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Salem Telephone Company Case Study

669 words - 3 pages

Salem Data Services was established as computer data service firm. Flores initially believed that Salem Data Services would be profitable subsidiary for the parent company, Salem Telephone Company. Salem Data Services would perform data processing for Salem Telephone Company as well as sell computer services to other firms. Flores stood by the idea that the subsidiary would lower Salem Telephone Company’s need of increasing telephone rates. Salem Data Services struggled to become a profitable institution after two years of operation. In the recent year, Salem Telephone Company produced the lowest return on investment to shareholders in seven years. While Flores was prepared to ...view middle of the document...

60 would bring Salem Data Services the most revenue of the 3 options considered. The other 2 options all resulted in negative revenues.
Lastly, we have also look into the option of closing down Salem Data Services. With the closure of Salem Data Services, the parent company, Salem Telephone Company would have higher monthly expenses from having to pay commercial rate for their computer services than the current negative profit reported by Salem Data Services. In addition, the parent company would loss the $8000 / month rent and some custodial services coverage from their subsidiary. Our analysis suggested that closing down Salem Data Services is not a good business decision for the parent company.
After three years of hard work, Salem Data Services have become independent and managed to overcome many problems that a new business would face. Even though a high fixed cost ratio income statement has led Salem Data Services to show losses on the first quarter for the year 2004, it left the company with plenty of remaining hours...

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