ECO204_Paper_1 - U Toronto, Dept. of Economics, St. George...

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Unformatted text preview: U Toronto, Dept. of Economics, St. George Campus, ECO 204 20092010 This case is copyright material and may not be used for commercial purposes without prior permission UNIVERSITY OF TORONTO, DEPARTMENT OF ECONOMICS ECO 204 20092010 Business Report 1 Ajaz Hussain THE NOT SO PRESTIGIOUS DATA SERVICES COMPANY 1 ____________________________________________________________________________________ The aptly named The Not So Prestigious Data Services Company (TNSPDSC) has been making losses since it was founded in October 2009. Founded by disgruntled former ECO 204 students, the company targets chronic procrastinators, i.e. students who postpone their homework and practice problems to the last minute. These procrastinators (not you, of course) pay an hourly fee to log onto servers to view and discuss HW and practice problem solutions with a live agent. The company has secured an annual contract with Ecowoman (a tutoring service) giving her an average of 90 hours a month billed at $400/hour; Ecowoman uses the services to check her solutions. All other "commercial" customers are billed at $500/hour. Exhibit 1 contains a breakdown of contractual and commercial hours and Exhibit 2 breaks down revenues. The company has to service its servers for about 30 hours a month (i.e. an hour a day) please see Exhibit 1. The Not So Prestigious Date Services Company has signed several multiyear contracts for servers, space (a room in Goodsworth College) and custodial services. Some operations staff is salaried while systems maintenance, administration and sales staff are wholly salaried. The company spends $30,000/month promoting its services (see for example this Facebook group). See Exhibit 2 for detailed cost information. The CEO, Ajax Hoosaying, is contemplating several proposals to make the company profitable: The company has recently witnessed growth (see Exhibit 1) and some managers feel (the procrastinators naturally) that it's only a matter of time the company is 1 Thanks to Allie White Page 1 of 4 The Not So Prestigious Data Services Company Pseudocase for ECO 204 2009 2010 Business Report 1 U Toronto, Dept. of Economics, St. George Campus, ECO 204 20092010 This case is copyright material and may not be used for commercial purposes without prior permission profitable. Ajax would like to know the breakeven number of commercial hours and how long it'll take the company to be profitable. Hint: There are two breakeven quantities (think of the ECO 100 graph where the revenue curve intersects the cost function in two places). Some managers have proposed raising commercial prices by $100/hour. According to the marketing department, relative to December 2009, this will lead to a 25% decrease in commercial hours. Some managers have proposed lowering commercial prices by $50/hour. According to the marketing department, relative to December 2009, this will lead to a 12.5% increase in commercial hours. Run a new advertising campaign based on the Cashman ads with the jingle: "I'm the econman, give me your $$ and I'll give you the solutions .. oh yeah!" According to the marketing department, this campaign will raise sales (relative to December levels) by 20%. You've been hired to advise Ajax on these proposals and of course make one of your own. Please write a 5 6 page business report not including the title page and a one page executive summary. Please submit your paper and spreadsheet analysis between December 10th and December 20th through the Assignment tab in Blackboard (assignment tab will be enabled Dec 10th morning and closed Dec 20th 11pm). The paper must be in either Word or pdf format. You must name the report and spreadsheet as: LastName_FirstName_STUDENT_ID.xxx Your paper may be compared to other papers through Turnitin. Hint: To estimate the cost functions in Excel, create a scatter plot of cost against revenue and service hours. Right click on any data point and choose "trendline". If the scatter plot "looks" linear, choose "linear trendline" and "show equation on chart"; if the scatter plot "looks" non linear, choose "polynomial (2nd order) trendline" and "show equation on chart". See this "tutorial" for more information. For your convenience, here are the exhibits in Excel 2007 and Excel 2003. Page 2 of 4 The Not So Prestigious Data Services Company Pseudocase for ECO 204 2009 2010 Business Report 1 U Toronto, Dept. of Economics, St. George Campus, ECO 204 20092010 This case is copyright material and may not be used for commercial purposes without prior permission Exhibit 1 Not so Prestigious Data: Summary of Server Utilization, Fourth Quarter 2009 Revenue Hours October November December Contract Commercial Total revenue hours Service hours Available hours Total hours 90 90 180 31 490 701 90 125 215 30 389 634 90 120 210 31 189 430 Page 3 of 4 The Not So Prestigious Data Services Company Pseudocase for ECO 204 2009 2010 Business Report 1 U Toronto, Dept. of Economics, St. George Campus, ECO 204 20092010 This case is copyright material and may not be used for commercial purposes without prior permission Exhibit 2 Not so Prestigious Data Services Summary Results of Operations, Fourth Quarter 2009 October Revenues Contract Revenue Commercial Revenue Total Revenue Expenses Space costs Rent Custodial services Total Equipment costs Server leases Maintenance Depreciation: Server Equip. Office Equip. Power Total Wages and salaries Operations Systems maintenance Administration Sales Total Sales promotions 20,000.00 20,000.00 20,000.00 1,000.00 1,000.00 1,000.00 21,000.00 21,000.00 21,000.00 36,000.00 36,000.00 36,000.00 45,000.00 62,500.00 60,000.00 81,000.00 98,500.00 96,000.00 November December 10,000.00 10,000.00 10,000.00 1,000.00 1,000.00 1,000.00 300.00 300.00 300.00 200.00 200.00 200.00 944.00 1080 1,064.00 12,444.00 12,580.00 12,564.00 5,541.08 10,000.00 15,000.00 12,500.00 43,041.08 7,775.71 10,000.00 15,000.00 12,500.00 45,275.71 7,431.47 10,000.00 15,000.00 12,500.00 44,931.47 30,000.00 30,000.00 30,000.00 Total expenses 106,485.08 108,855.71 108,495.47 Net Income (25,485.08) (10,355.71) (12,495.47) Page 4 of 4 The Not So Prestigious Data Services Company Pseudocase for ECO 204 2009 2010 Business Report 1 ...
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This note was uploaded on 05/02/2011 for the course ECO 204 taught by Professor Hussein during the Fall '08 term at University of Toronto- Toronto.

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