Philippine Christian University-Dasmarinas
Graduate School of Business and Management
MANAGERIAL ECONOMICS CASES
by Ivan Joseph D. Lim, GS-MBA 20195223
LIST OF CASES:
•
Case 1: Amcott loses $3.5M; Manager Fired
On Tuesday software giant Amcott posted a year-end operating loss of $3.5M. Reportedly, $1.7M of
the loss stemmed from its foreign language division. At a time when Amcott was paying First National
a hefty 7% rate to borrow short-term funds, Amcott decided to use $20M of its retained earnings to
purchase three-year rights to Magic word, a software package that converts generic word processor
files saved as French text into English. First year sales revenue from the software was $7M, but
thereafter sales were halted pending a copyright infringement suit filed by Foreign, Inc..Amcott lost the
suit and paid damages of $17M. Industry insiders says the copyright violation pertained to “a very small
component of Magicword”. Ralph, the Amcott manager who was fired
over the incident, was quoted
as saying, “I’m a scapegoat for the
attorneys (
at Amcott) who didn’t do their homework before buying
the rights of Magicword. I projected annual sales of $7M per year for three years. My sales forecasts
were right on target”.
Question: Do you know why Ralf was fired?
Answer:
YEAR
CASH FLOW
COMPUTATION
PRESENT VALUE
INITIAL
INVESTMENT
$ 20,000,000
$ 20,000,000
1
$ 7,000,000
7,000,000 / (1+0.07)
1
$ 6,542,056
2
$ 7,000,000
7,000,000 / (1+0.07)
2
$ 6,114,071
3
$ 7,000,000
7,000,000 / (1+0.07)
3
$ 5,714,085
TOTAL PROJECTED
INCOME IN 3 YRS
-
$ 18,370,212
NET GAIN/LOSS
$ 1,629,788
Computing the initial investment versus the projected costs, we can see above that the net difference is $
1.6 Million. The amount of money lost in percentage is equivalent to:
Percentage Loss
=
(1,629,788 / 20,000,000) * 100
=
8.15 %
which is very significant to the total assets of the company. The data he gathered from the future sales
forecast was indeed correct but he
didn’t
foresee the losses that will be present after 3 years. This $ 20
Million investment made by the Ralph caused a negative impact to their earnings and is the reason why
Ralph was fired.
