Changes in NWC Now that we have the operating cash the changes in NWC. By assumption, net working capital change. In each year, we will generally either add to or reco working capital. Recalling that NWC starts out at $20,000 ar sales, we can calculate the amount of NWC for each year as il As illustrated, during the first year, net working capital $360,000 = $54,000. The increase in net working capital fo 20,000 = $34,000. The remaining figures are calculated the s: Remember that an increase in net working capital is a cash sign in this table to indicate an additional investment that the fir tal. A positive sign represents net working capital returning to $16,500 in NWC flows back to the firm in Year 6. Over the pro builds to a peak of $108,000 and declines from there as sales be We show the result for changes in net working capital in t Notice that at the end of the project's life there is $49,500 in 1 recovered. Therefore, in the last year, the project returns $16, and then returns the remaining $49,500 at the end of the year Attempt all questions: 6 marks each Q1. What are some barriers or challenges Pakistani consumers and companies might face before the local banking system can effectively begin using virtual currencies? What measures the central bank has taken in digitalization of the banking system? Is this possible in Pakistan, which is still mostly cash based economy? Q2. Recently the IMF forecasts 1.5% growth rate which is in stark contrast with revised 3pc GDP growth forecast made by the State Bank of Pakistan a few days ago. Do you agree with IMF forecast? Give logical reasons to strengthen your statement. Is World Bank also thinking in the same line of IME? Q3: Herd behavior is the bias in stock market. Do you think it makes sense in making money? Justify with examples. INDIA'S ENRON In December 2008, one of the largest players in the World Bank had banned the company from pursu- India's outsourcing and information technology secing any service contracts after evidence was uncov. tors, Satyam Computer Services, fell from grace with ered that Satyam employees had offered "improper such force and speed that the reverberations are being benefits to bank staff and "failed to account for all felt around the globe. Ironically, the name 'Satyam fees charged" to the World Bank. WiPro Technologies means "truth" in Sanskrit, but the company, founded had also been banned by the World Bank in 2007 for by brothers Ramalinga and Ramu Raju, now has a "offering shares of its 2000 initial public offering to new nickname: India's Enron. World Bank employees," so Satyam appeared to have Founded in 1987, Satyam was positioned to take full some company in the arena of questionable business advantage of the capabilities of satellite-based broad practices in the software solutions sector. band communications, allowing them to serve clients However, the situation escalated in December across the globe from its offices in Hyderabad. The 2008 after Satyam's board voted against a proposed rising demand for computer programmers to fix code deal for Satyam to buy two construction compa- in software programs in advance of Y2K fueled an nies for $1.6 billion. The Raju brothers held owner- aggressive growth plan for the company. It was listed ship stakes in both companies, and they were run on the Bombay Stock Exchange in 1991, and achieved by Ramalinga Raju's sons. Four directors resigned a listing on the New York Stock Exchange in May in response to the proposed deal, and Satyam stock 2001. By 2006, Satyam had about 23,000 employ was punished by investors, forcing the brothers to sell ees and was reporting annual revenues of $1 billion. their own stock as the falling share price sparked mar- Growth continued as the company rved expanding gin calls on their investment accounts. Apparently the needs for outsourced services from American com- dire financial situation prompted Ramalinga Raju to panies looking to control and preferably reduce oper. confess in a four-and-a-half-page letter to the board ating costs. By 2008, Satyam was reporting over $2 of Satyam Computer Services that the company had billion in revenue with 53,000 employees in 63 coun. been overstating profits for several years and that $1.6 tries worldwide. This made the company the fourth- billion in assets simply did not exist. It did not take largest software services provider alongside such long for investors to piece the information together competitors as WiPro Technologies, Infosys, and that the proposed $1.6 billion purchase of the con- HCL. It was serving almost 700 clients, including 185struction companies would have, conveniently, filled Fortune 500 companies, generating more than half the $1.6 billion hole in Satyam's accounts. of its revenue from the United States. Satyam's cli- In his confession, Raju attempted to address accu- ent roster included such names as General Electric, sations of a premeditated fraud by stating that "What Cisco, Ford Motor Company, Nestl, and the United started as a marginal gap between actual operating States Government. profit and the one reflected in the books of accounts Prominence in the software services sector brought continued to grow over the years. It has attained with it increased attention and a growing reputation. unmanageable proportions as the size of the company In 2007. Ramalinga Raju was the recipient of Ernst operations grew," he wrote. "It was like riding a tiger, & Young's "Entrepreneur of the Year" award. In Sep. not knowing how to get off without being eaten." tember 2008 the company received the Golden Pea- The analogy of being eaten by a tiger certainly cock Award for Corporate Governance from the World seems appropriate. The scandal has had repercus- Council for Corporate Governance, which endorsed ions for the software services ector as a whole, Satyam as a leader in ethical management practices. casting shadows on Satyam's competitors, and also Signs that there were problems at Satyam first on India's corporate governance framework. As with appeared in October 2008 when it was revealed that Enron's collapse, attention has immediately turned THE ROLE OF GOVERNMENT 155 Scanned with ComScanner