公司理财相关知识

1、Chapter 8: Strategy and An alysis in Usi ng Net Prese nt ValueCon cept Questi ons - Chapter 88.1 What are the ways a firm can create positive NPV.1. Be first to introduce a new product.2. Further develop a core competency to product goods or services at lower costs tha n competitors.3. Create a barr

2、ier that makes it difficult for the other firms to compete effectively.4. Introduce variation on existing products to take advantage of un satisfied dema nd5. Create product differentiation by aggressive advertising and marketi ng n etworks.6. Use innovation in organizational processes to do all of

3、the above.How can man agers use the market to help them scree n out n egative NPV projects?8.2 What is a decisi on tree?It is a method to help capital budget ing decisi on-makers evaluat ing projects involving seque ntial decisi ons. At every point in the tree, there are differe nt alter natives tha

4、t should be an alyzed.What are potential problems in using a decision tree?Pote ntial problems 1) that a differe nt disco unt rate should be used for different branches in the tree and 2) it is difficult for decisi on trees to capture man agerial opti ons.8.3 What is a sen sitivity an alysis?It is a

5、 technique used to determine how the result of a decision cha nges whe n some of the parameters or assumpti ons cha nge.Why is it importa nt to perform a sen sitivity an alysis?Because it provides an an alysis of the con seque nces of possible predicti on or assumpti on errors.What is a break-eve n

6、an alysis?It is a tech nique used to determ ine the volume of product ion n ecessary to break eve n, that is, to cover not only variable costs but fixed costs as well.Describe how sen sitivity an alysis in teracts with break-eve n an alysis.Sensitivity analysis can determine how the financial break-

7、even point cha nges whe n some factors (such as fixed costs, variable costs, or reve nue) cha nge.Answers to End-of-Chapter ProblemsQUESTIONS AND PROBLEMSDecisi on Trees8.1 Sony Electro nics, I nc., has developed a new type of VCR. If the firm directly goes to the market with the product, there is o

8、nly a 50 perce nt cha nee of success. On the other han d, if the firm con ducts test market ing of the VCR, it will take a year and will cost $2 millio n.Through the test marketing, however, the firm is able to improve the product and in crease the probability of success to 75 perce nt. If the new p

9、roduct proves successful, the present value (at the time when the firm starts selling it) of the payoff is $20 million, while if it turns out to be a failure, the present value of the payoff is $5 millio n. Should the firm con duct test market ing or go directly to the market? The appropriate discou

10、 nt rate is 15 perce nt.8.1 Go directly:NPV = 0.5$20 millio n + 0.5$5 millio n=$12.5 millio nTest marketi ng:NPV = -$2 millio n + (0.75$20 millio n + 0.25$5 millio n) /1.15=$12.13 millio nGo directly to the market.8.2 The marketi ng man ager for a grow ing con sumer products firm is con sideri nglau

11、n chi ng a new product. To determ ine con sumers' in terest in such a product, theman ager can con duct a focus group that will cost $120,000 and has a 70 perce nt cha nee of correctly predict ing the success of the product, or hire a con sult ing firm thatwill research the market at a cost of $

12、400,000. The con sult ing firm boasts a correct assessme nt record of 90 perce nt. Of course going directly to the market with no prior testi ng will be the correct move 50 perce nt of the time. If the firm lau nches the product, and it is a success, the payoff will be $1.2 milli on.Which acti on wi

13、ll result in the highest expected payoff for the firm?8.2 Focus group: -$120,000 + 0.70$1,200,000 = $720,000Con sult ing firm: -$400,000 + 0.90$1,200,000 = $680,000Direct marketi ng: 0.50$1,200,000 = $600,000The man ager should con duct a focus group.8.3 Tan dem Bicycles is no tic ing a decli ne in

14、sales due to the in crease of lower-priced import products from the Far East. The CFO is con sideri ng a n umber of strategies to maintain its market share. The opti ons she sees are the follow ing:? Price the products more aggressively, resulting in a $1.3 million decline in cash flows.The likeliho

15、od that Tan dem will lose no cash flows to the imports is 55 perce nt; thereis a45 perce nt probability that they will lose only $550,000 in cash flows to the imports.? Hire a lobbyist to convince the regulators that there should be important tariffs placed upon overseas man ufacturers of bicycles.

16、This will cost Tan dem $800,000 and will have a 75 perce nt success rate, that is, no loss in cash flows to the importers.If the lobbyists do not succeed, Tan dem Bicycles will lose $2 millio n in cash flows.As the assista nt to the CFO, which strategy would you recomme nd to your boss?Accou nti ng

17、Break-Eve n An alysis8.3Price more aggressively:-$1,300,000 + (0.550) + 0.45(-$550,000)=-$1,547,500Hire lobbyist:-$800,000 + (0.750) + 0.25(-$2,000,000)=-$1,300,000Tan dem should hire the lobbyist.8.4 Samuels on Inc. has in vested in a facility to produce calculators. The price of the machi ne is $6

18、00,000 and its econo mic life is five years. The machi ne is fully depreciated by the straight-l ine method and will produce 20,000 un its of calculators in the first year. The variable producti on cost per un it of the calculator is $15, while fixed costs are $900,000. The corporate tax rate for th

19、e compa ny is 30 perce nt. What should the sales price per un it of the calculator be for the firm to have a zero profit?8.4 Let sales price be x.Depreciation = $600,000 / 5 = $120,000BEP: ($900,000 + $120,000) / (x - $15) = 20,000x = $668.5 What is the mini mum n umber of un its that a distributor

20、of big-scree n TVs must sellin a give n period to break eve n?Sales price _ $1,500Variable costs _ $1,100Fixed costs _ $120,000Depreciation _ $20,000Tax rate _ 35%8.5 The acco unting break-eve n=(120,000 + 20,000) / (1,500 - 1,100)=350 units8.6 You are con sideri ng in vest ing in a fledgli ng compa

21、 ny that cultivates abal one forsale to local restaurants. The proprietor says he' ll return all profits to you aftercoveri ng operat ing costs and his salary. How many abal one must be harvested and sold in the first year of operati ons for you to get any payback? (Assume no depreciati on.)Pric

22、e per adult abalo ne _ $2.00Variable costs _ $0.72Fixed costs _ $300,000Salaries _ $40,000Tax rate _ 35%How much profit will be retur ned to you if he sells 300,000 abal one?8.6 a. The acco un ti ng break-eve n=340,000 / (2.00 - 0.72)=265,625 abalo nesb. ($2.00300,000) - (340,000 + 0.72300,000) (0.6

23、5)=$28,600This is the after tax profit.Prese nt Value Break-Eve n An alysis8.7 Usi ng the in formati on in the problem above, what is the prese nt value break-eve n point if the discou nt rate is 15 perce nt, in itial in vestme nt is $140,000, and the lifeof the project is seve n years? Assume a str

24、aight-li ne depreciati on method with a zero salvage value.8.7 EAC = $140,000 /0.15 = $33,650Depreciation = $140,000 / 7 = $20,000BEP = $33,650 + $340,0000.65 - $20,0000.35 / ($2 - $0.72)0.65=297,656.25297,657 units8.8 Kids & Toys Inc. has purchased a $200,000 machi ne to produce toy cars. The m

25、ach inewill be fully depreciated by the straight-li ne method for its econo mic life of five years and will be worthless after its life. The firm expects that the sales price of the toy is $25 while its variable cost is $5. The firm should also pay $350,000 asfixed costs each year. The corporate tax

26、 rate for the compa ny is 25 perce nt, and the appropriate discou nt rate is 12 perce nt. What is the prese nt value break-eve n point? 8.8Depreciation = $200,000 / 5 = $40,000EACBEP=$200,000 /=$55,482=$55,482 + $350,00050.12 = $200,000 / 3.604780.75 - $40,0000.25 / ($25 - $5)0.75=20,532.1320533 uni

27、ts8.9 The Corn chopper Compa ny is con sideri ng the purchase of a new harvester. The company is currently involved in deliberations with the manufacturer and the parties have not come to settlement regarding the final purchase price. The management of Corn chopper has hired you to determ ine the br

28、eak-eve n purchase price of the harvester. This price is that which will make the NPV of the project zero. Base your an alysis on the following facts:? The new harvester is not expected to affect revenues, but operating expenses will be reduced by $10,000 per year for 10 years.? The old harvester is

29、 now 5 years old, with 10 years of its scheduled life remaining.It was purchased for $45,000. It has been depreciated on a straight-line basis.? The old harvester has a current market value of $20,000.? The new harvester will be depreciated on a straight-line basis over its 10-year life.? The corpor

30、ate tax rate is 34 percent.? The firm ' s required rate of return is 15 percent.? All cash flows occur at year-end. However, the initial investment, the proceeds from selling the old harvester, and any tax effects will occur immediately. Capital gains and losses are taxed at the corporate rate o

31、f 34 perce nt whe n they are realized. ? The expected market value of both harvesters at the end of their economic lives is zero.8.9Let I be the break-eve n purchase price.In creme ntal C 0 Sale of the old machi neTax effectTotalDepreciati on per period=$45,000 / 15=$3,000Book value of the machi ne=

32、$45,000 - 5$3,000=$30,000Loss on sale of machi ne=$30,000 - $20,000=$10,000Tax credit due to loss=$10,0000.34=$3,400$20,0003,400$23,400In creme ntal cost sav in gs:$10,000 (1 - 0.34) = $6,600In creme ntal depreciati on tax shield:I / 10 - $3,000 (0.34)The break-even purchase price is the Investment

33、(I), which makes the NPV be zero.100.15100.15NPV = 0=-I + $23,400 + $6,600+ I / 10 - $3,000 (0.34)=-I + $23,400 + $6,600 (5.0188)+ I (0.034) (5.0188) - $3,000 (0.34) (5.0188)I = $61,981Seen ario An alysis8.10 Ms. Thompson, as the CFO of a clock maker, is considering an investment of a $420,000 mach

34、ine that has a seve n-year life and no salvage value. The mach ine is depreciated by a straight-l ine method with a zero salvage over the seve n years. The appropriate discou nt rate for cash flows of the project is 13 perce nt, and the corporate tax rate of the company is 35 percent. Calculate the

35、NPV of the project in the follow ing sce nario. What is your con clusi on about the project?Pessimistic Expected OptimisticUnit sales 23,000 25,000 27,000Price $ 38 $ 40 $ 42Variable costs $ 21 $ 20 $ 19Fixed costs $320,000 $300,000 $280,0007 23,000$38 $21$320,0000.65 $60,000 0.35t 1725,000 $40$201.

36、13t$300,0000.65$60,0000.35t1.13t727,000 $42$19$280,0000.65$60,0000.351.13tt 18.10 Pessimistic:NPV= -$420,000 +=-$123,021.71 Expected:NPV= -$420,000 +=$247,814.17Optimistic:NPV= -$420,000 +=$653,146.42Even though the NPV of pessimistic case is n egative, if we cha nge one in put while all others are

37、assumed to meet their expectati on, we have all positive NPVs like the one before. Thus, this project is quite profitable.PessimisticNPVUnit sales23,000$132,826.30Price$38$104,079.33Variable$21$175,946.75costsFixed costs$320,000$190,320.248.11 You are the finan cial an alyst for a man ufacturer of t

38、ennis rackets that has identified a graphite-like material that it is considering using in its rackets. Given the follow ing in formati on about the results of lau nching a new racket, will you un dertake the project?(Assumptions: Tax rate _ 40%, Effective discount rate _ 13%, Depreciation _ $300,00

39、0 per year, and production will occur over the next five years only.)Pessimistic Expected OptimisticMarket size 110,000 120,000 130,000Market share 22% 25% 27%Price $ 115 $ 120 $ 125Variable costs $ 72 $ 70 $ 68Fixed costs $ 850,000 $ 800,000 $ 750,000Investment $1,500,000 $1,500,000 $1,500,0008.11

40、Pessimistic:NPV=-$1,500,000110,000 0.22 $115 $72$8500001.13t0.60 $300000 0.40=-$675,701.68Expected:NPV=-$1,500,0005 120,000 0.25 $120 $70t 1=$399,304.88$8000001.13t0.60 $300000 0.40Optimistic:NPV = -$1,500,0005+130,000 0.27 $125 $68$750,0000.60 $300,000 0.401.13tt 1=$1,561,468.43The expected prese n

41、t value of the new tennis racket is $428,357.21.(Assu ming there are equal cha nces of the 3 seen arios occurri ng.)8.12 What would happen to the analysis done above if your competitor introduces a graphite composite that is even lighter than your product? What factors would this likely affect? Do a

42、n NPV an alysis assum ing market size in creases (due to more aware ness of graphite-based rackets) to the level predicted by the optimistic sce nario but your market share decreases to the pessimistic level (due to competitive forces). What does this tell you about the relative importance of market

43、 size versus market share?130,000 0.22 $120 $70$800,0000.60 $300,000 0.408.12 NPV =1,500,0001.13tt 1=$251,581.17The 3% drop in market share hurt significantly more than the 10,000 in crease in market size helped. However, if the drop were only 2%, the effects would be about eve n. Market size is goi

44、ng up by over 8%, thus it seems market share is more importa nt tha n market size.The Opti on to Abandon8.13 You have been hired as a financial analyst to do a feasibility study of a new video game for Passivisi on. Marketi ng research suggests Passivisi on can sell 12,000 units per year at $62.50 net cash flow per unit for the next 10 years. Total