Part IV CBC Video Case

These questions are based on Canadian Broadcasting Corporation videos that accompany the textbook. In addition to whatever in-class use your instructor may have given them, they're available on this website for online viewing. If directed to do so by your instructor, you can answer the discussion questions online and email the results.
     These videos are intended only for students using the 4th Canadian Edition of Fundamentals of Corporate Finance. To view the video, you'll require a password. Refer to page 472 in your textbook and use the first word appearing in the main text column as both 'username' and 'password.' Use of the word is case-sensitive.
     The free RealPlayer plug-in is required in order to view the videos. If needed, the plug-in can be downloaded from Real.

E-Commerce
Fashionable Expansion: The end of the 1990s witnessed Canada and America's big retail business racing to go online. E-Commerce suddenly became the hot new game in town and corporate Web sites sprung at a truly amazing rate. Everyone rushed to join the bandwagon, some without even thinking twice about the worthiness of such an enterprise. The joyful concurrence of the Internet and big chain retailing has produced yet another buzzword to reverberate into the new millennium: E-tailing. Corporations and consumers alike have endeavored to worship this new contraption while attempting to discover its true virtues and hidden pitfalls.
     This video segment exemplifies the trials and tribulations of online retail expansion projects. Two of Canada most renowned retailers–Chapters and Danier Leather–are poised to become Internet players and are already undertaking new and bold steps that will ultimately ensure the selling of their products with a simple click of the computer mouse. Chapters–with a very cavalier approach–has already spent about $22 million in establishing its presence in cyberspace, while Danier has asked IBM for help.
     As exotic and outlandish as it may sound, E-commerce is just another enterprise. Like any other investment project, it is expected that it will eventually generate enough cash flow to make the whole effort worthwhile. The particularity of this type of project, however, is that it requires a large initial investment, a high degree of operating leverage, and that it is unusually difficult to forecast when and how much cash flow it will generate. Nobody really knows how the consumers will react, for there are not very many precedents to give us precious hints. In spite of all the animated graphics and brightly coloured Web pages, analyzing an Internet expansion project entails asking the same questions that any capital budgeting process is supposed to ask. And like any investment decision, going online should occur only if we are confident that E-tailing represents a positive NPV project.

Additional Resources:
Danier Leather
Chapters Online
Capital Budgeting at TeachMeFinance.com

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1		Why is E-commerce such a risky business proposition?
2		Many supporters of Internet commerce argue that in the long run, consumers will flock to E-commerce. If not immediately, then in the next five to ten years, companies will see their revenues shoot up. Is this argument sufficient to make the case for going online today?
3		The CEOs of Chapters and Danier Leather are well aware that, in the short run, breaking even is not a very realistic expectation. In spite of this fact, they are still determined to have an Internet presence. Does it still make sense to enter cyberspace under these circumstances?
4		The CEO of Danier Leather is not sold on the proposition from IBM. He is afraid that the scenario presented by the IBM team is overly optimistic. He doesn't have much information at his disposal, except the aforementioned sales projections and a break-even analysis. What type of reasoning could cause the CEO to be sceptical?