公司理財(cái)相關(guān)知識

1、Chapter 8: Strategy and Analysis in Using Net Present ValueConcept Questions - Chapter 88.1What are the ways a firm can create positive NPV.Be first to introduce a new product.Further develop a core competency to product goods or services at lower costs than competitors.Create a barrier that makes i

2、t difficult for the other firms to compete effectively.Introduce variation on existing products to take advantage of unsatisfied demandCreate product differentiation by aggressive advertising and marketing networks.Use innovation in organizational processes to do all of the above.How can managers us

3、e the market to help them screen out negative NPV projects?8.2What 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 be analyzed.What are potential p

4、roblems 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.8.3What is a sensitivity analysis?It is a technique used to determine how the result of a de

5、cision changes when some of the parameters or assumptions change.Why is it important to perform a sensitivity analysis?Because it provides an analysis of the consequences of possible prediction or assumption errors.What is a break-even analysis?It is a technique used to determine the volume of produ

6、ction necessary to break even, that is, to cover not only variable costs but fixed costs as well.Describe how sensitivity analysis interacts with break-even analysis.Sensitivity analysis can determine how the financial break-even point changes when some factors (such as fixed costs, variable costs,

7、or revenue) change.Answers to End-of-Chapter ProblemsQUESTIONS AND PROBLEMSDecision 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 percent chance of success. On the other hand, if the firm conducts test m

8、arketing of the VCR, it will take a year and will cost $2 million.Through the test marketing, however, the firm is able to improve the product and increase the probability of success to 75 percent. If the new product proves successful, the present value (at the time when the firm starts selling it)

9、of the payoff is $20 million, while if it turns out to be a failure, the present value of the payoff is $5 million. Should the firm conduct test marketing or go directly to the market? The appropriate discount rate is 15 percent.8.1Go directly:NPV = 0.5 $20 million + 0.5 $5 million = $12.5 millionTe

10、st marketing:NPV = -$2 million + (0.75 $20 million + 0.25 $5 million) / 1.15 = $12.13 millionGo directly to the market.8.2 The marketing manager for a growing consumer products firm is considering launching a new product. To determine consumers interest in such a product, the manager can conduct a f

11、ocus group that will cost $120,000 and has a 70 percent chance of correctly predicting the success of the product, or hire a consulting firm that will research the market at a cost of $400,000. The consulting firm boasts a correct assessment record of 90 percent. Of course going directly to the mark

12、et with no prior testing will be the correct move 50 percent of the time. If the firm launches the product, and it is a success, the payoff will be $1.2 million.Which action will result in the highest expected payoff for the firm?8.2Focus group: -$120,000 + 0.70 $1,200,000 = $720,000Consulting firm:

13、 -$400,000 + 0.90 $1,200,000 = $680,000Direct marketing: 0.50 $1,200,000 = $600,000The manager should conduct a focus group.8.3 Tandem Bicycles is noticing a decline in sales due to the increase of lower-priced import products from the Far East. The CFO is considering a number of strategies to maint

14、ain its market share. The options she sees are the following: Price the products more aggressively, resulting in a $1.3 million decline in cash flows.The likelihood that 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

15、 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 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 n

16、ot succeed, Tandem Bicycles will lose $2 million in cash flows. As the assistant to the CFO, which strategy would you recommend to your boss?Accounting Break-Even Analysis8.3Price more aggressively:-$1,300,000 + (0.55 0) + 0.45 (-$550,000)= -$1,547,500Hire lobbyist:-$800,000 + (0.75 0) + 0.25 (-$2,0

17、00,000)= -$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 $600,000 and its economic life is five years. The machine is fully depreciated by the straight-line method and will produce 20,000 units of calculator

18、s in the first year. The variable production cost per unit of the calculator is $15, while fixed costs are $900,000. The corporate tax rate for the company is 30 percent. What should the sales price per unit of the calculator be for the firm to have a zero profit?8.4Let sales price be x.Depreciation

19、 = $600,000 / 5 = $120,000BEP: ($900,000 + $120,000) / (x - $15) = 20,000 x = $668.5 What is the minimum number of units that a distributor of big-screen TVs must sell in a given period to break even?Sales price _ $1,500Variable costs _ $1,100Fixed costs _ $120,000Depreciation _ $20,000Tax rate _ 35

20、%8.5The accounting break-even= (120,000 + 20,000) / (1,500 - 1,100)= 350 units8.6 You are considering investing in a fledgling company that cultivates abalone for sale to local restaurants. The proprietor says hell return all profits to you after covering operating costs and his salary. How many aba

21、lone 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 costs _ $0.72Fixed costs _ $300,000Salaries _ $40,000Tax rate _ 35%How much profit will be returned to you if he sells 300,000 abalone?8.6a.The

22、 accounting break-even= 340,000 / (2.00 - 0.72)= 265,625 abalonesb. ($2.00 300,000) - (340,000 + 0.72 300,000) (0.65)= $28,600This is the after tax profit.Present Value Break-Even Analysis8.7 Using the information in the problem above, what is the present value break-even point if the discount rate

23、is 15 percent, initial investment is $140,000, and the life of the project is seven years? Assume a straight-line depreciation method with a zero salvage value.8.7EAC= $140,000 / = $33,650Depreciation = $140,000 / 7 = $20,000BEP= $33,650 + $340,000 0.65 - $20,000 0.35 / ($2 - $0.72) 0.65= 297,656.25

24、 297,657 units8.8 Kids & Toys Inc. has purchased a $200,000 machine to produce toy cars. The machine will be fully depreciated by the 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 varia

25、ble 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 the appropriate discount rate is 12 percent. What is the present value break-even point?8.8Depreciation = $200,000 / 5 = $40,000EAC= $200,000 / = $200,000 / 3.60478=

26、$55,482BEP= $55,482 + $350,000 0.75 - $40,000 0.25 / ($25 - $5) 0.75= 20,532.13 20533 units8.9 The Cornchopper Company is considering 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 fi

27、nal purchase price. The management of Cornchopper has hired you to determine the break-even purchase price 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 e

28、xpenses will be reduced by $10,000 per year for 10 years. The old harvester is 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 wi

29、ll be depreciated on a straight-line basis over its 10-year life. The corporate tax rate is 34 percent. The firms 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 imme

30、diately. Capital gains and losses are taxed at the corporate rate of 34 percent when 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-even purchase price.Incremental C0Sale of the old machine$20,000Tax effect 3,400Total$

31、23,400Depreciation per period= $45,000 / 15= $3,000Book value of the machine= $45,000 - 5 $3,000= $30,000Loss on sale of machine= $30,000 - $20,000= $10,000Tax credit due to loss= $10,000 0.34= $3,400Incremental cost savings:$10,000 (1 - 0.34) = $6,600Incremental depreciation tax shield:I / 10 - $3,

32、000 (0.34)The break-even purchase price is the Investment (I), which makes the NPV be zero.NPV= 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 = $61,981Scenario Analysis8.10 Ms. Thompson, as the CFO of a clock maker,

33、is considering an investment of a $420,000 machine that has a seven-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

34、the company is 35 percent. Calculate the NPV of the project in the following scenario. What is your conclusion 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 $280,0008.10Pessimistic:NPV= -

35、$420,000 + = -$123,021.71Expected:NPV= -$420,000 + = $247,814.17Optimistic:NPV= -$420,000 + = $653,146.42Even though the NPV of pessimistic case is negative, if we change one input while all others are assumed to meet their expectation, we have all positive NPVs like the one before. Thus, this proje

36、ct is quite profitable.Pessimistic NPVUnit sales23,000$132,826.30Price $38$104,079.33Variable costs $21$175,946.75Fixed costs$320,000$190,320.248.11 You are the financial analyst for a manufacturer of tennis rackets that has identified a graphite-like material that it is considering using in its rac

37、kets. Given the following information about the results of launching a new racket, will you undertake the project?(Assumptions: Tax rate _ 40%, Effective discount rate _ 13%, Depreciation _ $300,000per year, and production will occur over the next five years only.)Pessimistic Expected OptimisticMark

38、et 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 $1,500,0008.11Pessimistic:NPV= -$1,500,000 += -$675,701.68Expected:NPV= -$1,500,000 += $399,304.88Optimistic:NPV= -$1,5

39、00,000 += $1,561,468.43The expected present value of the new tennis racket is $428,357.21. (Assuming there are equal chances of the 3 scenarios occurring.)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

40、 factors would this likely affect? Do an NPV analysis assuming market size increases (due to more awareness of graphite-based rackets) to the level predicted by the optimistic scenario but your market share decreases to the pessimistic level (due to competitive forces). What does this tell you about

41、 the relative importance of market size versus market share?8.12 NPV = = $251,581.17The 3% drop in market share hurt significantly more than the 10,000 increase in market size helped. However, if the drop were only 2%, the effects would be about even. Market size is going up by over 8%, thus it seem

42、s market share is more important than market size.The Option 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 for the next 10 years. Total annual operating cash flow is forec