Gigagar Inc Manufactures Computer Components

question 53

Essay

Gigagar Inc manufactures computer components.It wants to develop a new line of product, but realizes that it cannot do so without a complicated device known as a "digital phalange finger." It has tried to design that devise itself, but has failed.It therefore sent a letter to Katenben Ltd, another high-tech company, that said: "We are willing to pay $100 000 for the design of a digital phalange finger." Katenben Ltd responded by saying that it believed that it might be able to design the device.However, it also indicated that it could not guarantee its results and said that it did not want to commit itself to a potentially impossible project.Gigagar Inc then wrote back in a letter that said: "We understand your concerns.We do not require any guarantee of success.We also appreciate that, given the complexity of the project, you may decide to drop the matter after some preliminary investigations.Nevertheless, our offer stands-we will pay $100 000 if you successfully design a digital phalange finger." Katenben Ltd spent the next six months and a great deal of money trying to design the device.As it neared successful completion, however, Gigagar Inc announced that its own engineers had experienced an unexpected breakthrough and had successfully created a digital phalange finger.Gigagar Inc therefore told Katenben Ltd that its offer of $100 000 was revoked.Three days later, Katenben Ltd also successfully produced a working digital phalange finger.It now demands payment of $100 000.Is it entitled to that money? Give reasons for your answer.

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Definitions:

Current Liabilities

A company's debts or obligations that are due to be paid to creditors within one year.

Working Capital

The gap between a firm's current assets and current liabilities, signifying its short-term financial stability and operational effectiveness.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year.

Capital Lease

A lease agreement that has the characteristics of a purchase by the lessee, including transfer of ownership by the end of the lease term.