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.
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.
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?
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.
cost of books and the price the books would be sold for
projected operating expenses
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?
Your friend has returned after 2 weeks and he has now completed a