection from computer viruses and other malware. The sales of its products have been growing over the last few years as its products become more accepted in the market. The Board of X3L want to introduce a new product line that would specifically protect against Ransomware, a new security threat, particularly business customers. Each Divisional Manager can earn large bonuses on top of their base salaries if they maintain Return on Investment greater than 25% otherwise the bonus payments are halved. The following information is for the year that has just ended related to the CSS Division performance: Profit percentage (Return on Sales): 30% Sales revenue: $15 000 000 Average capital invested $18 000 000 Required:Using the same information provided for the past year, if X3l has a company-wide…arrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning