AMCOTT LOSES $3.

5
MILLION; MANAGER FIRED
Republic of the Philippines
Manegerial
Economics
DON HONORIO VENTURA Case Study
STATE UNIVERSITY
Villa de Bacolor, Pampanga

EXECUTIVE SUMMARY
This study explains the reasons behind Ralph's removal as
manager of the Amcott. The case also provides information
and an answer as to why the management should reject
Group 1 Magicword's project.

MEMBERS BACKGROUND
Amcott, a well-known software company, suffered a $3.5
Justine Mae Fernando
million loss, of which $1.7 million came from the foreign
Kathleen Lacson language division. They borrow money from the First
Anton Macapagal National at a 7% rate for the short-term finances. Use the $20
million from retained earnings to buy the Magicword rights
Rose Ann Perez
for three years. A software program called Magicword can
Hannah Viray translate common word processor files with French text saved
into English. Ralph’s plan was to generate $7 million per year
in sales by sinking $20 million into Magicword. The
software's first year's sales revenue was $7 million, but after
REFERENCES that, sales slowed or ceased entirely.

https://l.facebook.com/l.php?
u=https%3A%2F%2Fyoutu.be%2FN- CHALLENGE
lN5xORIwc%3Ffbclid%3DIwAR2IxBEfXX The Amcott paid $1.7 million in damages as a result of a
36eobGihmBPRZen6rjN3iVR-9uguq- copyright infringement that belonged to a Magicword
4RjixrVRfKpiMCYiSd8&h=AT2tiSZv8Wn7 component and was reported by Foreign, Inc. The event led
SzFM340hDCOv9bVTMxHnKHUnJvHJyvl to Amcott firing Ralph, who was in charge of the division's
C01irGABOFPeOjjI-
foreign language operations. Ralph, however, disputed his
accusations and insisted that he was innocent.
y_4gpsVTuEh5MyLM4oyQaoyC-
U2I19BmXdAK6lkkorcy87Hy__jDDIcTKR
Question: Why was Ralph fired from his managerial post
42_yOmNUCy8fXu
at Amcott?
file:///C:/Users/user/Documents/2ND%20YE
AR/ECON/Managerial%20economics%20an
d%20business%20strategy,%207th%20editio
n.pdf Bachelor of Science in Accountancy
S.Y. 2022-2023
 AMCOTT LOSES $3.5
MILLION; MANAGER FIRED
Manegerial
Economics
NOTE Case Study
That if the net present value of a
project is positive, then the project
is profitable because the present
value of the earnings from the
project exceeds the current cost of ANSWER
the project. On the other hand, a
manager should reject a project Ralph believed that the project would not incur any
that has a negative net present additional fees, but his legal department had not
value, since the cost of such a
completely considered all of the potential legal
project exceeds the present value
ramifications on buying Magicword.
of the income.

From the calculation we get a negative
amount of money, meaning the project
is not profitable for the company.
Because the current cost of the project
exceeds the income stream that the
project generates.
Furthermore, even if the Magicword is not in violation,
Ralph should have known that Amcott would lose more
than $1.6 million by purchasing the Magicword.
Whereas the purchase of Magicword would bring
Amcott a net current value of:

REFERENCES

https://l.facebook.com/l.php?
u=https%3A%2F%2Fyoutu.be%2FN- CONCLUSION
lN5xORIwc%3Ffbclid%3DIwAR2IxBEfXX
36eobGihmBPRZen6rjN3iVR-9uguq- In conclusion, Ralph was not fired because of the
4RjixrVRfKpiMCYiSd8&h=AT2tiSZv8Wn7 mistakes of his legal department but for his poor
SzFM340hDCOv9bVTMxHnKHUnJvHJyvl management skills. Ralph should have rejected
C01irGABOFPeOjjI- Magicword since he should have known that Amcott
y_4gpsVTuEh5MyLM4oyQaoyC- would lose more than $1.6 million. In addition, Ralph did
U2I19BmXdAK6lkkorcy87Hy__jDDIcTKR
not respond to the information that was presented to him
in a correct manner.
42_yOmNUCy8fXu
file:///C:/Users/user/Documents/2ND%20YE
AR/ECON/Managerial%20economics%20an
d%20business%20strategy,%207th%20editio Bachelor of Science in Accountancy
n.pdf
S.Y. 2022-2023