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  • America Online Inc

    Diunggah oleh

    Aashima Grover
    39 tayangan9 halaman
    Prior to 1995, America Online (AOL) was more successful than competitors CompuServe and Prodigy due to its lower subscription rates. However, changes in 1995 like unlimited usage plans threatened AOL's business model of capitalizing subscriber acquisition costs. While justified before, AOL's accounting policy needed to change in 1995 to expense all subscriber costs and write off existing capitalized costs, which would negatively impact the 1995 balance sheet and income statement. AOL's high share price in 1995 implied unrealistic long-term growth and return on equity assumptions given the changes in the industry.

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    a ppt on AOL

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    Aol

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    © Attribution Non-Commercial (BY-NC)

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    Prior to 1995, America Online (AOL) was more successful than competitors CompuServe and Prodigy due to its lower subscription rates. However, changes in 1995 like unlimited usage plans threatened AOL's business model of capitalizing subscriber acquisition costs. While justified before, AOL's accounting policy needed to change in 1995 to expense all subscriber costs and write off existing capitalized costs, which would negatively impact the 1995 balance sheet and income statement. AOL's high share price in 1995 implied unrealistic long-term growth and return on equity assumptions given the changes in the industry.

    Hak Cipta:

    Attribution Non-Commercial (BY-NC)
    Unduh sebagai PPTX, PDF, TXT atau baca online dari Scribd
    Tandai sebagai konten tidak pantas
    39 tayangan9 halaman

    America Online Inc

    Diunggah oleh

    Aashima Grover
    Prior to 1995, America Online (AOL) was more successful than competitors CompuServe and Prodigy due to its lower subscription rates. However, changes in 1995 like unlimited usage plans threatened AOL's business model of capitalizing subscriber acquisition costs. While justified before, AOL's accounting policy needed to change in 1995 to expense all subscriber costs and write off existing capitalized costs, which would negatively impact the 1995 balance sheet and income statement. AOL's high share price in 1995 implied unrealistic long-term growth and return on equity assumptions given the changes in the industry.

    Hak Cipta:

    Attribution Non-Commercial (BY-NC)
    Unduh sebagai PPTX, PDF, TXT atau baca online dari Scribd
    Tandai sebagai konten tidak pantas
    dari 9

    America Online Inc

    Prior to 1995, why was America Online (AOL) so successful in the commercial online Industry relative to its competitors CompuServe and Prodigy?

    As of 1995, what are the key changes taking place in the commercial online industry? How are they likely to impact AOLs future prospects?

    Was AOLs policy to capitalize subscriber acquisition cost justified prior to 1995?

    Given the changes discussed in 1995, do you think AOL should change its accounting policy as of 1995? Is the companys response consistent with your view?

    What would be the affect on AOLs 1995 balance sheet if all the capitalized subscriber acquisition cost were written off? If AOL expensed all the subscriber acquisition cost incurred in fiscal 1995 during the same year, what would be the affect on its income statement?

    AOLs share price as of Nov 8, 1995 was $81.63. In Oct 1995, the company issued $100 mn worth of new shares (1.713 mn at $58.73 per share). Assuming there is no change in AOLs book value other than due to this share issue, compute AOLs price to book ratio as of Nov 8, 1995.

    Assuming a perpetual average growth rate in book value of 15% per year, calculate the long run average return on equity needed to be earned by AOL to justify its price to book ratio as of Nov 8, 1995?

    Do you think the return on equity and growth rate assumptions implied by AOLs price to book ratio, realistic?

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