Part 2 Read the excerpt below and answer the following questions: 1. In your own terms,...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Part 2 Read the excerpt below and answer the following questions: 1. In your own terms, explain the meaning of high/ low operating leverage and its effect on companies. [4 marks] 2. Why did Inktomi Corp. report a very large loss and eventually not able to survive in the market? [6 marks] Managerial Application: New Econ- omy Firms and High Operating Leverage High-technology firms incur large fixed costs and relatively low variable costs to pro- duce intellectual property such as software and Web sites. This combination creates high operating leverage that causes these firms to be very risky. In good times, they are flying high. In weak times, there is very little they can do to trim expenses. Inktomi Corp, was a high-flying software company. It spent $10 million develop- ing research engines and software to manage Web content. Once those fixed costs were incurred, each additional sale was almost pure profit. The president remarked, "You have no cost of goods. We don't even ship a physical diskette anymore. Next to the federal government, this is the only business that's allowed to print money." All this has changed. Software development costs rose and sales nosedived, causing Inktomi to report a very large loss. Enormous fixed costs were required to research, develop, design, test, and market software. Intense competition and rapid obsolescence required high levels of spending each year. The result was a dramatic reversal of fortune lead- ing to big swings in profits, stock prices, and hiring when sales sagged Inktomi did not survive the Internet bubble and was sold to Yahoo! in 2002. SOURCE B. McClure, "Operating Leverage Captures Relationships www.vestpedia.com Dec 28, 2006 Part 2 Read the excerpt below and answer the following questions: 1. In your own terms, explain the meaning of high/ low operating leverage and its effect on companies. [4 marks] 2. Why did Inktomi Corp. report a very large loss and eventually not able to survive in the market? [6 marks] Managerial Application: New Econ- omy Firms and High Operating Leverage High-technology firms incur large fixed costs and relatively low variable costs to pro- duce intellectual property such as software and Web sites. This combination creates high operating leverage that causes these firms to be very risky. In good times, they are flying high. In weak times, there is very little they can do to trim expenses. Inktomi Corp, was a high-flying software company. It spent $10 million develop- ing research engines and software to manage Web content. Once those fixed costs were incurred, each additional sale was almost pure profit. The president remarked, "You have no cost of goods. We don't even ship a physical diskette anymore. Next to the federal government, this is the only business that's allowed to print money." All this has changed. Software development costs rose and sales nosedived, causing Inktomi to report a very large loss. Enormous fixed costs were required to research, develop, design, test, and market software. Intense competition and rapid obsolescence required high levels of spending each year. The result was a dramatic reversal of fortune lead- ing to big swings in profits, stock prices, and hiring when sales sagged Inktomi did not survive the Internet bubble and was sold to Yahoo! in 2002. SOURCE B. McClure, "Operating Leverage Captures Relationships www.vestpedia.com Dec 28, 2006
Expert Answer:
Answer rating: 100% (QA)
1 L Operating leverage It is cl cohich by increasing to High operceting leverage A business and low ... View the full answer
Related Book For
Advertising Promotion And Other Aspects Of Integrated Marketing Communications
ISBN: 9781111580216
9th Edition
Authors: Terence Shimp, Craig Andrews
Posted Date:
Students also viewed these finance questions
-
Read the examples below and answer the following questions for each example. Use the table below to help relate the identified cultural dimension to accounting values: What cultural dimension is...
-
Read the letter below and answer the following questions a. what is the subject of the letter? to what is the writer responding? b. does the writer agree or disagree with something in the...
-
Part 2 Read the excerpt below and answer the following questions: 1. When evaluating the performance of the 6 divisions, why did Vickie focus on segment margin and not the net operating income of...
-
A 25,000 kW turbo-generator is supplied with 128,000 kg/h of steam at 2.50 MPa and 400C when developing it rated load. There are actually extracted 10,400 kg h at 0.3 MPa and 8300 kg/h at 0.06 MPa....
-
On September 24, 2007, Miguel Carcamo was going through his mail. For some reason, Miguel had not yet received his bank statement, which he usually received at the beginning of each month. Although...
-
The coating department of a parts manufacturing department coats various parts with an antirust, zinc- based material. The parts to be processed are loaded into baskets; the baskets are passed...
-
Aloha Company has a personnel policy that allows each employee with at least one year's employment, 20 days vacation time and two holidays with regular pay. Unused days are carried over to the next...
-
The Fashion Rack has a monthly accounting period. The firms chart of accounts is shown below and on the next page. The journals used to record transactions are the sales journal, purchases journal,...
-
Requirement 1: The inventory at the end of the year was understated by $14,750. (a) Did the error cause an overstatement or an understatement of the gross profit for the year? (b) Which items on the...
-
In addition to a Gantt chart, youve drawn Brian a PERT diagram so that you can communicate the necessity to keep an eye on the critical path. Consult Figure which was derived from the data from...
-
Imaginary Case Study 5 Anthony, 29, is under the jurisdiction of your local provincial Mental Health Review Board on your acute care ward. He's in breach of a disposition because of repeated alcohol...
-
Increasingly, companies are faced with significant challenges to their procurement activities,you were introduced to several methods of risk analysis and mitigation strategies.Explain How to Manage...
-
What are the challenges and opportunities of managing a virtual team from an organizational behavior perspective?
-
Based on the given UML diagram, write class Person and class Student. Write a client class to test the two classes. -name:String +Person() Person +Person(startName:String) +getName(): String...
-
Use the article below from this web discusses the challenges and/or barriers for hospitals operating in the United States regarding managing patient care, patient safety, and/or quality of care...
-
1. A developer is considered two projects. A project has a capital cost RM760,000. Income for the project will be RM95,000 per year. At the end of 12 years the project can be sold for RM 30,000. The...
-
Business speakers do not always have the luxury of complete confidence in the material they have to present. For instance, sales forecasts for new products are notoriously difficult to make because...
-
The nitrogen atoms in N2 participate in multiple bonding, whereas those in hydrazine, N2H4, do not. (a) Draw Lewis structures for both molecules. (b) What is the hybridization of the nitrogen atoms...
-
African-American, Hispanic-American, and Asian-American consumers do not signify three homogeneous markets; rather, they represent many markets composed of people who merely share a common ethnicity...
-
Apply the hierarchy of marcom effects framework (see Figure 8.1) to explain the evolution of a relationship between two people, beginning with dating and culminating in a wedding.
-
Assume that several years from now, after you have graduated college and begun a career, you open your mail one day and find a letter from SymphonyIRI Group requesting you to become a BehaviorScan...
-
What are the challenges posed by strategic information systems and how should they be addressed? List and describe the management challenges posed by strategic information systems. Explain how to...
-
True or false? A favorable variance may be due to a poor management decision.
-
Which features of organizations do managers need to know about to build and use information systems successfully? What is the impact of information systems on organizations? Define an organization...
Study smarter with the SolutionInn App