Question

Jack’s Apps Company researches, develops, and sells traditional applications (i.e. apps) for middle-aged mobile phone devices users. In an attempt to tap into the large young adult app market to boost sales and advertising revenues, Jack's CFO, Daniel, is considering hiring students from area high schools and universities to drastically increase the innovativeness of the company's apps. Specifically, Daniel hopes that Jack's new student employee pool will make Jack’s next wave of phone apps inventions popular with young adults by providing innovative services, such as exchanging payments for late-night food deliveries, arranging informal dating and other social gatherings, exchanging perspectives on different professors, and identifying unusual debit card purchase patterns to assist with early fraud detection notification. Based on cost estimates from Jack's finance team and surveys of its new target customers (New Customer Financial Survey), Daniel estimates that this new customer market would increase Jack's annual net income by P10,000,000.

In addition to the New Customer Financial Survey, Jack's management team conducted a Business Sustainability Analysis. Specifically, the stakeholder engagement portion of the Business Sustainability Analysis revealed that four of Jack's most important stakeholder group (advertisers, regulators, employees, and customers) would react strongly - some favorably and other unfavorably - to the decision to push its app business in the direction of the young adult market. Specifically, ten percent of its existing advertisers would drop Jack as a client, thereby reducing its annual advertisement revenue of P10,000,000. Also, confidential discussions with competitors suggest that the new fraud detection app would require sensitive customer information that Jack's would be unable to protect perfectly from data hackers, thereby resulting in annual fines of P1,500,000 from regulators. In addition, employee engagement meetings indicated that they would strongly favor the expansion into the young adult market. Daniel estimates that improved employee morale would significantly increase their productivity and creativity, thereby increasing annual sales revenue by P2,000,000. Finally, focus groups with existing customers revealed that they highly value the increased workforce diversity of Jack's hiring a large number of talented young female employees with an expertise in technology. Daniel estimates that this positive customer sentiment would translate into an additional P3,000,000 in annual traditional app sales.

Required:

1. Using the New Customer Financial Survey and the Business Sustainability Analysis, calculate the net change in Jack's App Company's net income that would be expected from pursuing the young adult app market. Fill the table below.

Results of New Customer Financial Survey:
Increase in new customer market sales revenue
Results of Business Sustainability Analysis:
Decreased sales revenue from lost regular advertisers
(10% × P10,000,000)
Additional fines from regulators from lost new customer data
Increased sales from improved employee loyalty
Increased sales from regular customers who value
more diverse technology workforce
= Business Sustainability Analysis results
Net change in Jack’s Net Income from combining
New Customer Financial Survey and Business
Sustainability Analysis (?)

2. Based on the calculation in Requirement 1, should Jack's App pursue the young adult app market? Explain your answer. Jack’s Apps Company management might be wise to consider before making a final decision on whether or not to pursue the young adult apps market.

Answer 1

solution : Increase in net annual income (new Target custonces & 10,000,000 $ Reduction in ad revenue $(10,000,000) $(1.500.000) Increase in sale due to better employee morale Additional sales due to positive customer sentiment $3,000,000 net change in Jack's Apps Company's net income dA $ 3,500,000