Chemalite Essay

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Introduction Bennett Alexander invented a glow light using a series of chemicals into a contraption he calls Chemalites. He started up his business by getting $500,000 from investors and to put his invention on the market (Wilson, 2008). But by the end of 2003, with operations in full swing for a good six months, Chemalite, Inc. saw its cash balance drop tremendously, which Alexander and his investors viewed as a negative. Even though they thought their business was doing well, the numbers they read indicated otherwise. Questions * What are some of the reasons the company should continue to operate? * What are some of the arguments for shutting it down? * Which would you recommend? Reasons to Continue Operations Stockholders were told at the end of June 2003, that Alexander was hoping to be producing chemalites by the end of August. Sure enough, by the last half of 2003, Chemalite, Inc. did indeed go into full operation with sales of $754,500 (Wilson, 2008)). This ability to generate sales early is important because Alexander estimates competition within about five years (Wilson, 2008). Additionally, Chemalite, Inc. has a firm order with the organizing committee of the 2004 Olympic Games for 60,000 chemalites at $1.50 each (Wilson, 2008). This will increase sales by $90,000. Chemalite, Inc.’s machinery used to produce chemalites in general-purpose machinery that might reasonably be expected to last for 10 years (Wilson, 2008). The $212,500 spent on the machines is a long-term asset. The stakeholders need to know that although the machines were purchased with cash, through depreciation, Chemalite, Inc. only has to account for $10,625 in this statement of financial position. Another good sign that operations should continue is that they do not have any liabilities. That being said, not all liabilities are bad, but the fact that they do not have

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