Purchase Point Media Corporation-Finance Case Solution Sample

QUESTION

Case : Purchase Point Media Corporation (PPMC)

This case is from a firm called Purchase Point Media Corporation, or PPMC. PPMC was a thinly traded over-the-counter stock that issued some detailed financial projections. The data was presented in a very poor form; however, the substance and sequence of the data was organized in such a way that it was possible to compute a break-even point. You’ll study PPMC’s “Projected Statement of Net Income” and additional information provided, then integrate marketing and finance techniques to write a report on your findings.

CASE BACKGROUND

Purchase Point Media Corporation (Pink Sheets: PPMC) is what some refer to as a thinly traded “corporate shell.” The firm held patents in the United States, Canada, United Kingdom, and Germany for a shopping-cart display device, but was a nonreporting and nonoperating entity.

On March 18, 2002, PPMC reported its intention to sell these patents and related trademarks. The initial estimates suggested a stock price of nearly $2.50 per share, before related per-share deductions for sale-related broker’s commissions and legal fees. At the time of the news release, the firm’s stock was trading at $0.04 per share. In less than 60 days the stock was trading at more than $0.60 per share (Cataldo 2003, 55–60), for a 1,400 percent increase in price per share. (Note that investors and speculators alike would view this as a very risky investment, and the price per share for PPMC stock would be expected to fall short of or sell at a significant discount to the “anticipated” selling price for the firm’s intangible assets. See Arbel and Strebel 1982 and 1983; Arbel, Carvell and Strebel 1983; and Arbel 1985 for guidance on thinly traded or “neglected” firms.)

While this initial news release attracted speculators, causing the stock price to rise, after months without any additional news releases, the stock price drifted down again. On August 20, 2003, PPMC again announced its intention to sell the firm’s intangible assets (Business Wire 2003).

In the second announcement, PPMC management referred interested investors to their corporate Web site. Among the data provided, PPMC included a financial projection and other items they felt might be of interest to potential purchasers of the firm’s intangible assets (see Exhibit 1, Purchase Point Media Corp. statement, which follows).

• Identifies Form and Substance errors as instructed .

• Compute the PPMC break-even point in terms of

carts and stores 

• Determine the number of grocery stores in the

United States 

 

ANSWER

 

Step 1:

Summary of Form Errors for the PPMC Report

  1. Location: The introductory paragraph of the projected statement of net income, the third sentence states “both the Corporate house and Purchase Point Media Corp assumes no obligation”.

Error: Since the subjects in this sentence are plural the verb should also be plural. The word “assumes” represents singular subject.

Correction: Word “assume” should be inserted in place of “assumes”. The sentence should be written as both the Corporate house and Purchase Point Media Corp assume no obligation”.

  1. Location: The first page of Exhibit 1, the last sentence of the first paragraph states “You should independently investigate and fully understand all risk before making investment decisions.”

Error

The word risk is singular. It should be plural.

Correction: It should have been written as “You should independently investigate and fully understand all risks before making investment decisions.”

  1. Location: Point (i) of Advertising Revenue in Notes to Accounts states “the company required a minimum of 300 stores to qualify”.

Error: The word “required” is in past tense, it should be in future tense.

Correction: It should have been written as “the company requires a minimum of 300 stores to qualify”.

  1. Location: First page Heading states “Projected Statement of Net Income”

Error: There is no term such as projected statement of net income as the same is not in terms with the accounting term.

Correction: It should have been written as Projected Net Income Statement.

  1. Location: First page, Below signature space. “Corporate House”

Error: Corporate House. The Corporate House cannot be a signatory to the letter.

Correction: Instead the Companies name should be at the bottom and the name of the person signing the report on behalf of the company should be addressed above.

  1. Location: Note 2, First line says “Amortization of the display panels”

Error: Display panels are tangible so word Amortization is incorrect.

Correction: It should have been written as “Depreciation of the display panel.”

  1. Location: First page, Second Paragraph, First Line says “Dear Sirs”

Error: Dear Sirs. We never address the report as Sirs, it is always addressed as Dear Sir

Correction: Dear Sir

  1. Location: First page, Above the signature space stated as “Corporate House” as Signatory

Error: Corporate House as Signatory. The Corporate House cannot be a signatory to the letter instead the Companies name should be at the bottom and the name of the person signing the report on behalf of the company should be addressed above.

Correction: The Companies name should be at the bottom and the name of the person signing the report on behalf of the company should be addressed above.

  1. Location: Note 1, Line 2, it is stated that “The company expects to affix its display panel on 100% of the grocery carts or the equivalent of 200 carts per store. “

Error: Affix is a wrong word over here as display panels cannot be affixed. It’s a grammatical mistake

Correction: It should have been written as “The company expects to fix its display panel on 100% of the grocery carts or the equivalent of 200 carts per store.”

  1. Location: Note 3, Line 8, it is stated that “the following analysis determines the expense each month and by quarter for printing charges.”

Error: Expense each month is not correct.

Correction: It should have been written as “The following analysis determines the expense of each month and by quarter for printing charges.”

  1. Location: Note 4, Line 4, it is stated that “Management is currently seeking insurance, which will lessen the expense.”

Error: The word lessen the expense is a grammatical error.

Correction: It should have been written as “Management is currently seeking insurance, which will reduce the expense.”

  1. Location: Note 4, Line 6, it is stated that “It is estimated that vandalism will effect 5% of the display panels.”

Error: Effect is a grammatical error present in the statement.

Correction: It should have been written as “It is estimated that vandalism will affect 5% of the display panels”.

  1. Location: Note 4, Line 7, it is stated that “Vandalism will occur in two different fashions: first by placing graffiti on the display unit and secondly by smashing the unit in some way.”

Error: The word fashion is wrong.

Correction: It should have been written as “Vandalism will occur in two different ways: first by placing graffiti on the display unit and secondly by smashing the unit in some way.”

  1. Location: Note 5, Line 2, it is stated that “The company will enter into a five year contract with each supermarket chain to ensure longevity for its advertisers.

Error: Five year is wrong word to use.

Correction: It should have been written as “The company will enter into A five-year

contract with each supermarket chain to ensure longevity for its advertisers”

  1. Location: Note 5, Line 2, the company will enter into a five year contract with each supermarket chain to ensure longevity for its advertisers.

Error: Longevity alone is not correct word.

Correction: It should be written as “The company will enter into a five-year contract with each supermarket chain to ensure longevity of business its advertisers”

  1. Location: Note 7, Paragraph 4 Line 3, the last word: “Distribution”

Error: The word should not me capitalized

Correction: The word should be in running case “being paid each month to the distribution company”.

  1. Location: Note 7, Paragraph 5, Line 1, it is stated that “It is estimated that advertising will be changed on quarterly basis.”

Error: The word advertising is incorrect.

Correction: It should have been written as “It is estimated that advertisements will be changed on quarterly basis”.

  1. Location: Note 8, Paragraph 1, Line 1, it is stated as “Accounting and Auditing The accounting functions are as follows.”

Error: There is not full stop between Auditing and The accounting functions.

Correction It should be written as “Accounting and Auditing. The accounting functions are as follows. “

  1. Location: Note 8, Second Last Line, it is stated as “In addition, to the estimate of salaries, the will be a cost for the yearend audit to meet the listing requirements of regularity bodies.”

Error: The world is wrongly used.

Correction: It should have been written as “In addition, to the estimate of salaries, there will be a cost for the yearend audit to meet the listing requirements of regularity bodies.”

  1. Location: Note 8, Second Last Line, it is stated as “In addition, to the estimate of salaries, there will be a cost for the yearend audit to meet the listing requirements of regularity bodies.”

Error: “a” is wrongly used.

Correction: It should have been written as “In addition, to the estimate of salaries, there will be additional cost for the yearend audit to meet the listing requirements of regularity bodies.”

  1. Location: Note 15, Line 1, it is stated as. “Management fee comprises the following individuals.”

Error: The sentence is wrong as fee cannot comprise of individuals.

Correction: It should have been written as “Management fee comprises the following heads.”

  1. Location: Note 16, Line 5, it is stated as “Therefore, the following has been budgeted by quarter.”

Error: The use of word by is incorrect.

Correction: It should have been written as “Therefore, the following has been budgeted per quarter.”

  1. Location: Note 18, Line 2, it is stated as “The offices will not have to be large in space since limited personnel will be required to mange the operations.”

Error: Manage word is typed as mange.

Correction: It should have been written as “The offices will not have to be large in space since limited personnel will be required to manage the operations.”

  1. Location: Note 19, Line 1, it is stated as “The accountant’s and assistant accountant’s salaries have been covered under Accounting and Auditing noted fewer than 8 above.”

Error: The world fewer than 8 above is not correct.

Correction: It should be have written as “The accountant’s and assistant accountant’s salaries have been covered under Accounting and Auditing note 11.”

  1. Location: Note 9, Last Paragraph, Line 3, it is stated as, “For simplicity, this cost will be spread evenly over the four quarter.”

Error: For quarter is incorrect word.

Correction: It should have been written as “: For simplicity, this cost will be spread evenly over the four quarters.”

  1. Location: Note 12, Line 3, it is stated as, “Since money must be spent in this area to create a willingness to use the company’s display panels, it is estimated that $10,000 a month will be allotted.”

Error $10,000 a month is not correct.

Correction: It should have been written as “Since money must be spent in this area to create a willingness to use the company’s display panels, it is estimated that $10,000 per month will be allotted.”

  1. Location: Note 12, Line 4, it is stated as, “This results in $30,000 a quarter.”

Error: $30,000 a quarter is not correct.

Correction: It should have been written as “This results in $30,000 per quarter.”

  1. Location: The introductory paragraph of the projected statement of net income, the third sentence states “assumes no obligation to up date these”

Error: up date should be a single word

Correction: It should read “assumes no obligation to update these”

  1. Location: First page, Second Paragraph, Second Line says “for a twelve Month period”

Error: twelve Month should be hyphenated, and ‘M’ should not be capitalized

Correction: It should be “for a twelve-month period”

  1. Location: First page, third paragraph, line 1 says “We have made some basic assumptions in compiling the information”

Error: in should not be used here

Correction: replace in with while to read as follows: “We have made some basic assumptions while compiling the information”

  1. Location: Note 1, line 1 reads “It is expected a minimum of 14,400 stores”

Error: the line is abrupt

Correction: add that before a to read “ It is expected that a minimum of 14,400 stores”

Summary of Substance Errors for the PPMC Report

  1. Location: Note 4, Last paragraph, Line 1, it is stated as, “This would mean 144,000 would require a replacement panel.”

Error: There is no unit mentioned against the figure and thus a substance error present.

Correction: This should have been written as “This would mean $144,000 would require a replacement panel.”

  1. Location: Note 15, Line 3, it is stated as, “Omission error in the annual remuneration of Vice President – Marketing as 9,000.”

Error: Amount should be 90,000 instead of 9,000

Correction: Amount should be written as 90,000 instead of 9,000.

  1. Location: In Note 3, the yearly total is wrongly calculated as 2,296,000

Error: Quarterly total wrongly calculated as 2,296,000

Correction: Amount should be 2,296,800 instead of 2,296,000.

  1. Location: In Note 6, total wrongly calculated as 23,454,000

Error: Total wrongly calculated as 23,454,000

Correction: Amount should be 23,461,000 instead of 23,454,000.

  1. Location: In Note 1, point I the sales figure of $5,000,000,000 is calculated wrongly

Error: keeping everything else constant and just reducing the first month stores to 300 the sum should be lower.

Correction: Amount should be $125,145,000 instead of $5,000,000,000.

Step 2 – Calculation of First Year Break Even Points

Please refer to excel file attached herewith.

Step 3 – Mention the stock stickers for various food chains.

Table 1

Stock Ticker

No. of Stores

Firm Name

KR

2,769 (Statista, 2018a)

Kroger

Private LLC

2,328 (Wikipedia contributors, 2018a)

Albertson’s

SWY

900 (Statista, 2013)

Safeway

AD

3,206 (Statista, 2017)

Ahold

SVU

223 (Statista, 2018b)

SUPERVALU

WINN

495 (Wikipedia contributors, 2019b)

Winn-Dixie Stores

PUBLIX

1,242 (Wikipedia contributors, 2019c)

Publix Super Markets

GAPTQ

1,859 (Wikipedia contributors, 2019a)

Great Atlantic & Pacific

SFS

300 (“Smart & Final Company”, 2018)

Smart & Final

IMKTA

201 (“eMarketer Retail”, 2018)

Ingles Markets

BSI

0 (“Blue Square”, 2016)

Blue Square- Israel

PTMK

0 (Wikipedia contributors, 2019d)

Pathmark

RDK

246 (“Ruddick Posts Lower Sales With Fewer Stores”, 2018)

Ruddick

WFM

479 (Statista, 2017b)

Whole Foods Market

WMK

205 (Wikipedia contributors, 2018b)

Weis Markets

MARSA

0 (Sims, 2017)

Marsh Supermarkets

NAFC (SPTN)

135 (“SpartanNash Company”, 2018)

Nash Finch (SpartanNash)

FBD

0 (Bloomberg, 2018a)

Fresh Brands

WOM

0 (“Whole Foods, FTC reach Wild Oats deal; 13 stores to be sold”, 2018)

Wild Oats Markets

SPTN

0 (“SpartanNash Company”, 2018)

Spartan Stores (SpartanNash)

EFC

0 (Bloomberg, 2004)

Eagle Food Centers

GF

0 (Hoover’s, 2018b)

Gristede’s food

VLGEA

30 (Bloomberg, 2018b)

Village Super Market

FAS

10 (Reference for Business, nd.)

Foodarama Supermarkets

ARDNA

17 (Hoover’s, 2018a)

Arden Group

Total

14,645

References:

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