Was the share split between jenny and cassandra fair

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Reference no: EM133527896

Assignment:

Case for Discussion

Cassandra had spent five years as a struggling personal yoga instructor before concluding that she was never going to make a decent living that way. When her friend Jenny offered Cassandra a full-time job as a receptionist in one of her three hair salons, Cassandra jumped at the chance of having a steady income, at least for a while. Cassandra envied Jenny's success as an entrepreneur and since the reception job was not particularly demanding, Cassandra had lots of time to work on her own idea for a business.

Cassandra planned to use her yoga expertise to develop an iPhone app for people in desk jobs. The app would interrupt the sedentary worker every 45 minutes to provide four minutes of yoga stretching and exercise. The computer or phone screen would show a four-minute video (starring Cassandra as the yoga coach) that would remind the user of the health and productivity benefits of exercise, then lead them through the short workout. The app would take the user through a series of 50 different videos, each increasing in intensity the longer the viewer had been using the app.

After weeks of planning, Cassandra used some of her savings to have a lawyer set up her company as a corporation: "Yoga Master Coaching Inc." Then she spoke to an acquaintance in the video business about shooting the 50 short videos (200 minutes of video in total). To finance the $20,000 in production costs, she used her remaining $6,000 of savings, then put her car (worth about $15,000) in the name of the business and, using that as collateral, managed to borrow another $14,000 from a local car loans company. Cassandra felt that she could handle the $290 monthly payments on the loan out of her receptionist salary, just until the app was generating cash flow. But now she had to get money for developing the app.

She was shocked to find out that a firm of local software engineers wanted $40,000 in development costs to build the iPhone app. The bank that Cassandra went to would not accept the app itself as collateral, so Cassandra asked her boss/friend Jenny for advice. After a series of discussions, Jenny offered to put up the $40,000 plus an additional $10,000 in operating cash in exchange for 55 percent of the company shares. Cassandra agreed.

The app worked well, but one year after launch, it had been downloaded only 1,285 times, producing only $899.50 of revenue for the company. (Apple kept 30 percent of all revenue.) During that time, the company had attempted to generate publicity and spent $9,000 to promote the app through YouTube and other social media channels.

Was the share split between Jenny and Cassandra fair? Explain. Who could have advised the pair on this?
Make a rough income statement for Yoga Master Coaching Inc. for the first year of operations. What does this indicate?
Make a rough balance sheet for the end of the first year of operations for Yoga Master Coaching Inc. Why could the value shown for the video and app software be wrong?
What was wrong with Cassandra's financial planning? How should she have gone about it? What should she do now?

Reference no: EM133527896

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