C corporation, a media services firm with net earnings of $3,200,000 in the last
ID: 2774674 • Letter: C
Question
C corporation, a media services firm with net earnings of $3,200,000 in the last year, is considering the following projects:
Purchase the exclusive rights to market a quality educational television program in syndication to local markets in the European Union, a part of the firm's existing business activities
The media services business is cyclical and highly compatitive. Do following:
a) Evaluate the risk of each proposed project and rank them as "low", "medium", "high"
b) Comment on why you chose each ranking.
Project Initial investment Detailas A ($35,000) Replace existing office furnishing B ($500,000) Purchase digital video editing equipment for use with several existing accounts C ($450,000) Develop proposal to bid for a $2,000,000 per year 10-year contract with the US Navy, not now on account D ($685,000)Purchase the exclusive rights to market a quality educational television program in syndication to local markets in the European Union, a part of the firm's existing business activities
Explanation / Answer
A. Replacing existing furniture can be categorized as low risk. And also the initial investment involved is also very less compared to other projects. This project has a 100% successful outcome, so categorized as Low risk
B. Purchase of digital video editing equipment is very essential for a media company in present day scenario. And this project would also has a 100% successful outcome so can be categorized as Low risk
C. Proposal to bid for a $2 million 10 year contract. Since the investment involved is 14% of the earnings, this project can be categorized as medium risk. The outcome depends on the quality of the proposal and would work as wonders if it gets a positive outcome.
D. Purchase the exclusive rights to market a quality educational television program in syndication to local markets in the European Union. This project also would be a part of the firm's existing business activities, so I don’t think there is any need to invest in this project if it is such a high investment. This project can be categorized as High risk
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