TPPY investment in research and development has given it a techn advantage in manufacturing a previously difficult to make electrom firm is now experiencing rapid growth due to the advantages it no competitors. It estimates growth rates of 12% next year, 10% in th 9% the year after that. It believes that its competitors would have processes by the fourth year, at which time it expects its growth ra constant rate of 4% thereafter. Its last dividend was $1.80 per shar equity is 15%. What is the value of the stock today Po?
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- V Energy Tech Ltd. has just had a very profitable year as rising energy costs have driven a rapid increase in sales of its solar power cells. The firm also developed a new process which has lowered its manufacturing costs significantly. V Energy Tech believes that this new process will give it a major advantage over its competitors, which it estimates will last for three years. It expects to enjoy high profits during this period, estimating profit growth over the next three years to be 18%, 16% and 13% respectively, before returning to constant industry growth pattern of 6% per year in year 4. V Energy Tech Ltd. has just paid a dividend of $2.50 per share and expects that the dividend will grow at the same rate as its profits. The firm’s cost of capital is 9%. What is the firm’s share price today (P0)? What is the expected share price next year (P1)? Calculate the dividend yield for year 2. Calculate the current capital gains yield (year 1).Sanders Inc. has developed a new product line that they believe will revolutionize their industry and ensure they remain an industry leader. The projected sales are as follows: Year Unit Sales 1 97,500 2 112,000 3 120,000 4 135,000 5 103,000 The project will require $750,000 in net working capital to start and additional net working capital investments each year equal to 10 percent of the projected increase in sales for the following year. Total fixed assets are $4,100,000 per year. Variable costs will be $215, and units will sell for $335 each. The company will need to purchase equipment for $15,000,000 which will be depreciated as a seven-year MACRS property. In five years, the equipment can be sold for $3,500,000. The company is in the 21 percent tax bracket and has a 14 percent required return on their projects. The company will use land that was purchased for $1,800,000 three years ago. The land could be sold today for $2,400,000 and it…Gidget has a new widget to bring to market. If the firm goes directly to market with the product, there is a 60% chance of success. However, the firm can conduct customer segment research, which will take a year and cost $5,000,000. By going through research, the company can better target potential customers and increase the probability of success to 75%. If successful, the widget will bring a present value profit (at the time of initial selling) of $90 million. If unsuccessful, the present value profit is only $15 million. The appropriate discount rate is 10%. Calculate the NPV for conducting customer segment research. (Enter whole numbers, e.g. 5 million should be 5,000,000)
- The financial manager of Company X has just received the sales forecast for next year and it indicates that the year's sales are expected to double in the second half. What are the challenges that Company X might face in increasing its production to meet the sales projections and how can these challenges be overcome? What risks does Company X face by ramping-up production to meet the sales forecast?Eve Corporation is considering a significant expansion to its product line. The sales force is excited about the opportunities that the new products will bring. The new products are a significant step up in quality above the company’s current offerings but offer a complementary fit to its existing product line. Sergei Bates, senior production department manager, is very excited about the high-tech new equipment that will have to be acquired to produce the new products. Will Smith, the company’s CFO, has provided the following projections based on results with and without the new products. Without New Products With New Products Sales revenue $10,000,000 $16,000,000 Net income $500,000 $960,000 Average total assets $5,000,000 $12,000,000 Instructions a) Compute the company’s return on assets, profit margin, and asset turnover, both with and without the new product line. b) Discuss the implications that your findings in part (a) have for the company’s decision.The vice president of operations at Dintell Corporation, a majorsupplier of passenger-side automotive air bags, is considering a$50 million expansion at the firm’s Fort Worth, Texas, produc-tion complex. The most recent economic projections indicate a0.60 probability that the overall market will be $400 million per year over the next five years and a 0.40 probability that the mar-ket will be only $200 million per year during the same period.The marketing department estimates that Dintell has a 0.50probability of capturing 40 percent of the market and an equalprobability of obtaining only 30 percent of the market. The costof goods sold is estimated to be 70 percent of sales. For planningpurposes, the company currently uses a 12 percent discountrate, a 40 percent tax rate, and the MACRS depreciation sched-ule. The criteria for investment decisions at Dintell are (1) thenet expected present value must be greater than zero; (2) theremust be at least a 70 percent chance that the net present…
- You are upgrading to better production equipment for your firm's only product. The new equipment will allow you to make more of your product in the same amount of time. Thus, you forecast that total sales will increase next year by 23%over the current amount of 103,000 units. If your sales price is $19 per unit, what are the incremental revenues next year from the upgrade? The incremental revenues are $__________.(Round to the nearest dollar.)B&B has a new baby powder ready to market. If the firm goes directly to the market with the product, there is only a 55 percent chance of success. However, the firm can conduct customer segment research, which will take a year and cost $875,000. By going through research, B&B will be able to better target potential customers and will increase the probability of success to 70 percent. If successful, the baby powder will bring a present value profit (at time of initial selling) of $16.5 million. If unsuccessful, the present value payoff is $7.5 million. The appropriate discount rate is 13 percent. Calculate the NPV for the firm if it conducts customer segment research and if it goes to market immediately. (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. Should the firm conduct customer segment research or go to the market immediately? multiple choice…Refer to the data in question h) above. If the new plant is built, how many balls will have to be sold next year to earn the same profit (€90,000) as last year? Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number as sold last year). Prepare a contribution profit and loss account and compute the degree of operating leverage. Top management is confident that with a more intense sales effort and with a more creative advertising programme, the sales could be increased by 50% next year. What would be the expected percentage increase in profit? Use the degree of operating leverage to compute your answer.
- Global Reach, Inc., is considering opening a new warehouse to serve the Southwest region. Darnell Moore, controller for Global Reach, has been reading about the advantages of foreign trade zones. He wonders if locating in one would be of benefit to his company, which imports about 90 percent of its merchandise (e.g., chess sets from the Philippines, jewelry from Thailand, pottery from Mexico, etc.). Darnell estimates that the new warehouse will store imported merchandise costing about 16.78 million per year. Inventory shrinkage at the warehouse (due to breakage and mishandling) is about 8 percent of the total. The average tariff rate on these imports is 5.5 percent. Required: 1. If Global Reach locates the warehouse in a foreign trade zone, how much will be saved in tariffs? Why? (Round your answer to the nearest dollar.) 2. Suppose that, on average, the merchandise stays in a Global Reach warehouse for nine months before shipment to retailers. Carrying cost for Global Reach is 6 percent per year. If Global Reach locates the warehouse in a foreign trade zone, how much will be saved in carrying costs? What will the total tariff-related savings be? (Round your answers to the nearest dollar.) 3. Suppose that the shifting economic situation leads to a new tariff rate of 13 percent, and a new carrying cost of 6.5 percent per year. To combat these increases, Global Reach has instituted a total quality program emphasizing reducing shrinkage. The new shrinkage rate is 7 percent. Given this new information, if Global Reach locates the warehouse in a foreign trade zone, how much will be saved in carrying costs? What will the total tariff-related savings be? (Round your answers to the nearest dollar.)The J.R. Ryland Computer Company is considering a plant expansion to enable the company to begin production of a new computer product. The companys president must determine whether to make the expansion a medium- or large-scale project. Demand for the new product is uncertain, which for planning purposes may be low demand, medium demand, or high demand. The probability estimates for demand are 0.20, 0.50, and 0.30, respectively. Letting x and y indicate the annual profit in thousands of dollars, the firms planners developed the following profit forecasts for the medium-and large-scale expansion projects. a. Compute the expected value for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of maximizing the expected profit? b. Compute the variance for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of minimizing the risk or uncertainty?Nico Parts, Inc., produces electronic products with short life cycles (of less than two years). Development has to be rapid, and the profitability of the products is tied strongly to the ability to find designs that will keep production and logistics costs low. Recently, management has also decided that post-purchase costs are important in design decisions. Last month, a proposal for a new product was presented to management. The total market was projected at 200,000 units (for the two-year period). The proposed selling price was 130 per unit. At this price, market share was expected to be 25 percent. The manufacturing and logistics costs were estimated to be 120 per unit. Upon reviewing the projected figures, Brian Metcalf, president of Nico, called in his chief design engineer, Mark Williams, and his marketing manager, Cathy McCourt. The following conversation was recorded: BRIAN: Mark, as you know, we agreed that a profit of 15 per unit is needed for this new product. Also, as I look at the projected market share, 25 percent isnt acceptable. Total profits need to be increased. Cathy, what suggestions do you have? CATHY: Simple. Decrease the selling price to 125 and we expand our market share to 35 percent. To increase total profits, however, we need some cost reductions as well. BRIAN: Youre right. However, keep in mind that I do not want to earn a profit that is less than 15 per unit. MARK: Does that 15 per unit factor in preproduction costs? You know we have already spent 100,000 on developing this product. To lower costs will require more expenditure on development. BRIAN: Good point. No, the projected cost of 120 does not include the 100,000 we have already spent. I do want a design that will provide a 15-per-unit profit, including consideration of preproduction costs. CATHY: I might mention that post-purchase costs are important as well. The current design will impose about 10 per unit for using, maintaining, and disposing our product. Thats about the same as our competitors. If we can reduce that cost to about 5 per unit by designing a better product, we could probably capture about 50 percent of the market. I have just completed a marketing survey at Marks request and have found out that the current design has two features not valued by potential customers. These two features have a projected cost of 6 per unit. However, the price consumers are willing to pay for the product is the same with or without the features. Required: 1. Calculate the target cost associated with the initial 25 percent market share. Does the initial design meet this target? Now calculate the total life-cycle profit that the current (initial) design offers (including preproduction costs). 2. Assume that the two features that are apparently not valued by consumers will be eliminated. Also assume that the selling price is lowered to 125. a. Calculate the target cost for the 125 price and 35 percent market share. b. How much more cost reduction is needed? c. What are the total life-cycle profits now projected for the new product? d. Describe the three general approaches that Nico can take to reduce the projected cost to this new target. Of the three approaches, which is likely to produce the most reduction? 3. Suppose that the Engineering Department has two new designs: Design A and Design B. Both designs eliminate the two nonvalued features. Both designs also reduce production and logistics costs by an additional 8 per unit. Design A, however, leaves post-purchase costs at 10 per unit, while Design B reduces post-purchase costs to 4 per unit. Developing and testing Design A costs an additional 150,000, while Design B costs an additional 300,000. Assuming a price of 125, calculate the total life-cycle profits under each design. Which would you choose? Explain. What if the design you chose cost an additional 500,000 instead of 150,000 or 300,000? Would this have changed your decision? 4. Refer to Requirement 3. For every extra dollar spent on preproduction activities, how much benefit was generated? What does this say about the importance of knowing the linkages between preproduction activities and later activities?