2) Calculate (1) again using a 55% cannibalization for the Premium Product and a 15% cannibalization rate for the Basic Product. Show your NPV and IRR results.

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1)  Use the base case assumptions (pg. 4) as well as the information presented in the case to build a four-year discounted cash flow model for Advanced Seal given a 50% cannibalization rate for the Premium Product and a 15% cannibalization rate for the Basic Product. What are your NPV and IRR results? Please use the “Basic Template” from the excel file provided for the project.

2) Calculate (1) again using a 55% cannibalization for the Premium Product and a 15% cannibalization rate for the Basic Product. Show your NPV and IRR results.

3) Calculate (1) again using a 60% cannibalization rate for the Premium Product and a 15% cannibalization rate for the Basic Product. Show your NPV and IRR results.

4) Use the model developed in (1) to test the implications of Christina Whitman’s “Proposal to Drive Revenue” (pg. 5). Please use a 50% cannibalization rate for the Premium Product and a 15% cannibalization rate for the Basic Product. Show your NPV and IRR results. Now, repeat this step but use

  • a 57.5% cannibalization rate for the Premium Product and a 15% cannibalization rate for the Basic Product. Show your NPV and IRR results.
  • a 65% cannibalization rate for the Premium Product and a 15% cannibalization rate for the Basic Product. Show your NPV and IRR results.

5) Use the model developed in (1) to test the implications of Margaret Tan’s “Proposal to Minimize Cannibalization” (i.e. raising the price to $23 dollar and minimize the cannibalization rate to 45% – pg.6) Show your NPV and IRR results.

6) Summarize your results for part (1) to (5) using the “summary of scenarios “template provided in the excel file. Also, please recommend what P&G should do (between Proposal to Drive Revenue  & Proposal to Minimize Cannibalization )

Hint:

  1. Cannibalization of 50% = – 50% * 2,000,000 = -1,000,000 à reduce 1 million Premium Product, same principles apply for Basic Product.
  2. You can set Net Working Capital Turnover to run at a rate of 9 (average of 8 to 10 times).   Footnote 4: Net Working Capital = Incremental Revenue/ Net Working Capital Turnover.
  3. The depreciation expense is based on the depreciation schedule in Footnote 3.
  4. The Terminal Value for the capital expenditure is calculated as the tax shield of the remaining book value times the tax rate.

 Ethical Issues in Statistics (p. 41)

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 Ethical Issues in Statistics (p. 41): Considering the ASA “Ethical Guidelines for Statistical Practice” present an example of a violation of these standards from the public record or your experience. What happened? How was it a violation? How was (or could it be) remedied? Conversely, if you have a specific example of a statistical practice that illustrates one of these principles, let’s hear about that

Unit 3 Textbook Problems

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Unit 3 Textbook Problems

Activity Context

This assignment helps you develop the skills to master the following course competencies:

· Apply the theories, models, and practices of finance to the financial management of the firm.

Activity Instruction

To enhance your understanding of financial concepts, please complete the following problems in your Corporate Finance textbook.

· Chapter 7, problem 1b (page 221).

· Chapter 7, problem 2 (page 221).

· Chapter 7, problem 8 (page 222).

· Chapter 7, problem 9 (page 222).

· Chapter 8, problem 1 (page 252).

You are required to use the textbook problems template in the Resources to complete the problems. This Excel document contains unique details and cells specific to the problems that you must use to derive your solutions. Provide full detail of the process used to reach the solution.

Resources

· Unit 3 Textbook Problems Scoring Guide.

· Textbook Problems Unit 3 [XLS].

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Cost shifting Cost cutting
Patients Pay Average cost per patient Loss Patients Pay Average cost per patient Profit/ (Loss)
15 2000 2000 0 15 2100 2000 1500
25 1800 2000 -5000 25 2100 2000 2500
20 1600 2000 -8000 20 2100 2000 2000
10 1500 2000 -5000 10 2100 2000 1000
10 2000 2000 0 10 2100 2000 1000
10 0 2000 -20000 10 0 2000 -20000
10 0 2000 -20000 10 0 2000 -20000
100 Charge necessary to recover your cost -58000 100 Amount of Cost needed to break even -32000
Differential Cost Analysis
Patients Variable cost Total variable cost Fixed cost Revenue
4000 200 800000 1600000 2000000
Contribution margin 1200000
Net Profit/(Loss) -400000
Since the net hospital makes a loss by including the program, it is advisable that it should drop the sleep disorder program.
Breakeven Analysis
Fixed Costs 10000
Selling Price 100
Variable Costs 20
BEP (Units) 125
BEP (Dollars) 12500
CM in Percent 80%
CM in Dollars 80
Job Order Costing
Procedure Projected Volume Labour in Minutes Supply Expense RVU Total RVU Cost Per RVU Cost Per Procedure
Amylase 4000 15 75 300 1200000 0.2880184332 86.4055299539
Bleeding time 5000 12 50 200 1000000 0.2880184332 57.6036866359
Uric acid 3000 10 50 200 600000 0.2880184332 57.6036866359
Platelet count 7800 9 25 100 780000 0.2880184332 28.801843318
Hematocrit 7600 8 25 100 760000 0.2880184332 28.801843318
4340000
Activity Based Costing
Activity Projected Volume Labor Expense ($) Supply Expense ($) Visit Minutes Total Sample Direct Cost GCD RVUs Total Sample Direct Cost GCD Cost Driver Total RVUs Total Cost Driver Direct Cost Per RVU Indirect Cost Per Cost Driver Direct Cost Per Visit Indirect Cost Per Visit Total Cost Per Visit
Evaluation 4000 30 10 60 40 5 8 60 10 6 32000 24000 3.9473684211 5.5555555556 31.5789473684 23.6842105263 55.2631578947
Education 3000 50 20 40 70 5 14 40 10 4 42000 12000 3.9473684211 5.5555555556 55.2631578947 15.7894736842 71.0526315789
Exercise 2000 5 0 90 5 5 1 90 10 9 2000 18000 3.9473684211 5.5555555556 3.9473684211 35.5263157895 39.4736842105
76000 54000

How would your projected financial performance change if sales fall 20% short of or are 20% higher than your base assumption?

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Alternate financial scenarios. Use this section to discuss the sensitivity of your financial projections to different scenarios. Be sure to address: a. How would your projected financial performance change if sales fall 20% short of or are 20% higher than your base assumption? What does your analysis of these two scenarios imply for the proposed investment? Justify your response. b. What do the net present value, internal rate of return, and payback values from your base scenario and the sales variation scenarios above imply for the proposed investment? Be sure to explain how the time value of money affects your calculations and analysis.

What is the future value of $2,944 invested for 9 years at 6.00 percent compounded annually?

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What is the future value of $2,944 invested for 9 years at 6.00 percent compounded annually?

One year ago, you invested $3,140. Today it is worth $3,700.50. What rate of interest did you earn?

Some time ago, Julie purchased eleven acres of land costing $15,190. Today, that land is valued at $59,547. How long has she owned this land if the price of the land has been increasing at 5 percent per year?

First City Bank pays 8 percent simple interest on its savings account balances, whereas Second City Bank pays 8 percent interest compounded annually.

 

If you made a $61,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 8 years
Compute the future value of $1,000 compounded annually for 20 years at 6 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

 

  Future value $

 

b. Compute the future value of $1,000 compounded annually for 15 years at 9 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

 

  Future value $

 

c. Compute the future value of $1,000 compounded annually for 25 years at 6 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

 

  Future value $
For each of the following, compute the present value (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.):

 

Present Value Years   Interest Rate Future value
$ 12   6 %   $ 15,951  
  3   12       56,557  
  28   13       891,073  
  30   10       555,164

Wilkinson Co. has identified an investment project with the following cash flows:

 

Year   Cash Flow
  1     $ 750  
  2       990  
  3       1,250  
  4       1,350  

 

If the discount rate is 7 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

 

  Present value $

 

If the discount rate is 18 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

 

  Present value $

 

If the discount rate is 24 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

 

  Present value $

Four months ago, you purchased 1,400 shares of Lakeside Bank stock for $25.44 a share. You have received dividend payments equal to $.58 a share. Today, you sold all of your shares for $26.44 a share. What is your total dollar return on this investment?

Suppose a stock had an initial price of $56 per share, paid a dividend of $1.60 per share during the year, and had an ending share price of $66.

 

Compute the percentage total return. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

 

  Total return %

You’ve observed the following returns on SkyNet Data Corporation’s stock over the past five years: 18 percent, –14 percent, 20 percent, 22 percent, and 10 percent. Suppose the average inflation rate over this period was 3.1 percent, and the average T-bill rate over the period was 4.4 percent.

 

a. What was the average real return on the stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

 

  Average real return %

 

b. What was the average nominal risk premium on the stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.)

 

  Average nominal risk premium %