iROBOT: HOW TO BE A SUSTAINABLE INNOVATOR?

            iRobot, founded in 1990 in Delaware, designs and builds a vast array of behavior-based robots for home, military, and industrial uses. It is among the first companies to introduce robotic technology into the consumer market. Home care robots have been iRobot’s most successful products, with over 5 million units sold worldwide and accounting for over half of its total annual revenue. iRobot has a long-standing contractual relationship with the US government to produce robots for military defense.

            iRobot is fully gauged towards first mover radical innovation with an extensive R&D budget. Made up of over 500 of the most distinguished robotics professionals in the world, it aims at leading the robotics industry. By forming alliances with companies like Boeing and Advanced Scientific Concepts, it is able to develop and improve upon products that it otherwise is incapable of obtaining using only its own technology. The company also has a healthy financial position with an excellent cash and long-term debt rate.

            Despite these competences, iRobot still has serious concerns. Although the robotics industry is not highly competitive, iRobot needs more competition to help build up the total scale and visibility of the fledgling industry it has pioneered. Home care robots, its biggest revenue source, are a luxury supplemental good. Times of economic recession could prove to be a problem for the sales of iRobot’s consumer goods given that discretionary budgets are likely decreased. Although iRobot has over 70 patents, many of which will begin to expire in 2019. In a rapidly advancing industry, technology can also become obsolete quickly and render patents useless. Additionally, iRobot is highly dependent on several third-party suppliers to manufacture its consumer products. It also depends on the US government for the sales of its military products. Any volatility in its supply chain or government fiscal policy will have grave consequences for the company’s future.

Case Study Questions (25 marks each):

1. Prepare a SWOT Analysis for iRobot.

2. What can iRobot “strategically” do to deal with the potential threats? Explain.

3. Under which strategic type, can iRobot fall? Elaborate.

4. In the long run, would iRobot be better served to exit the home consumer products market and concentrate on military and industrial robots where profit margins are better? Discuss.

Mental health. The 2010 General Social Survey asked the question: “For how many days during the past 30 days was your mental health, which includes stress, depression, and problems with emotions, not good?” Based on responses from 1,151 US residents, the survey reported a 95% confidence interval of 3.40 to 4.24 days in 2010.

(a) Interpret this interval in context of the data.

(b) What does “95% confident” mean? Explain in the context of the application.

(c) Suppose the researchers think a 99% confidence level would be more appropriate for this

Interval. Will this new interval be smaller or larger than the 95% confidence interval?

(d) If a new survey were to be done with 500 Americans, would the standard error of the estimate be larger, smaller, or about the same. Assume the standard deviation has remained constant since 2010.

1. On January 1 2010, J Company lends M Company $20,000 with payment due in 5 years. J Company calculates that present value of the $20,000 is $13,612.

Required:

a) Prepare the journal entry for J Company on January 1, 2010.

b) Prepare an effective interest amortization table with 4 columns for J Company.

c) Prepare the journal entries for J Company on 31 December 2010, 2011, 2012, 2013, 2014 and 2015. Assume that M Companies repays J Company promptly. 2. Repeat all the requirements in question 1 above if the note has a stated rate of 6% per annum. 3. Repeat all the requirements in question 1 above if the note has a stated rate of 10% per annum.

More time on the Internet: A researcher polled a sample of 1052 adults in the year 2010, asking them how many hours per week they spent on the Internet. The sample mean was 10.19 with a standard deviation of 13.8 A second sample of 2022 adults was taken in the year 2012. For this sample, the mean was 10.87 with a standard deviation of 14.92. Assume these are simple random samples from populations of adults. Can you conclude that the mean number of hours per week spent on the Internet increased between 2010 and 2012? Use the α = 0.01 level of significance.

1. State the null and alternative hypothesis

2. Compute the p-value and Testing Value

3. Do you reject the null hypothesis? Explain?

4. Can you conclude that the mean number of hours per week spent on the Internet increased between 2010 and 2012?

4. Suppose you are interested in the impact of minimum wages on employment. You collect the following data on two jurisdictions:

Consider the “before and after” approach using 2010 and 2015, which encompass an increase in the minimum wage in jurisdiction 1. The results would show:

a) a positive relationship between the change in the minimum wage and the change in employment.

b) a negative relationship between the change in the minimum wage and the change in employment.

c) no relationship between the change in the minimum wage and the change in employment.

d) none of the listed options.

Purchases Budget in Units and Dollars
Budgeted sales of The Music Shop for the first six months of 2010 are as follows:

Beginning inventory for 2010 is 50,000 units. The budgeted inventory at the end of a month is 40 percent of units to be sold the following month. Purchase price per unit is $7.

Prepare a purchases budget in units and dollars for each month, January through May.

Stocks for Fumbeshi and Mundashi have the following historical returns: Table 2 Year Fumbeshi Mundashi 2010 -18% -14.5% 2011 33% 21.8% 2012 15% 30.5% 2013 -0.5% -7.6% 2015 27% 26.3% (i) What is the average return rate of return for each stock during the period 2010 through 2015? (ii) Assuming someone held a portfolio consisting of 50 percent of stocks Fumbeshi and 50 percent stocks of Mundashi, what would have been the realized return on the portfolio during this period? (iii) What is the standard deviation of each stock during the period 2010 through 2015? (iv) Which of the stocks Fumbeshi or Mundashi performed better in terms of both the risk and return? (Hint: Back your answer with computations) Total

1. Vwalika plc was created on 1 January 2010 with a share capital of K150,000, fully paid in cash on that date. The price level index at that date was 100. The following transactions were recorded:

Purchased equipment for K90,000, K40,000 paid when the index was 100, and payment of the balance being deferred for 18 months.

Purchased goods for K88,000 when the index was 100.

Purchased goods for K90,000 when the index was 110.

Sold goods for K200,000 when the index was 120, the cost of sales amounting to K120,000. Cash expenses amounted to K32,000, and a depreciation provision of 10 per cent on historic cost of equipment was made at year end.

Additional information as at 31 December 2010 was as follows:

Trade debtors                                                                                       K36,000

Bank balance                                                                                         K81,000

Creditors                                                                                                K67,000

Closing inventory was valued at K58,000 on a FIFO basis.

The index at year end was 120.

Required:

1. Calculate the purchasing power gain or loss on the monetary items.
2. Prepare an inflation-adjusted income statement for the year ended 31 December 2010.
3. Prepare an inflation- adjusted balance sheet as at 31 December 2010 when the price level index was 130.

When preparing capital budgeting analysis for a new project, Chris Johnson, a chief financial officer at BT Industries, faced a dilemma. The project involved a production of new type of shipping containers, which were significantly more durable and had a considerably longer useful life compared to conventional containers used in the industry. The year was 2009, and the equipment necessary for producing the containers was being sold for $900K. Each year, this cost is expected to increase by 20%. The useful life of the equipment and the project is 5 years. Mr. Johnson estimated that during a good year, the project will generate net cash flows of $700K per year, while during a bad year, the project will lose money, with an expected net cash flow of

$-300K per year.

Because the economy suffered a significant decline just a year prior, there was uncertainty about the economy in general, and, very much affected by the economy, the demand for shipping and containers. Market analysts predicted that uncertainty will remain in 2010 and at this point, in 2009, the likelihood of 2010 being a good year is estimated at 40% and the likelihood of 2010 being a bad year is estimated at 60%. However, all uncertainty will get resolved in 2011. The likelihood of 2011 and all subsequent years being good years (recovery) is 60%, and the likelihood of these subsequent years being bad years (recession) is 40%.

Since he has not dealt with uncertainty regarding the future state of the economy before, Mr. Johnson is bewildered and asks your help in determining the course of action regarding this opportunity. Mr. Johnson has estimated that the WACC for the company in certain times has been 10%. Assume that the project has no tax implications, i.e. the tax rate of 0%.

What is the NPV of investing into the machine in 2009? A: $1109.1

What is the NPV (in year 2009) of delaying the investment until 2010? __________________

Should the firm invest in the project in 2009, 2010, or not invest at all? __________________

Assume that the firm has the possibility to invest in 2009 only. What is the value of knowing in 2009 with certainty the state of the world in 2010, with regards to this project? In other words, what is the maximum amount of money the company would pay to know in 2009 whether 2010 would be a good or a bad year? Explain your answer.