MENLO PARK, CAMany know the story of how Mark Zuckerberg started Facebook Facebook.com) in his college dorm room. How Facebook went from a cool website to a profitable company is less well known. It began at a Christmas party when Sheryl Sandberg met Mark. "We talked for probably an hour by the door," recalls Mark. After much convincing. Sheryl joined Facebook as its chief operating officer Sheryl began by reviewing Facebook's financial statements and was alarmed by the lack of revenue and receivables. "There was this open question." explains Shery. "Could we make money ever?" She organized a meeting where ideas such as charging a subscription fee and inserting ads were proposed As we now know, Facebook committed to an ad-focused model. The strategy was a huge success, and revenues and receivables soared. Sheryl then moved to her next challenge: managing accounts receivable, Sheryl and Mark saw that decisions on credit sales and extending credit were impacting income To combat risk of loss, credit is extended to customers who make timely payments Sheryl and Mark also look at cash inflow patterns to estimate uncollectibles and minimize bad debts Sheryl enjoys Facebook's success, but her passion is "mission-based she explains: "I believe strongly in what Facebook's doing That's why I get up and go to work every day Entrepreneurial Decision: Assume Sheryl Sandberg and Mark Zuckerberg of Facebook are considering two options: Plan A: Facebook would begin selling access to a premium version of its website. The new online customers would use their credit cards. The company has the capability of selling premium service with no additional investment in hardware or software. Annual credit sales are expected to increase by $250,000. Costs associated with Plan A: Additional wages related to these new sales are $135,500; credit card fees will be 4.75% of sales; and additional record-keeping costs will be 6% of sales. Premium service sales will reduce advertising revenues for Facebook by $8,750 annually because some customers will now only use the premium service. Plan B: The company would begin selling Facebook merchandise. It would make additional annual credit sales of $500,000 Cost associated with Plan B: Cost of these new sales is $375,000; additional record-keeping and shipping costs will be 4% of sales; and uncollectible accounts will be 6.2% of sales. Address the following in your response: 1. What is the additional annual net income or loss expected under plan A and plan B? 2. Should the company pursue either plan? Discuss both the financial and non-financial factors that you would consider in this decision. ito (Ctrl