tailieunhanh - PORTABLE MBA IN FINANCE AND ACCOUNTING CHAPTER 4

4 ACTIVITY-BASED COSTING. William C. Lawler. Dave Roger, CEO of Electronic Transaction Network (ETN/ W), sat stunned in his office. He had just come out of a preliminary third-round financing meeting with potential investors. Six months ago his CFO had assured him that third-round financing would not be a problem. Much had happened since that date. The Internet stocks had crashed. Money for the technology sector was now tight. | ACTIVITY-BASED COSTING William C. Lawler Dave Roger CEO of Electronic Transaction Network ETN W sat stunned in his office. He had just come out of a preliminary third-round financing meeting with potential investors. Six months ago his CFO had assured him that third-round financing would not be a problem. Much had happened since that date. The Internet stocks had crashed. Money for the technology sector was now tight. In the two rounds before the crash ETN W had so many prospective investors the company had to turn some away. Since then their business model had not changed ETN W had a solid revenue stream and the forecast was for continued revenue growth unlike many of the recently failed Internet companies ETN W had real customers who were happy with its services. Yet the meeting had concluded without closure on the third round for one simple reason. When Dave started talking about their proven business model the potential investors immediately asked for specific details Explain your business model in terms of how you will create wealth for us your investors. As he fumbled to explain how ETN W would create shareholder wealth they stopped him and suggested an approach with which they were all comfortable. If you were a manufacturer we would expect you to tell us how you will use our investment some goes to infrastructure such as plant and equipment and some to working capital such as inventory and receivables. You would then tell us how much it would cost you to build your product how much to market it how much to service it and what customers would be willing to pay for it. Our first two rounds of investment would have given you sufficient experience to gather this type of data. With this information you could explain your business model how you would create enough wealth to pay back our principal plus our required 126 Activity-Based Costing 127 return. Now since you are a service provider rather than a manufacturer explain your business model in like terms. What