Case 1: Purchase Point Media Corporation (PPMC)INTRODUCTIONThis case is based on

Case 1: Purchase Point Media Corporation (PPMC)INTRODUCTIONThis case is based on actual financial projections developed and provided by a publicly traded firm, Purchase Point Media Corporation (PPMC). Carefully examine the PPMC projections, which are presented in a sequence and format suitable for break-even calculation and analysis. After you calculate the break-even point, use additional, publicly available informa- tion to come to a decision with respect to market potential. The increase in the price per share of PPMC stock suggests that, over time, the market may have reacted to their results and analyses, using a comparable methodology.OBJECTIVESWhen you complete this case, you’ll be able to• Identify discernable errors, irregularities, and impropri- eties in style and format within publicly reported data• Meet financial statement presentation requirements for a specific “real world” example• Determine whether financial information provided follows generally accepted accounting principles (GAAP) or is presented in “good form”• Distinguish between the substance and form of financial statements• Estimate variable and fixed costs for a publicly traded company• Assess publicly disseminated information from publicly traded companies to determine the feasibility of market potential and market penetration• Exercise enhanced critical-thinking skillsSenior Capstone: Business 9CASE BACKGROUNDPurchase 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 sug- gested 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 intan- gible 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 pur- chasers of the firm’s intangible assets (see Exhibit 1, Purchase Point Media Corp. statement, which follows).To begin this case, review and comment on the “form” of the public disclosure circulated by PPMC. Then use the “substance” of this information to develop per-unit, sales- based contribution margins and break-even points for the first year of operations. Last, gather other publicly available information to determine the market feasibility of achieving its break-even point.Senior Capstone: Business10Senior Capstone: Business 11Senior Capstone: Business12Senior Capstone: Business 13Senior Capstone: Business14Senior Capstone: Business 15Senior Capstone: Business16Senior Capstone: Business 17Senior Capstone: Business18Senior Capstone: Business 19Senior Capstone: Business20SUPPLEMENTAL INFORMATIONBrand Name versus Generic StocksGraphsSupplemental information is provided in Figures 1 and 2. Figure 1 illustrates the price per share for PPMC common stock for the time period August 20, 2003 through September 27, 2004. The latter date represents the specific event when PPMC filed their 10QSB. Figure 2 compares the PPMC price per share with comparable index measures, such as the Dow Jones Industrial Average, Standard and Poor’s 500, NASDAQ, and Russell 2000 indices, for the same period of time.Brand Name Stocks Generic StocksLess information risk More information riskHigher quality of information Lower quality of informationLarge sample of consensus estimatesSmall or no sample of consensus estimatesMonitoring service or fee No monitoring service or feeLower return Higher returnHigher price (premium) Lower price (discount)Lower uncertainty Higher uncertaintyMore consistency Less consistencySenior Capstone: Business 21FIGURE 1—The price per share for PPMC common stock, August 20, 2003 through September 27, 2004, when PPMC filed their 10QSBFIGURE 2—Comparison of the PPMC price per share over comparable index measures, such as the Dow Jones Industrial Average, Standard and Poor’s 500, NASDAQ, and Russell 2000 indices, for the same time periodSenior Capstone: Business22ReferencesArbel, A. 1985. Generic Stocks: An old product in a new package. The Journal of Portfolio Management 68: 4–13.Arbel, A., Carvell, S., and Strebel, P. 1983. Giraffes, Institutions and Neglected Firms. Financial Analysts Journal 39: 57–63.Arbel, A., and Strebel, P. 1982. The Neglected and Small Firm Effects. The Financial Review: 201–18.Arbel, A., and Strebel, P. 1983. Pay attention to neglected firms! The Journal of Portfolio Management 9: 37–42.Business Wire. 2003. Purchase Point Media Corp.: Corporate Update (August 20).Cataldo, A. Information Asymmetry: A Unifying Concept for Financial and Managerial Accounting Theories (including illustrative case studies). Studies in Managerial and Financial Accounting 13, 2003. Oxford, England:


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