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Financial Information Case - Solution.docx

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Ryerson University
ACC 110

Case 1 - Financial Information - SOLUTION NOTE: Part 1 must be posted for students prior to the class. Part 2 should be handed out in class only AFTER Part 1 has been answered. Part 1: A friend of yours has just called with "a great business opportunity." He is starting up a new ebusiness selling used-textbooks to service all the universities within the GTA. Although he recognizes that every university (Ryerson, U of T, etc) already has a bookstore for new books, he feels the used-textbook market in the GTA is under-represented. He tells you that U of T does run a used bookstore but their prices are still high and they only service U of T students. He feels that an ebusiness which focuses on supplying students from all the GTA campuses will draw a larger market and fill a niche that is, as yet, under-represented. Your friend is putting in $15,000 of his own money and has asked you to invest the same amount. The funds will be used to purchase two computers, set up the web site, purchase shelving to organize the textbooks, and advertise at the various campuses. Required: What additional information would you require in order to make a decision as to whether you want to invest in this business or not? Are there any concerns you would have about investing in this business? Solution: Purpose of this question: to show students the importance of having full information in order to make an informed decision. Much of what you are asking for is specialized information that is very detailed - is this type of information available from published financial statements? Likely not and yet investors in the stock market are investing, sometimes, more than $15,000 in various companies whose stock they purchase on the stock market. Additional information:  cost of books and the price the books would be sold for  advertising strategy  projected operating expenses  projected revenue  how profits would be split  what your personal liability would be  whether your friend is financially stable  whether the business will be a corporation or a partnership  information regarding your competition (other used bookstores) Additional concerns:  a business relationship with the friend may be problematic  your friend may be great at the idea stage but does he have the knowledge or expertise to run a business? Part 2: Your friend has returned after 2 weeks and he has now completed a
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