Chapter 18, Problem 1CTQ

Summary Introduction

Case summary:

Company V is multinational financial services corporation relating to Country U.    It facilitates electronic fund transfers over the globe. It has invested funds on new payment processing systems and technologies such as mobile commerce.

Company V goes into public through IPO (Initial Public Offering) during the worst downturns in

the economy. It has several factors working in its favour they are firstly it is one of the world’s best brand name. It don’t need to introduce itself to the investors.

Secondly, it has wide ‘economic moat’ which means its income generating capacity is protected by obstacles to entry includes a powerful brand. Third, it is not really a financial services company in the sense issuing credit cards or lending money.

The stocks of the company performed well in the market during the turbulent stock market situations. Company V’s growth stands to benefit from three trends they are, rise of mobile commerce, more of the transactions shifting from cash to cards and the use of credit card is starting to increase in many parts of the globe.

Characters in case:

• Company V

To discuss: The way scenario planning is used by Company V executives in the budgeting process.

Explanation of Solution

In the budgeting process, they could use scenario planning to prepare for the two different IPO scenarios. In this case, the IPO’s possible success and failure.

More specifically, Company V could begin the year with a more optimistic prediction assuming that the IPO is successful, but if the IPO does not go well, it will could immediately adopt a second more conservative budget and decrease the expenditure accordingly.