公司理財?shù)?章

1、公司理財?shù)?8 章Chapter 8: Strategy and Analysis in Using Net Present ValueConcept Questions ? Chapter 8? 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 than competitors.3. Create a bar

2、rier that makes it difficult for the other firms to compete effectively.4. Introduce variation on existing products to take advantage of unsatisfied demand5. Create product differentiation by aggressive advertising and marketing networks.6. Use innovation in organizational processes to do all of the

3、 above.? How can managers use the market to help them screen out negative NPV projects?8.2 ? What is a decision tree?It is a method to help capital budgeting decision-makers evaluating projects Involving sequential decisions. At every point in the tree, there are different alternatives that should b

4、e analyzed.? What are potential problems in using a decision tree?Potential problems 1) that a different discount rate should be used for different branches in the tree and 2) it is difficult for decision trees to capture managerial options.83 ? What is a sensitivity analysis?It is a technique used

5、to determine how the result of a decision changes when some of the parameters or assumpti ons cha nge.? Why is it importa nt to perfori n 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 an alysis?It

6、 is a technique used to determine the volume of production necessary 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.Sen sitivity an alysis can determ ine how the finan cial break-eve n poin

7、t cha nges whe n some factors (such as fixed costs, variable costs, or reve nue) cha nge*An swers to End-o f-Chapter ProblemsQUESTIONS AND PROBLEMSDecisi on Trees8.1 Sony Electronics, Inc., has developed a new type of VCR ? If the firm directly goes to the market with the product, there is only a 50

8、 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.Tlirough the test market ing, however, the firm is able to improve the product and in crease the probability of success to 75 percent ? If the new produc

9、t 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 prese nt value of the payoff is $5 n iilli on ? Should the firm con duct test marketi ng or go directly to the market? The appropriate disco u

10、nt rate is 15 perce nt?8.1 Go directly:NPV = 0.5 x $20 millio n + 0.5 x $5 millio n=$12.5 millio nTest marketi ng:NPV = -$2 million + (0.75 x $20 million + 0.25 x $5 million)/1.15=$12.13 millio nGo directlv to the market.62 The marketing manager for a growing consumer products firm is considering la

11、unching a new product. To determ ine con sumers in terest in such a product, the man 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 consulting firm that will research the market at a cost of $400,00

12、0. The consulting firm boasts a correct assessment record of 90 percent ? Of course going directly to the market with no prior testing will be the correct move 50 perce nt of the time. If the firm laun ches the product, and it is a success, the payoff will be $1.2 millio n.Which action will result i

13、n the highest expected payoff for the firm?8.2 Focus group: -$120,000 + 0.70 x $1,200,000 = $720,000 Consulting firm: -$400八000 + 0.90 x $1,200,000 = $680,000 Direct marketing: 0.50 x $1,200,000 = $600,000The man ager should con duct a focus group.63 Tan dem Bicycles is no tic ing a decli ne in sale

14、s due to the in crease of lower-priced import products from the Far East. The CFO is considering a number 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.Tlie likelihood th

15、at Tandem will lose no cash flows to the imports is 55 percent; there is a45 percent 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 manufacturers of bicycles. This will

16、 cost Tandem $800,000 and will have a 75 percent success rate, that is, no loss in cash flows to the importers. If the lobbyists do not succeed. Tandem Bicycles will lose $2 million in cash flows. As the assistant to the CFO, which strategy would you recommend to vour boss?Accounting Break ? Evgn An

17、alysis8? 3 Price more aggressively:? $1,300,000】 (0.55 x0) + 0.45 x (-$550,000)=-$1,547,500Hire lobbyist:? $800,000 + (0.75 x0) + 0.25 x (-$2,000,000)=? $1,300,000Tandem should hire the lobbyist.8.4 Samuelson Inc. has invested in a facility to produce calculators. The price of the machine is $600,00

18、0 and its economic life is five years. The machine is fully depreciated by the straight-line method and will produce 20,000 units of calculators in the first year? The variable production costper unit of the calculator is $15, while fixed costs are $900,000. The corporate tax rate for the company is

19、 30 percent ? What should the sales price per unit of the calculator be for the firm to have a zero profit?64 Let sales price be x.Depreciation = $600,000 / 5 = $120,000BEP: ($900,000 + $120,000) / (x ? $15) = 20,000x = $6665 What is the niininiuni number of units that a distributor of big-screen TV

20、s must sell in a given period to break even?Sales price _ $1,500Variable costs _ $1,100Fixed costs _ $120,000Depreciation _ $20,000Tax rate _ 35%65 The accounting break-even=(120,000 + 20,000) / (1,500 ? 1,100) =350 units66 You are considering investing in a fledgling company that cultivates abalone

21、 for sale to local restaurants ? The proprietor says he' 11 return all profits to you after covering operating costs and hisHow many abalone must be harvested and sold in the first year of operations for you to get any payback? (Assume no depreciation.)Price per adult abalone _ $2.00Variable cos

22、ts _ $0.72Fixed costs _ $300,000Salaries _ $40,000Tax rate .35%How much profit will be returned to you if he selk 300,000 abalone?66 a. The accounting break-even=340,000 /(2.00 ? 0.72)=265,625 abalonesb. ($2.00 x 300,000) - (340,000 + 052 x 300,000) (0.65) =$28,600This is the after tax profitPrese n

23、t Value Break-Eve n An alysis67 Using the information in the problem above, what is the present value break-even point if the disco unt rate is 15 perce nt, i nitial in vestme nt is $140,000, and the life of the project is seve n years? Assume a straight-li ne depreciati on method with a zero salvag

24、e value.&7EAC =$140,000/ Aj I5 二 $33,650Depreciation = $140,000 / 7 = $20,000BEP = $33,650 + $340,000 x 0.65 ? $20,000 x 0.35/ ($2 ? $052) x 0.65=297,656.25? 297,657 units8.8 Kids & Toys Inc. has purchased a $200,000 mach ine to produce toy cars. The mach ine will be fully depreciated by the

25、 straight-line method for its economic 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 as fixed costs each year? The corporate tax rate for the company is 25 percent, and

26、 the appropriate discount rate is 12 percent ? What is the present value break-even point?8.8 Depreciation = $200,000 / 5 = $40,000EAC =$200,000/ A ; J2 = $200,000 / 3.60478=$55,482BEP = $55,482 + $350,000 x 0.75 ? $40,000 x 0.25/ ($25 ? $5) x 0.75=20S32.13? 20533 units&9 The Corn chopper Compa

27、ny is con sideri ng the purchase of a new harvester ? Tlie compa ny is currently involved in deliberations with the manufacturer and the parties have not come to settlement regard ing the final purchase price. The man ageme nt of Corn chopper has hired you to determ ine the break-even purchase price

28、 of the harvester ?This price is that which will make the NPV of the project zero ? Base your analysis 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 now 5 years old, with 1

29、0 years of its scheduled life remaining. It was purchased for $45,(M)0 ? 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 corporate tax rate is 34 p

30、ercent.? The firm八 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 of 34 perce nt whe n they

31、 are realized.? The expected market value of both harvesters at the end of their economic lives is zero ?&9 Let I be the break-eve n purchase price.In creme ntal CoSale of the old machi ne$20,000Tax effect3,400Total$23,400Depreciation per period=$45,000/15=$3,000Book value of the mach ine=$45,00

32、0 ? 5 x $3,000=$30,000Loss on sale of mach ine=$30,000 ? $20,000=$10,000Tax credit due to loss=$10,000 X 0.34=$3,400In creme ntal cost sav in gs:$10,000 (1 ? 034) = $6,600In creme ntal depreciati on tax shield:1/10- $3,000 (0.34)The break-eve n purchase price is the In vestme nt (I), which makes the

33、 NPV be zero. NPV =0 =-l + $23,400 + $6,600 A 需+ I/10 ? $3,000 (034) A/=-I + $23,400 + $6,600 (5.0188)+ I (0.034) (5.0188) ? $3,000 (0.34) (5.0188)1 = $61,981Seen ario An alysis&10 Ms. Thomps on, as the CFO of a clock maker, is con sideri ng an in vestme nt of a $420,0(H) mach ine that has a sev

34、en-year life and no salvage value ? The machine is depreciated by a straight-line method with a zero salvage over the seven years? The appropriate discount rate for cash flows of the project is 13 percent, and the corporate tax rate of the company is 35 percent ? Calculate the NPV of the project in

35、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 225OQ0n1t=l$20)-NPV = -$420,000 + E O($40七=-$123,021.71S. 10 Pessimistic:1.131=$247,

36、814.17"工27.000( $42-$ 19) -$280.000 x 0.65+Optimistic:NPV = -$420,000 +=$653,146.42Eve n though the NPV of pessimistic case is n egative, if we cha nge one in put while all others are assumed to meet their expectati on, we have all positive NPVs like the one before. Thus, this project is quite

37、profitable.PessimisticNPVUnit sales23,000$132,826.30Price$38$104,07933Variable costs$21$175,946.75Fixed costs$320,000$190320.248.11 You are the financial analyst for a manufacturer of tennis rackets that has identified agraphite-like material that it is considering using in its rackets ? Given the f

38、ollowing information about the results of launching a new racket, will you un dertake the project?(Assumptio ns: Tax rate _ 40%, Effective discou nt rate _ 13%, Depreciation _ $300,000per year, and production will occur over the next five years only.)Pessimistic Expected OptimisticMarket size 110,00

39、0 120,000 130,000Market share 22% 25% 27%Price $115 $120 $125Variable costs $ 72 $ 70 $ 68Fixed costs $ 850,000 $ 800,000 $ 750,00()Investment $1,500,000 $1,5()0,000 $1,500,000841 Pessimistic:NPV = -$1,500,000Q (110.000 x 0.22($ 115 -S72)$850.000 ) x 0.60 + $300.000 x 0.401.135 J 20.000 x O.25(S 120

40、 一 $70)一 $800,000)x 0.6() +x 040=-$675,701.68 Expected: NPV = -$1,500,000 =$399,304.88Optimistic:5=$11.131$61,468NPV = ? $1,500,000XOt=lare equal cha nces of the 3 see narios occurri ng.)8.12 What would happen to the analysis done above if your competitor introduces a graphite composite that is even

41、 lighter than your product? What factors would this likely affect? Do an NPV an alysis assu ming market size in creases (due to more aware ness of graphite-based rackets) to the level predicted by the optimistic scenario but your market share decreases to the pessimistic level (clue to competitive f

42、orces). What does this tell you about the relative importance of market size versus market share?8J2 NPV二1.500X)00+；130,000x0.22( S120570) 一 $800000 x 0,60+5300,000x040二 $251,581.17The 3% drop in market share hurt sig nifica ntly more tha n the 10八000 in crease in market size helped* However, if the

43、 drop were only 2%, the effects would be about even. Market size is going up by over 8%, thus it seems market share is more important than market size.Tlie Optio n to Abandon8.13 You have been hired as a financial analyst to do a feasibility study of a new video game for Passivision. Marketing research suggests Passivision can sell 12,000 units per year at $62.50 net cash flow per unit fo