Chapter 3 Mini Case Working Papers Fall 2014
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MANAGERIAL FINANCE Chapter 3: Organizing and Financing a New Venture Chapter 3 Mini Case 1: Interact Systems, Inc (Revisited) Instructions: Please read the case below and answer question B-F. Note that the answer is provided for question A. A. What are the advantages and disadvantages of having formed the company as a corporation? Interact Systems, Inc. has developed software tools that help hotel chains solve application integration problems. Interact’s Application Integration Server (AIS) provides a two-way interface between central reservations systems (CRS) and property management systems (PMS). At least two important trends in the hotel industry are relevant. First, hotels are shifting away from the manual booking of room reservations and electronic bookings will continue to increase as more bookings are made over the Internet. Second, competitive pressures are forcing hotels to implement yield management programs and to increase customer service. By integrating the CRS and PMS through Interact’s AIS, inventories can be better managed, yields improved, and customer service enhanced. All reservation traffic is routed from the CRS to individual hotel properties. This allows Interact Systems to create a database that can be used to track customers and to facilitate marketing programs, such as frequent stay or VIP programs, as a way of increasing customer satisfaction. Interact forecasts application integration expenditures in the hospitality industry to exceed $1 billion by 2012. Greg Thomas founded Interact Systems in 2006 and developed the firm’s middleware software and hospitality applications. He has twelve years of systems applications experience and currently is Interact’s Chief Technology Officer. Eric Westskow joined Interact in early 2007 as President and CEO. Prior to that time, he worked in sales and marketing in the software industry for over twenty years. Answer: An important advantage relates to investor liability whereby liability is limited to shareholders’ investments. Although there is high time and legal cost associated with organizing as a corporation, there is the possibility of attracting large amounts of equity capital from venture investors and common shareholders. The corporate form of organization also has an unlimited life and it is usually easy to transfer ownership.
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Transcript of Chapter 3 Mini Case Working Papers Fall 2014
MANAGERIAL FINANCE
Chapter 3: Organizing and Financing a New Venture
Chapter 3 Mini Case 1: Interact Systems, Inc (Revisited)
Instructions: Please read the case below and answer question B-F. Note that the answeris provided for question A.
A. What are the advantages and disadvantages of having formed the company as acorporation?
Interact Systems, Inc. has developed software tools that help hotel chains solve application integration problems. Interact’s Application Integration Server (AIS) provides a two-way interface between central reservations systems (CRS) and property management systems (PMS). At least two important trends in the hotel industry are relevant. First, hotels are shifting away from the manual booking of room reservations and electronic bookings will continue to increase as more bookings are made over the Internet. Second, competitive pressures are forcing hotels to implement yield management programs and to increase customer service. By integrating the CRS and PMS through Interact’s AIS, inventories can be better managed, yields improved, and customer service enhanced.
All reservation traffic is routed from the CRS to individual hotel properties. This allows Interact Systems to create a database that can be used to track customers and to facilitate marketing programs, such as frequent stay or VIP programs, as a way of increasing customer satisfaction. Interact forecasts application integration expenditures in the hospitality industry to exceed $1 billion by 2012.
Greg Thomas founded Interact Systems in 2006 and developed the firm’s middleware software and hospitality applications. He has twelve years of systems applications experience and currently is Interact’s Chief Technology Officer. Eric Westskow joined Interact in early 2007 as President and CEO. Prior to that time, he worked in sales and marketing in the software industry for over twenty years.
Answer:
An important advantage relates to investor liability whereby liability is limited to shareholders’ investments. Although there is high time and legal cost associated with organizing as a corporation, there is the possibility of attracting large amounts of equity capital from venture investors and common shareholders. The corporate form of organization also has an unlimited life and it is usually easy to transfer ownership.
MANAGERIAL FINANCE
Chapter 3: Organizing and Financing a New Venture
Chapter 3 Mini Case 1: Interact Systems, Inc (Revisited)
B. What other organizational structures whould have been appropriate and why?
C. Could Interact Systems Qualify for S corporation status with the IRS? Why or why not?
D. Describe the intellectual property involved in Interact Systems' business model.
Answer:
They could have organized as an s corporation. They could have done this because its the same liability for the share holder. However they can only have 100 stock holders.
Answer:
Interact can qualify as long as they keep business within the U.S., have less than 100 stock holders, and the stock holders must meet the IRS criteria.
Answer:The software created by Interact Systems is intellectual property. The software enables hotels to integrate the crs and pms.
MANAGERIAL FINANCE
Chapter 3: Organizing and Financing a New Venture
Chapter 3 Mini Case 1: Interact Systems, Inc (Revisited)
E. What methods of protection are available for Interact Systems' intellectual property?
F. What considerations are important in deciding whether to use an employment contractfor the newly hired CEO?
Answer:
They could either get a copyright for the software or you could possibly get a utility patent.
Answer:If he will know information that competitors could use or if the CEO has incentive to leave and start their own business in the same field I would deffinitly make them sign an employee contract.
