Case 14 edited

Case 14 edited - 0 Group #3: Eric Wozniak, Scott Marks,...

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0 Group #3: Eric Wozniak, Scott Marks, Jessica Wilson, Champ Kwunchaithunya, Sani Choocherd MGMT 612 Case #14: Gilad Publishing Corporation April 16, 2011
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1. Which of the firm’s divisions is more risky, and why? In terms of size, comment on each of the expansion plans. Would a creditor be concerned? Why? Of the two divisions the firm has (Titles and Custom Publishing), the more risky division is the Title division. Headed by Lewis Alcorn, the Title division decides upon which publication and marketing is worthy of GPC’s business. Lewis Alcorn is somewhat of an underwriter, accessing risk of which acquisitions are ‘winners’ and ‘losers’. The Title Division has had its success because they have acquired more winners than losers; however it is a decision involving future sales/forecasting. At times, GPC needs to provide the initial costs of producing under the Title Division. The Custom Publishing Division carries little risk because the customer bears the initial or the entire cost of production. In terms of size, both expansion plans would be concerning for a creditor. Taking a look at the Balance Sheet provided. The partial expansion investment into GPC’s assets increases by a multiple of two. The full expansion investment increases GPC’s assets four times the original amount. Any creditors could be concerned with these significant investments due to the fact that the amount of lending is four or two times the amounts of its assets. In a case that the project comes out to be unsuccessful, GPC would not have sufficient collateral to cover the lending other than the invested machinery. Moreover, the majority of revenue generated (78%) is depended on Mr. Alcorn’s belief, which is based on his assumption that the project would generate positive income. Hence, having the assets of roughly four million dollars could worry creditors when the company would like to expand its assets two or four times. 2
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Case 14 edited - 0 Group #3: Eric Wozniak, Scott Marks,...

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