Integrative Case - Track Software, Inc.

Question -

a. (1) On what financial goal does Stanley scan to be focusing? Is it the correct goal? Why or why not?

(2) Could a potential agency problem exist in this firm? Explain.

b. Calculate the firm's earnings per share (EPS) for each year, recognizing that the number of shares of common stock outstanding has remained unchanged since the firm's inception. Comment on the EPS performance in view of your response in part a.

c. Use the financial data presented to determine Track's operating cash flow (OCF) and free cash flow (FCF) in 2015. Evaluate your findings in light of Track's current cash flow difficulties.

d. Analyze the firm's financial condition in 2015 as it relates to (1) liquidity, (2) activity, (3) debt, (4) profitability, and (5) market, using the financial statements provided in Tables 2 and 3 and the ratio data included in Table 5. Be sure to evaluate the firm on both a cross-sectional and a time-series basis.

e. What recommendation would you make to Stanley regarding hiring a new software developer? Relate your recommendation here to your responses in part a.

f. Track Software paid 55,000 in dividends in 2015. Suppose that an investor approached Stanley about buying 100% of his firm. If this investor believed that by owning the company he could extract $5,000 per year in cash from the company perpetuity, what do you think the investor would be willing to pay for the firm if the required return on this investment is 10%?

g. Suppose that you believed that the FCF generated by Track Software in 2015 could continue forever. You are willing to buy the company in order to receive this perpetual stream of free cash flow. What are you willing to pay if you require a 10% return on your investment?

Please answer questions C and D only. Thank you for your help.

Attachment:- Integrative Case.rar