Case 1: Purchase Point Media Corporation

Case 1 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 1: Purchase Point Media Corporation (PPMC)

INTRODUCTION

This 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 information 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.

OBJECTIVES

When you complete this case, you’ll be able to

• Identify discernable errors, irregularities, and improprieties 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 skills

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).

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, salesbased 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.

SUPPLEMENTAL INFORMATION

Brand Name versus Generic Stocks

Brand Name StocksGeneric Stocks
Less information riskMore information risk
Higher quality of informationLower quality of information
Large sample of consensusestimatesSmall or no sample of consensusestimates
Monitoring service or feeNo monitoring service or fee
Lower returnHigher return
Higher price (premium)Lower price (discount)
Lower uncertaintyHigher uncertainty
More consistencyLess consistency

Graphs

Supplemental 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

FIGURE 1—The price per share for PPMC common stock, August 20, 2003 through September 27,

2004, when PPMC filed their 10QSB

FIGURE 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 period

References

Arbel, 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:

Elsevier Science (JAI). Series Editor: Marc Epstein.

PROJECT REQUIREMENTS

The project requires three steps to be presented.

Step 1 – Identify Form and Substance Errors.

Step 2 – Compute the Purchase Point Media (PPMC)

break-even points in terms of carts and stores.

Step 3 – Determine the number of grocery stores for various

food chains.

In one Word document, provide individual sections for

each Step. This Word document along with the Excel file

(described below for Step 2) will be uploaded when you click

on the Take Exam button on your Student Portal to submit

your project (described under the “Submitting Your

Assignment” later in the instructions).

This Senior Capstone project highlights your knowledge

and the skills you have developed over the course of your

education. There is nothing “new” to be learned here.

The knowledge and skills required for this project include

English Composition, Financial Accounting, Managerial

Accounting, Information Literacy and the abilities to

think critically, do research and to present your work

in a professional manner.

Substance versus Form and

Critical Thinking

Step 1

In the infamous Enron bankruptcy case, the form of the

financial statements prepared by the Enron Corporation

and WorldCom was very professional; however, the substance

was lacking, leading to audit and market failures and the

eventual bankruptcy of both of these big-cap, or largecapitalization

firms. PPMC represents a reverse case, in

which the form of the data contained in the PPMC news

release and corporate Web site was very poor.

To begin, read the PPMC report, focusing on problems with the

form of the report. (“Form” means spelling, punctuation, and

capitalization are correct and that the text is grammatically

correct. Also, form means that the format of the text as far as

font, bold, underlining, indents, and so on are correct.)

Prepare a typed, clearly communicated summary of all errors

or weaknesses you find in the form of this report. This should

be a numbered list. There are well over 30 form errors in the

document. (The ways to go about doing this for this step is to

think of yourself as an English Composition instructor and a

student has turned in a required paper that was written.)

Although the PPMC report isn’t well-written, don’t attempt

rewrite the report. Only present a numbered list of the

errors found.

To report the numbered list of form errors for this step, each

error should have three components:

1. The location of the error.

2. What the error is.

3. How the text should have been written correctly.

Here is an example of how you’ll present the form errors.

Summary of Errors in the Form of the PPMC Report

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 “You should independently

investigate and fully understand all risks before making

investment decisions.”

Next, reread the PPMC report, focusing on problems with the

substance of the report. (“Substance” means the figures and

data that are being reported and making sure the math is

correct.) Identify the obvious errors or problems first by

focusing on the addition or math errors. Prepare a typed,

clearly communicated summary of all errors you find in the

substance of this report. These should be presented in a

numbered list.

To report the numbered list of substance errors for this step,

each error should have three components the same as the

presentation of the form errors:

1. The location of the error.

2. What the error is.

3. How the text should have been written correctly.

The heading for the substance errors should be “Summary of

Errors in the Substance of the PPMC Report”.

Do not take this step lightly. The data and figures found in

the report are used to calculate the beak-even analysis for

Step 2. As presented, the data is incorrect and therefore,

the break-even analysis would be incorrect. Therefore, it is

important that you find “all” of the substance errors and

correct them as these corrected figures will be what you

use to make the break-even calculations for Step 2.

Step 2

The PPMC Notes in the document appear to be organized by

cost behavior. This is similar to the approach you used in

your Managerial Accounting course. You should follow this

approach or framework as you compute the PPMC breakeven

point in terms of carts and stores. Begin with revenues,

follow with variable costs (VCs), develop the contribution

margin (CM; in aggregate), followed by fixed costs (FCs),

and, finally, compute PPMC’s net operating income (NOI)

and break-even point in terms of both carts and stores.

On your Student Portal, under the Supplements section of

the Senior Capstone subject is a downloadable Excel file

titled “Exam 500895- PPMC Excel Spreadsheet”.

Step 2 requires that you calculate the break-even points for

both carts and stores. Download this file and use it to calculate

the breakeven points.

Reference the Excel spreadsheet for Step 2 in the Word document

and include the spreadsheet as a separate file when

submitting the project. The spreadsheet for the calculations

is too large to include in a table in a Word document or be

able to read if an Excel spreadsheet is inserted. Therefore, there

should be two files submitted for the project – this

Word document and the Excel spreadsheet with your work

for Step 2.

The majority of the work has been done for you when using

the spreadsheet. The setup to be able to calculate the CM,

NOI and the break-even points are part of the spreadsheet.

What you need to do to interpret the Notes from the PPMC

document, input the data into the spreadsheet (be sure to

use your “corrected substance” figures/data from Step 1),

and do the calculations required to obtain the break-even

point for the carts and the break-even point for the stores.

(Hint: Some cells in the spreadsheet have comments inserted.

Pay attention to these comments. For example, there is a

comment in a cell that has the formula to be used to calculate

the break-even point.)

Step 3

Step 3 requires three items:

1. The ticker symbol for the store chain.

2. The number of stores for the store chain.

3. A Works Cited page for the figures found as the number

of stores.

Table 1 should be reproduced as a table in your Word

document for Step 3 and the ticker symbol and the

number of stores inserted from your own research.

To find the ticker symbol for each of the store chains, it is as

easy as opening up Google Chrome as your web browser and

typing in the store name followed by “ticker symbol” into the

search box. The hits form the search should reveal the ticker

symbol for that store. Alternatively, you could use a financial

website such as Yahoo Finance, E-trade, and so on to do your

searching. All of the stores have a ticker symbol with the

exception of one which is a private company.

Using your own research skills and abilities, determine the

number of grocery stores for each store chain. How you go

about doing this is up to you and your research skills.

Here is what you are looking for as far as the number of stores

is concerned:

• You are looking for the most “current” information.

However, current doesn’t mean today.

For example, if store A (which has 10 stores) took over

store B (which had 3 stores) in a merger, then B is no

longer in business. The number of stores for A will be

13 as of today because it is still in business. The number

of stores for B will be 3 which is how many it had before

the merger. That is the most current for B – not zero.

As another example, if a store declares bankruptcy, it all

depends upon the bankruptcy status. If the store is in

Chapter 11, which is reorganization then the number of

stores will be the current information. If the store is in

Chapter 13, which is a closing of the business, then the

number of stores will be zero.

Be aware that the solution to the number of stores in the

table is kept current, but that doesn’t mean that data will

all be “as of today.” It is possible that the most current

information might be 2015 or 2016. It all depends upon

your research and what is available. Finding the correct

information is the purpose behind doing research.

One other thing to watch out for in doing your research is

a “name change.” If a store changes its name, then list

both the old name and the new name and the current

information available for the number of stores.

• You should rarely use third party sites such as Google

Finance, InvestSnips, Investopedia, Wikipedia, newspaper

articles, and so on as these don’t have the most

current and accurate information. You should use information

from the business web site, SEC filings, Annual

Reports, and so on for the most applicable, relevant and

current information.

• Lastly, this step involves research. “Research” is not doing

a quick search and picking a web site or two and going

with what is found. Research is looking at quite a few

sources and thinking critically about what is found as to

relevancy, currency and accuracy. For example, one web

page may say “about 500” stores, but, another page on

the website will say “536 stores” exactly. Or one web site

might have information from March 2016 and another

might have information from December 2016. Which is

more current and relevant? The December 2016 web site.

Not only do you need to do research, but, you also must

think critically about the information you find.

Along with Table 1, a Works Cited page needs to be included

for Step 3. This is Standard English Composition. Work

and/or figures that are not your own need to be cited as

part of a paper.

If no citations are provided or the citations are not properly

formatted, this becomes “Plagiarism”

• There should be a correctly formatted citation for each figure

for the number of stores for the grocery store chain.

This is standard for English Composition and should follow

MLA or APA formatting. If you do not remember how

to make a correct citation, do a search on the Internet

for “Purdue OWL” and when you get there search the

OWL (Online Writing Lab) site for “MLA Works Cited:

Electronic Sources (Web Publications)” as this is the

most likely source you will use and refresh your memory.

Alternatively, you can search Penn Foster’s Library for

the Purdue Owl web site and/or telephone and speak

with an English Instructor

• The web address provided for the citation should take the

reader directly to the web page where the number of

stores can be found. The reader should not have to search

for your information. Do not provide a generic web

address such as the homepage of a web site unless the

actual number of stores is on that web page.

Table 1

Stock TickerNo. of StoresFirm Name
KRKroger
ABSAlbertson’s
Safeway
Ahold
SUPERVALU
Winn-Dixie Stores
Publix Super Markets
Great Atlantic & Pacific
Smart & Final
Ingles Markets
Blue Square-Israel
Pathmark
Ruddick
Whole Foods Market
Weis Markets
Marsh Supermarkets
Nash Finch
Fresh Brands
Wild Oats Markets
Spartan Stores
Eagle Food Centers
Gristede’s Foods
Village Super Market
Foodarama Supermarkets
Arden Group
Total

Writing Guidelines

Refer to the “Submitting Your Work” section at the end of

this book for details on submission requirements for the

PPMC Case assignment.

Grading Criteria

Your assignment will be evaluated according to the following

criteria:

Content 80 percent

Written Communication 10 percent

Format 10 percent

Criteria

Content 80 pts

• Identifies Form and Substance errors as instructed (worth 30 points)

• Completes Step 2 – Compute the PPMC break-even point in terms of

carts and stores (worth 40 points)

• Completes Step 3 – Determine the number of grocery stores in the

United States (worth 10 points)

Written Communication 10 pts

• Answers each question in a complete paragraph that includes an

introductory sentence, at least four sentences of explanation, and

a concluding sentence

• Uses correct grammar, spelling, punctuation, and sentence structure

• Provides clear organization by using words like first, however, on the

other hand, and so on, consequently, since, next, and when

• Makes sure the paper contains no typographical errors

• Properly formatted citations – (No Works Cited or incorrectly

formatted citations will result in a final grade of 1 for the project

due to Plagiarism.)

Format 10 pts

The paper is double-spaced, typed in font size 12, and contains properly

formatted Internet research sources. It includes the student’s

• Name and address

• Student number, Course title and number, and project number