ASSIGNMENT 1 MANAGERIAL ECONOMICS - LIM.pdf - Philippine Christian University-Dasmarinas Graduate School of Business and Management MANAGERIAL ECONOMICS


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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.
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