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Relevant and Irrelevant Costs In Acquisitions
Term Paper ID:42447
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Essay Subject:
This project is an examination of the concept of relevant and irrelevant costs These ...... More...
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6 Pages / 1350 Words
3 sources, 3 Citations,
APA Format
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Paper Abstract:
This project is an examination of the concept of relevant and irrelevant costs. These are applied to the investment decision process.
Paper Introduction:
Running head CLASSIFYING COSTSEMC CorporationRelevant and Irrelevant CostsIn AcquisitionsYour NameYour UniversityEMC CorporationRelevant and Irrelevant Costs in AcquisitionsIntroductionMost of the identifiable decision events that have occurred at EMC over thepast few years have involved acquisitions In this area and based on theirmodel the critical questions revolve around how the proposed acquisitionfit into the product line or distribution network of the company as opposedto direct expense Obviously an acquisition or divestiture is a financialdecision as well as a marketing and product line decision Relevant
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Retrieved December 5, 2 8, from Edgar Online.comWeb Site: http://sec.edgar-online.com/2 8/ 2/29/ 1 47469- 8- 1993/Section3.aspInvestopedia. The only financial information available on the acquisition isthat it affected non-GAAP earnings per share by about $ . Probably the first $3 million was theacquisition of Pi Corp. 1 per share on afully-diluted basis. From a financial standpoint, this wouldclearly be a NPV analysis based on projected revenue and profit of theacquisition. It was also announced that the company had about 1 engineers onstaff so the amounts of such losses were probably considerable. (EMC Corporation, 2 8)These are clearly relevant amounts. Annual report 1 K [Brochure]. Common examples of irrelevant costs are sunk costs,fixed overhead costs, notational costs, and book values. Relevant costs. Obviously, an acquisition or divestiture is a financialdecision as well as a marketing and product line decision.Relevant and Irrelevant CostsAn irrelevant cost is one that does not require a management decision underthe particular situation in question. Irrelevant costs. Led by Paul Maritz, Pi founderand CEO, the new division will oversee key elements of EMC's cloudcomputing strategy, including the EMC Fortress Software-as-a-service (SaaS)infrastructure, the Mozy online backup service, ongoing development andoperations for Pi and EMC's other upcoming cloud infrastructure offeringsalready in development. The first service that EMC offers on this platform isEMC MozyEnterprise, which provides enterprise customers with online backupfor desktops, laptops and remote Windows servers." (EMC Corporation, 2 8) (2 8). (2 8). In some alternative situation it maybecome very relevant. The operating Losses of thecompany since it inception in 2 3 would therefore affect the earnings ofEMC. Retrieved December5, 2 8, from Forbes Digital Companies Web Site:http://www.investopedia.com/terms/r/relevantcost.asp http://www.investopedia.com/terms/i/irrelevantcost.aspThe following is from the 2 7 annual report in regard to a new technologypopularly referred to as cloud computing."In February 2 8, EMC announced a definitive agreement to acquire Seattle-based Pi Corporation, a privately held developer of software and servicesfor personal information management. Miscellaneous costs associated withthe actuations such as legal and accounting expenses clearly would havelittle impact on the decision. Theacquisition was for cash, and the cash flow statements indicate a total ofabout $678 million in acquisitions in two separate amounts in the first andsecond financial quarter. In this area and based on theirmodel, the critical questions revolve around how the proposed acquisitionfit into the product line or distribution network of the company as opposedto direct expense. Based on2.1 billion shares outstanding, this cost amounts to about $2 .8 million,assuming it is consolidated as indicated in the press release. EMC Fortress, introduced in 2 8, is EMC's SaaSdelivery platform. Pi will operate as an independentsubsidiary of EMC and will continue expanding operations in its Seattleheadquarters and other offices in Canada and India.In addition to the acquisition, EMC also announced the creation of itsCloud Infrastructure and Services Division. What is clear is that the Pi Corporation was in theprocess of beta testing its first product, so obviously, there were nomeaningful revenues or earning involved. The objective of segregating relevant andirrelevant costs is to simplify the decision making process. Hopkinton,Massachusetts.: Author. The earnings impact would be relevant, but probably not acritical element in the decision. (Investopedia,2 8) Conversely, a relevant cost is one that is important to the decisionsrequired of management. The investment of $3 million in cashis clearly relevant, but the decision was probably based in the evolvingimportance of cloud computing and the urgency felt by management to have asubstantial stake in the evolving technology.ReferencesEMC Corporation. (Investopedia,2 8)A decision analysisOn February 21, 2 8, the acquisition of Pi Corporation by EMC wasannounced. Running head: CLASSIFYING COSTSEMC CorporationRelevant and Irrelevant CostsIn AcquisitionsYour NameYour UniversityEMC CorporationRelevant and Irrelevant Costs in AcquisitionsIntroductionMost of the identifiable decision events that have occurred at EMC over thepast few years have involved acquisitions.
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