Question six
| Proposal A | NPV | $154,026 | |
| Year | Cash Flow C | Discount Factor 10% F | Discounted Cashflow C*F |
| 0 | -500000 | 1 | -500000 |
| 1 | 150000 | 0.9091 | 136363.6 |
| 2 | 200000 | 0.8264 | 165289.3 |
| 3 | 250000 | 0.7513 | 187828.7 |
| 4 | 150000 | 0.6830 | 102452 |
| 5 | 100000 | 0.6209 | 62092.1 |
| NPV | 154026 | ||
| Proposal B | NPV | $348,773 | |
| Year | Cash Flow C | Discount Factor 10% F | Discounted Cashflow C*F |
| 0 | -300000 | 1 | -300000 |
| 1 | 50000 | 0.9091 | 45454.55 |
| 2 | 150000 | 0.8264 | 123966.9 |
| 3 | 200000 | 0.7513 | 150263 |
| 4 | 300000 | 0.6830 | 204904 |
| 5 | 200000 | 0.6209 | 124184.3 |
| NPV | 348773 |
Proposal B should be accepted because it has a higher NPV of $348773 than Proposal, an NPV of $154026.
Question seven
At a twenty five percent hurdle rate, the planned investment has a negative net present value. In other words, the marketing campaign isn’t bringing in enough money to cover its costs, as measured by the present value of future revenue inflows. Over the course of three years, from 1998 to 2000, two-point four million dollars was spent on advertising. During this time, there is a two-year negative cash inflow owing to high promotional expenses. Even with this promotional campaign’s increased sales, the company is still unable to earn enough revenue to cover its expenses. Despite the high promotional costs, there is a net cash outflow. There is no justification for the substantial spending in marketing if the company’s financial results are negative. According to cash flow projections from 2001 to 2004, the investment in plant and equipment does not make financial sense. Therefore, it is not advisable to implement a marketing campaign.
| 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | |
| Selling price | $20.00 | $20.60 | $21.00 | $21.15 | $21.25 | $21.25 | $21.00 |
| Less: unit cost | 8 | 8.24 | 8.49 | 8.74 | 9 | 9.27 | 9.55 |
| Net margin | 12 | 12.36 | 12.51 | 12.41 | 12.25 | 11.98 | 11.45 |
| Units | 250,000 | 250,000 | 250,000 | 250,000 | 250,000 | 250,000 | 250,000 |
| Net margin | 2,000,000 | 2,060,000 | 2,121,800 | 2,185,454 | 2,251,081 | 2,318,548 | 2,388,105 |
| SG&A | 1,250,00 | 1,287,500 | 1,326,126 | 1,365,909 | 1,406,886 | 1,449,093 | 1,492,565 |
| P/ expenditure | 1,000,000 | 1,000,000 | 500,000 | ||||
| Depreciation | 200,000 | 200,000 | 200,000 | 200,000 | 200,000 | 200,000 | 200,000 |
| Interest 8% | 112,000 | 112,000 | 112,000 | 112,000 | 112,000 | 112,000 | 112,000 |
| Total expes | 2,562,000 | 2,599,000 | 2,128,125 | 1,677,909 | 1,718,866 | 1,761,093 | 1,804,565 |
| Net income | -562,000 | -539,000 | -16,325 | 507,545 | 532,132 | 557,456 | 583,539 |
| Tax 40% | -224,800 | -215,800 | -6530 | 203,018 | 212,853 | 222,982 | 233,416 |
| Income tax | -337,200 | -323,700 | -9,795 | 304,527 | 319,279 | 334,473 | 350,124 |
| Add: depreciation | 200,000 | 200,000 | 200,000 | 200,000 | 200,000 | 200,000 | 200,000 |
| Annual cash inflow | -137,200 | -123,700 | 190,205 | 504,527 | 519,279 | 534,473 | 550,124 |
Question eight
Part one
The overall aim of companies that shareholders own is to provide profits for the latter. The managers are required to consider the interest of the shareholder when developing strategies to maximize on profits. The realized profits are issued to shareholders for numerous reasons. First, providing shareholders with continuous dividing build confidence among the owners. This is because the shareholders will be comfortable knowing that their investment is making returns. Therefore, there will be minimal conflicts between the managers and shareholders of the company as dictated by the agency theory.
Moreover, providing continuous dividends to the shareholders is beneficial to the overall image held by the public towards the company in today’s society’s internal and internal market information pertaining to a given company is widely shared. Thus a company that provides suitable and continuous dividend attract positive traction to company. This can be useful when the company seeks to increase in public portfolio through the selling of shares. Since more people will be interested in purchasing the company’s shares due to dividend pay-out policies, which in turn increase the company’s values.
Furthermore, continuous or periodical pay-out of dividends to shareholders is critical in depicting the company’s financial “health and well-being”. Most of the companies that are unable to meet the shareholders’ obligations through pay-out of dividends are typically underperforming in the market. Thus, the issuance of dividends can be used in “singling” to the current or potential investors on the company’s financial health. Therefore, companies need to provide continuous issuance of dividends to their shareholders to ensure growth and longevity in the market.
Part two
There are numerous benefits for a company that acquires long-term debts that s within their limits. Firms tend to match the maturity of their assets and liabilities, and thus they often use long-term debt to make long-term investments, such as purchases of fixed assets or equipment. The acquisition of fixed assets is critical in enabling the company to acquire various types of equipment that can sustain the company in the long term. Furthermore, such a move can enable the company to expand its operations and capacity due to availability of equipment, which are not common among its competitors. More so, taking long-term debt to finance equipment purchase tends to increase the company’s credibility to potential large consumers such as governments or multinational companies. This is because the company may be perceived as a “serious” partner “who can” be engaged in enormous projects.
Long-term finance also offers protection from credit supply shocks and having to refinance in bad times. This enables a company to cover its overhead costs of operation without making any intermediate profits in the short term. Thus implying that long term debt enables a firm to counter the challenges of bad debt which can interfere with the overall productivity of the company. Coherently, with long term financing there is minimal risks of insolvency. The continuous flow of economic resources enables the company to cushion against unpredictable situations such as market crashes that can hinder the company’s revenue stream.
Furthermore, companies should acquire as much long-term debt as they can reasonably afford without losing their financial flexibility because it can improve shareholder confidence. In contemporary society, businesses are rated or valued based on anticipated cash flows and revenue circulations. Thus, a company that has a steady supply of economic resources such as long-term debt is likely to attract a large pool of potential investors. This, in turn can increase a firm’s profitability margins.
Part three
If the company has been quite successful in the past by having a low percentage of common stock equity, it is not advisable to continue with such a model. This is because common stock is generally considered to have a high volatility rate, which means it can negatively impact the dollar value of the shareholder equity. Nevertheless, there are numerous reasons as to why a company ought to increase a company want to increase its percentage of common stock equity in its capital structure. Ideally, there are constant market changes, which affects the price share of each equity stock in the market. Thus adjusting the price of the common stock equity price enables the company to minimise the strength of its current/ stock in the market. More so, economic stock can be linked to the long run growth of a company. Despite possible dilution of shares, increases in capital stock can ultimately be beneficial for investors. The increase in capital for the company raised by selling additional shares of stock can finance additional company growth. Therefore, a company needs to adjust its capital structure to ensure it meets the market’s expectations.
Furthermore, increasing the percentage of common stock equity by a firm can be important in enabling the organization to meet its financial obligations. Much of the profits attained from the sales of goods and services may not be sufficient to meet the financial obligations of a company. Thus, the manager can introduce a new capital structure that can enable the company to increase the value of the common stock in order to raise additional capital to finance other projects or ventures such as amalgamation or acquisition of other firms.
Part four
Equity financing is the money investors put into a business for a share of the ownership of the company. Ideally, equity financing is not commonly available to sole traders or partnerships. It is not based on the company’s asses, which implies that the investors face similar risks as the business owners and other shareholders. However, equity financing has been gaining traction as the most preferred form of financing for an established organization seeking to expand its business operations.
Equity financing can be an appreciated approach strategy for the company seeking to finance business expansion. This method will allow the company to exchange a small percentage of its ownership to investors to secure funding for the project. Such a move will minimize on the reliance of financing debt such as loan, which requires guarantors or security before acquiring the loan. More so, if the new venture fails to be profitable within the stipulated timelines, the company will not be at risk of losing its security if unable to pay back the loan as required. Essentially, equity financing enables the company to focus on the expansion of the new business without worrying about the repayment plans or interests associated with loan financing.
Equity funding allows a company to share the risks of the ventures with the investors. Since equity funding is not accessible to other forms of entrepreneurship, owners of the company are secured against losing their share or assets when the investment fails. Nevertheless, in most situations, equity funding does not fail due to the investors’ external business insights and skills. Since they have similar interest and risk with the owners’ investors will provide adequate and reliable information or knowledge, which is not common with other forms of financing. In addition, would it be a good idea to use equity financing to pay for the expansion instead of debt financing because the former allows the owners to repay investors once the new business venture is operational and profitable. Unlike debt financing, where repayment of interests and loans have to be undertaken concurrently with the expansion or construction period.
Chapter nine
Part one
There are multiple forms of trade-offs between conflicting wants and needs of different customers with respect to the same product that includes; price verse quality, customization verse common features; personalized verse automated service, among others. The quality of a product or service tends to impact the market price. A customer may opt for a quality product/ service regardless of the prevailing cost while another may consider price irrespective of the quality being provided by a product or service. Similarly, the decision to choose between a customized product or those with common feature is based on the level of want or desirability of the consumers. An individual may opt to purchase a regular product if it meets their need, even if provided with a customized product and vice versa. Such conflicting needs and wants of consumers mentioned above forms the basis of trade-offs.
One of the critical ways to ensure the needs of the customers are satisfied is by guaranteeing quality. Essentially, developing quality products can be important when launching a new product. A new quality product can attract and retain a large pool of consumers, which will be profitable to the organization in the long term. Business experts’ assert that product quality impact on the success of a firm by establishing market reputation. This means that consumer will become loyal to the brand. When a firm develops a high-end product or service, it can be able to maintain its demand while minimizing the cost of production typically associated production of quality products.
Furthermore, launching a high quality product can be beneficial to the company in terms of reducing market competitiveness. Thus it is important to emphasize product quality when a new and unique product is launched to avoid duplication in the market. This is because an imperfect market is characterized by the presence of low quality products.
Part two
Planning for distribution and logistics
To ensure the concept of total logistics is put into practice and suitable trade-offs are achieved. A positive planning approach must be adopted. The planning should be undertaken according to a certain hierarchy that reflects different planning time horizons, which are classified as strategic, tactical, and operational. The above mentioned planning strategy can be used in effective distribution of a new product line in a market.
It is imperative to note that the distribution channels’ planning hierarchy can differ from one organization to another depending on the nature of operation and size of the market. This is because there are numerous planning factors, which can be distinct for a given firm when planning a distribution channels. Thus for a company like ABC company, which wants to develop a new product for a high-end consumer market it can develop a distribution channel that will be unique in overcoming the challenge identified. Since the company deals with high end product it can adopt the use of technology to identify and locate consumers. Such information will enable ABC Company to organize how the product can be shipped to the customers. Additionally, if the customer are sparely populated shipping cost can be included as part of the purchase costs. Such a move will enable ABC Company to distribute high end product to customers who are difficult to identify and are geographically dispersed.
Chapter Ten
The mother and daughter developed hat is currently known as the MBTI. The test was developed based on Carl Jung’s book of psychological types. The Carl’s book examined how people are born with innate preference that such as psychological preferences that do not change over time. Overall, the MBTI test is based on assessing the self-awareness by highlighting on the traits and preferences of an individual. The MBTI can be categorised into for dichotomies that include introversion and extraversion; perception, decision making. The introversion and extraversion test examine how a person “source for energy” these are individuals who are expressive, engaging, and collaborative with other people. Perception examine how people view the world through sensing or examining in detail on how “things work or function.” Thinking is the third dichotomy of the MBTI it examine how people use creative thinking to solve solution it is a critical element in the hiring process of individuals required for technical positions in an organization.
Collaborating with others requires both emotional and logical intelligence. A effective work relationship starts with an understanding of the significance of emotions and their link to styles of leadership and personality types. As a project leader, recognizing character traits enables you to assess employees’ strengths and weaknesses in a variety of settings. Knowing other person’s character traits also helps in organizing teammates’ talents and answering the client’s requirements. The “Myers-Briggs Type Indicator (MBTI) is a personality assessment instrument used to ascertain a worker’s preferences. Managers may utilize the MBTI to create relationships with employees. The examination is focused on how individuals judge or view things. The two are the primary causes of conflict (judgment and perception).
Individuals see and infer differently in response to the similar environmental information. Accounting for and comprehending these distinctions is critical to project leadership success. The MBTI’s objective is to help employees respect and understand one another in order to minimize personality clashes. Certain project managers use the MBTI as a team-building technique. Members discuss how they digest information, their preferred method of communication, and their preferred method of decision-making. This enables participants and the project manager to identify points of contention, value variety, and devise communication tactics.
Project managers must have a thorough understanding of the project’s technical needs in order to make educated judgments. The scope of the project should be covered by their expertise. When working on a low-tech project, you may get by with informal experience and training; but, when working on a high-tech project, your credentials should be more exact and include education in a technical setting as well as a degree in engineering. In order to run a high-tech business, managers must combine thoughts from several domains to make technological decisions. In low-tech functions, there are persons who have difficulty integrating ideas from several fields.
The management of a high performance department require the person in charge to have specialised or additional training beside management skills. For instance, person management an information communication technology department are required to have IT background as the saisi of managing such a department. This is different from managing a low-technology function (e.g., a hotel). This is because the low technology department of businesses can be managed by managers who have or have no sufficient training. More so, low technology functions can be acquired through on-job training, which is difficult to replicate in a high management function.
Moreover, managers who are charged with managing high functioning department such as in engineering design are required to have intuitive capabilities such as solving complex issues in real-time. A high functioning department can be stressful compared to a low functioning occupation because of the nature of problems or challenges present. This means that the type of managers who work in midsize or small departments may not have the necessary knowledge, competency, or skills in providing practical solutions needed to solve business problems related to high functioning departments.
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