Concise :CUC International Case Study. By: Vikash Anand Saptarshi Bhattacharya Hemant Khosla Business Model: 1.

Membership based customer service company 2. Recurring revenues using member ship renewal 3. Direct selling and no inventory 4. Varieties of new member ship based products- traveler advantage ,auto Vantage, premier dining 5. Marketing channel direct marketing approaches 6. Main determinant of profitability is membership renewable premium

Risk in business:

Business Risk and Financial Risk Business Risk: 1. High uncertain in future renewable rate. 2. Undervaluation due to asymmetric information leads to fall in share prices. 3. Dependency on financial service industry like credit cards companies

Investors Concerned about COC: 1. Capitalized marketing cost has to be written off due to uncertainty. 2. Concerns over companies accounting methods 3. Delay write down of membership acquisition cost : Ans 3. Cash and cash equivalents at the end of 1988 =$25,953,000

Net Income at the year ended 1988= $17,423,000 Supposing, the company considers a large stock repurchase or one-time dividend payment of $25,953000, using debt No. of shares= 19.4 million Dividend Per Share= ($25,953,000/(19.4*1000000))= $1.33 Assuming the price of share being $16.3 Dividend Yield = (1.33/16.3)*100 = 8.15% Dividend Payout = (25,953,000/17,423,000)*100= 148% Generally, median dividend payout of listed companies is in the range of 65-70%. Dividend payout of 148% and yield of 8.15% yield would signal positively to the shareholders regarding the prospects of the company. Market to Book Equity= 16.3/5.83= 2.79 Considering repurchase shares at market price, total purchase not exceeding $25,953,000. No. of shares repurchased= 25,953,000/16.3= 1592208 No. of outstanding shares = 19.4m 1592208 = 17.8 million New EPS = 0.9*19.4/17.8= $0.98 Percentage increase in EPS= (0.08/0.90)*100 = 8.88% Considering the amount of debt $25,953,000 to be paid back at 10% Interest Paid= $2,595,300 Interest Coverage= EBIT/Interest = 31,440,000/2,595,300= 12.11 Since, Interest Coverage is high CUC will be able to service its debt.

Ans 4. CUC should adopt a more conservative policy to account for membership acquisition costs. By writing off previously capitalized expenses and adopting a policy of expensing future outlays as incurred, the firm would be able to eliminate the major analysts criticism