Make one strategic decision about the business from each of the three categories: Asset Purchase, Assume a Liability, Equity Transaction from the Investor's point of view. Please use key financial ratios relevant to the important factors as explained in the image below.
The online search engine business is a highly competitive, but growing industry as WiFi and Cellular networks expand into 5G service throughout both Urban and Rural areas. Companies in this industry can expect to grow annually between 5%15% in gross revenues, depending on geographic, local market conditions. However, costs in this industry are also increasing rapidly between 3% and 12%, annually, due to rising costs in electronic materials and telecommunications. Industry Forecast \& Outlook As concerns over user privacy online grow, targeting advertising has become less effective for social media platforms, which may continue to drive advertisers to search engine advertising instead of alternative online sources. Company Name: Wahoo! B/S Date: 12/31/2022 Industry: Technology Core Business Expenses As a premier online search engine for customers browsing the internet, Wahoo! incurs several fixed and variable costs in its business operations as outlined below: Cost Efficiencies \& Future Outlook Similar to other technology companies, Wahoo! incurs high server and cloud hosting services to maintain the high traffic of users on its websites. Expansion of these facilities may help reduce future per unit costs, but would entail upfront costs. Wahoo! has a premier online search engine for customers browsing the internet. The company makes revenues by selling advertisements on its webpages and key search results. Forecasted Revenues Tomorrow, Wahoo! will be signing contracts with customers totaling $47,000 that are set to earn the company revenues of $35,000 in fiscal year 2022. On those revenues, the company is expected to earn $12,000 in net income and $13,000 in operating cash flows. Current Business Outlook Wahoo! operates in a highly competitive industry and so the board of directors' primary focus is on increasing the user base, which can in turn allow the company to charge higher revenues for each advertisement on its websites. Potential Investor / Creditor Potential investors and creditors are expected to perform due diligence of any company interested in obtaining equity or lender financing by analyzing the financial statements. To determine if the company is a worthwhile investment, investors consider the company's forecasted future profits and the ability for the company to issue dividends. Creditors consider the financial health of the company, its ability / timeliness to pay back prinicpals and interest on loans. Potential Investor/Creditor - The potential investor / creditor has been hired by management to determine the impact of strategic decisions on external users' views. As such, three key financial ratios relevant to their important factors, as previously outlined, must be calculated as well as why those specific ratios were chosen and how external users interpret these calculations for the company. - These financial ratios should be analyzed both before and after the strategic decision is made. For each analysis, discuss the due diligence (i.e. why) as to whether the company represents a good investment for the external user and how the strategic decision influenced their willingness to invest in or provide a loan to the company. (Note: The potential investors and creditors here are not the same as those mentioned in the strategic decisions below.) Strategic Decisions Asset Purchase 1 Purchase $3,000 of merchandise inventory to be resold to customers Rent a factory or warehouse for $12,000 to increase future production (If current cash 2 does not cover the costs, this choice is contigent on obtaining either an equity investme or from the proceeds of a loan.) Pay an independent contractor $6,000 to build/update your company's website (The amount billed by the contractor will be classified as an asset.) Assume a Liability Take out a $50,000 loan from potential creditor A with repayment terms of $60,000 due in 3 years. Take out a $50,000 loan from potential creditor B with $50,000 due in 4 years and 2$2,000 in interest payments due each year until the loan is fully paid. Equity Transaction 1 Sell 25% of the business to potential investor A for a valuation of $40,000. 2 Sell 10% of the business to potential investor B for a valuation of $12,000. The online search engine business is a highly competitive, but growing industry as WiFi and Cellular networks expand into 5G service throughout both Urban and Rural areas. Companies in this industry can expect to grow annually between 5%15% in gross revenues, depending on geographic, local market conditions. However, costs in this industry are also increasing rapidly between 3% and 12%, annually, due to rising costs in electronic materials and telecommunications. Industry Forecast \& Outlook As concerns over user privacy online grow, targeting advertising has become less effective for social media platforms, which may continue to drive advertisers to search engine advertising instead of alternative online sources. Company Name: Wahoo! B/S Date: 12/31/2022 Industry: Technology Core Business Expenses As a premier online search engine for customers browsing the internet, Wahoo! incurs several fixed and variable costs in its business operations as outlined below: Cost Efficiencies \& Future Outlook Similar to other technology companies, Wahoo! incurs high server and cloud hosting services to maintain the high traffic of users on its websites. Expansion of these facilities may help reduce future per unit costs, but would entail upfront costs. Wahoo! has a premier online search engine for customers browsing the internet. The company makes revenues by selling advertisements on its webpages and key search results. Forecasted Revenues Tomorrow, Wahoo! will be signing contracts with customers totaling $47,000 that are set to earn the company revenues of $35,000 in fiscal year 2022. On those revenues, the company is expected to earn $12,000 in net income and $13,000 in operating cash flows. Current Business Outlook Wahoo! operates in a highly competitive industry and so the board of directors' primary focus is on increasing the user base, which can in turn allow the company to charge higher revenues for each advertisement on its websites. Potential Investor / Creditor Potential investors and creditors are expected to perform due diligence of any company interested in obtaining equity or lender financing by analyzing the financial statements. To determine if the company is a worthwhile investment, investors consider the company's forecasted future profits and the ability for the company to issue dividends. Creditors consider the financial health of the company, its ability / timeliness to pay back prinicpals and interest on loans. Potential Investor/Creditor - The potential investor / creditor has been hired by management to determine the impact of strategic decisions on external users' views. As such, three key financial ratios relevant to their important factors, as previously outlined, must be calculated as well as why those specific ratios were chosen and how external users interpret these calculations for the company. - These financial ratios should be analyzed both before and after the strategic decision is made. For each analysis, discuss the due diligence (i.e. why) as to whether the company represents a good investment for the external user and how the strategic decision influenced their willingness to invest in or provide a loan to the company. (Note: The potential investors and creditors here are not the same as those mentioned in the strategic decisions below.) Strategic Decisions Asset Purchase 1 Purchase $3,000 of merchandise inventory to be resold to customers Rent a factory or warehouse for $12,000 to increase future production (If current cash 2 does not cover the costs, this choice is contigent on obtaining either an equity investme or from the proceeds of a loan.) Pay an independent contractor $6,000 to build/update your company's website (The amount billed by the contractor will be classified as an asset.) Assume a Liability Take out a $50,000 loan from potential creditor A with repayment terms of $60,000 due in 3 years. Take out a $50,000 loan from potential creditor B with $50,000 due in 4 years and 2$2,000 in interest payments due each year until the loan is fully paid. Equity Transaction 1 Sell 25% of the business to potential investor A for a valuation of $40,000. 2 Sell 10% of the business to potential investor B for a valuation of $12,000
