Replacement Analysis
DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $600,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $270,000. The old machine is being depreciated by $120,000 per year for each year of its remaining life.
The new machine has a purchase price of $1,185,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, an annual savings of $255,000 will be realized if the new machine is installed. The company's marginal tax rate is 35% and the project cost of capital is 12%.
Year |
Depreciation Allowance, New |
Depreciation Allowance, Old |
Change in Depreciation |
| 1 | $ | $ | $ |
| 2 | $ | $ | $ |
| 3 | $ | $ | $ |
| 4 | $ | $ | $ |
| 5 | $ | $ | $ |
| CF1 | $ |
| CF2 | $ |
| CF3 | $ |
| CF4 | $ |
| CF5 | $ |
In: Finance
DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $600,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $265,000. The old machine is being depreciated by $120,000 per year for each year of its remaining life.
The new machine has a purchase price of $1,185,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, an annual savings of $255,000 will be realized if the new machine is installed. The company's marginal tax rate is 35% and the project cost of capital is 14%.
Year |
Depreciation Allowance, New |
Depreciation Allowance, Old |
Change in Depreciation |
| 1 | $ | $ | $ |
| 2 | $ | $ | $ |
| 3 | $ | $ | $ |
| 4 | $ | $ | $ |
| 5 | $ | $ | $ |
| CF1 | $ |
| CF2 | $ |
| CF3 | $ |
| CF4 | $ |
| CF5 | $ |
In: Finance
Legendary Entertainment: Film Making in the Age of Analytics Written by Alva H. Taylor, Faculty Director, Center for Digital Strategies, Associate Professor of Business Administration On the red eye flight back from Los Angeles to Boston, Matt Marolda T’02, reflected on his new role as Chief Analytics Officer for Legendary Pictures. Marolda had been recruited by Legendary CEO Thomas Tull to bring analytics to his film company. Tull was worried that the film company was becoming overconfident with their past successes such as the Hangover Trilogy, Pacific Rim, and The Dark Knight Rises. Marolda, who arrived at Legendary in 2013, has seen the reliance and confidence of Tull in using analytic information to make strategic decisions. During the interview process however, Marolda was clear to stress that analytics would not give Legendary the answers, but it would help the company base their decisions on facts rather than assumptions and increase the probability of success. While makinkg strategic decisions in uncertain environments is always a gamble, using analytics takes the gamble from playing a random play slot machine to playing black jack and being able to count cards. While Marolda felt the opportunity was clear, the thoughts of how much he had to learn about applying analytics to the film industry was preventing him from falling asleep on the flight. A Start in Sports Marolda founded the analytics company StratBridge in 1999. The initial successful product of StratBridge was StratTix. StratTix was an analysis tool that used data on potential customers and shifts in demand to make pricing and ticket promotion decisions. The analysis is similar to what airlines use to update and change pricing over the time period for a flight. After initial successful use by the Boston Red Sox, the dynamic pricing and revenue software was licensed by all of the National Basketball Association teams. It also began to be used by non-sports organizations such as music concert promoters. StratBridge also developed StratEdge, a talent evaluation system for use by sports teams. Using player stats, video data, and scouting reports StratEdge assists sports organizations to evaluate and value players by generating player analytics. Often called ‘moneyball’ analysis (a term popularized by the book Moneyball: The Art of Winning an Unfair Game by Michael Lewis) the software system takes performance data and calculates statistics on player contributions, forecasts future success, and assigns monetary value. The software enables sports organizations to integrate video and player analysis so that coaches and front office personnel can now evaluate players more thoroughly. Capabilities include: player profile “snapshots,” player comparisons, a proprietary “plays like” feature, and a player board for ranking players for drafts and free agency. Teams can build customized scouting reports with more than 100,000 pieces of information to track players, teams, leagues and agents. CASE: 2017LEG - Center for Digital Strategies, Tuck at Dartmouth – Legendary Entertainment 2 Use of analytics such as that by StratBridge, is not without its critics. One criticism to this approach is that the approach is driven by a set of non-athletic ‘nerds’ who know little about playing the game, and are treating real teams as if they are playing fantasy sports. However, Marolda insists that his products are not trying to turn organizations into fantasy sports teams, but the analytics are inputs to the overall decision making. “It’s true you can’t ignore the quantitative information but you also can’t ignore the stuff you see with your eyes,” he says. Looking for New Opportunities In 2012 Marolda sold the player analytics portion of the business to XOS Digital (for more info see: http://sportsvideo.org/main/blog/2012/07/20/xos-digital-acquiresstratedge-sports-analytics-service/ - sthash.lBPEYncW.dpuf). One of the reasons Marolda sold StratEdge to XOS Digital was that the player analytics space was getting crowded with competitors, and many teams were bringing much of the analytic work in-house. Given that there are only a finite number of teams in each sport, the prospects for long-term growth were limited. Marolda began to look around for other industries where analytics was underused but could provide significant competitive advantage. After considering several industries, Marolda settled on the film industry and joined Legendary Entertainment (Legendary) in 2013. A year later, Legendary also acquired the yield pricing software platform StratTix, that had continued to be owned and operated by StratBridge. The Film Industry For background on movie development, read pages 7-13 of the case Warner Bros. Entertainment (9-610-036). The Philosophy of Analytics Companies have always used data to help inform decisions, but the access to large amounts of information – often termed “big data”, coupled with increased computer and statistical processing power has created the opportunity to analyze data in new ways. Analytics uses huge quantities of data, social media information, location data, real-time response data, and much more to affect business performance. Organizations are starting to utilize such this information and analysis to generate solutions in new ways. The outcomes of the analytic process can provide a more comprehensive understanding of markets, customers, products, regulations, competitors, suppliers, and employees and more. Early Success Thomas Tull, CEO of Legendary, welcomed Marolda to Legendary with open arms. Tull had identified analytics as one way that Legendary could differentiate itself from typical film studios. As a smaller filmmaker, the company had to build a strategy to make smarter bets on its movies. Legendary’s focus was on increasing the hit rate on movies, and getting CASE: 2017LEG - Center for Digital Strategies, Tuck at Dartmouth – Legendary Entertainment 3 bigger returns for each of its successes. Tull charged Marolda with building an Applied Analytics Group at Legendary. Marolda spent 18 months recruiting top minds from the world of analytics, dynamic pricing and the sports industry. The recruits included a Harvard astrophysicist who did his Ph.D. on very complex systems, and experts who designed dynamic pricing for the airline industry. The group eventually grew to be composed of 8 full-time people, with direct access to top management and film developers in the company. Tull felt it was time for film companies for to be smarter in making decisions. “There’s more information available today than has ever been available in terms of people putting their preferences and all kinds of information freely up online,” said Tull. “We want to take advantage of that and be much more efficient about the way we run our business.” Tull sought inspiration from the sports business and its use of applied analytics. “I’ve had a front row seat to a number of things, and I was frankly frustrated in the way in which we deploy capital for advertising films.”1 Tull said the goal was to take people that were used to taking very large data sets and apply that knowledge to have a real yield to real world problems. Future in Film Marolda was thinking about his advice on the first big decisions that Legendary had to make concerning upcoming films. He was determining what information he should be providing, and at what stage of the process should his group be most involved. He also marveled at how different his discussions with Tull are from the discussions most film companies have. Long-term, what should be the role of the group, what standard information should be provided for all films, and where would analytics provide the most value? These were all questions he was considering, when the phone rang and it was Tull. He had one question for Marolda, should we fund the $100 million new film or not? Marolda had the sense that his answer would have a huge impact on whether the film was funded, and it was an early test of the value of analytics for Legendary
Based on the attachment, answer the following questions that Marolda faced:
1. In the short term, what information should he provide to Tull?
2. What data is required to provide such information?
3. At which stage of the film making process should his group be most involved?
4. In the long term, what information should he provide for all film?
5. Where would analytics provide the most value in Legendary's business?
In: Operations Management
DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $700,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $265,000. The old machine is being depreciated by $140,000 per year for each year of its remaining life.
The new machine has a purchase price of $1,165,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, an annual savings of $250,000 will be realized if the new machine is installed. The company's marginal tax rate is 35% and the project cost of capital is 13%.
Year |
Depreciation Allowance, New |
Depreciation Allowance, Old |
Change in Depreciation |
| 1 | $ | $ | $ |
| 2 | $ | $ | $ |
| 3 | $ | $ | $ |
| 4 | $ | $ | $ |
| 5 | $ | $ | $ |
| CF1 | $ |
| CF2 | $ |
| CF3 | $ |
| CF4 | $ |
| CF5 | $ |
In: Finance
Replacement Analysis
DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $800,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $270,000. The old machine is being depreciated by $160,000 per year for each year of its remaining life.
The new machine has a purchase price of $1,185,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, an annual savings of $255,000 will be realized if the new machine is installed. The company's marginal tax rate is 35% and the project cost of capital is 14%.
What is the initial net cash flow if the new machine is
purchased and the old one is replaced? Round your answer to the
nearest dollar.
$ -729500 (Correct) Cash Flow 0?
| CF1 | $ 192700 |
| CF2 | $ 242470 |
| CF3 | $ 189382 |
| CF4 | $ 157529 |
|
CF5 |
$ 246376 |
What is the NPV?
In: Finance
DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $450,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $135,000. The old machine is being depreciated by $90,000 per year for each year of its remaining life. If DeYoung doesn't replace the old machine, it will have no salvage value at the end of its useful life.
The new machine has a purchase price of $725,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, an annual savings of $210,000 will be realized if the new machine is installed. The company's marginal tax rate is 25% and the project cost of capital is 12%.
What is the initial net cash flow if the new machine is purchased and the old one is replaced? Round your answer to the nearest dollar. Cash outflow, if any, should be indicated by a minus sign.
$
What is the incremental depreciation tax shield (i.e., the change taxes due to the change in depreciation expenses) if the replacement is made? (Hint: First calculate the annual depreciation expense for the new machine and compare it to the depreciation on the old machine.) Do not round intermediate calculations. Round your answers to the nearest dollar. Negative values, if any, should be indicated by a minus sign.
Year |
Incremental depreciation tax shield |
| 1 | $ |
| 2 | $ |
| 3 | $ |
| 4 | $ |
| 5 | $ |
What is the after-tax salvage value at Year 5? Do not round intermediate calculations. Round your answer to the nearest dollar. Negative value, if any, should be indicated by a minus sign.
$
What are the total incremental project cash flows in Years 0 through 5? What is the NPV? Do not round intermediate calculations. Round your answers to the nearest dollar. Negative values, if any, should be indicated by a minus sign.
| CF0 | $ |
| CF1 | $ |
| CF2 | $ |
| CF3 | $ |
| CF4 | $ |
| CF5 | $ |
| NPV | $ |
In: Finance
| eBook
Replacement Analysis DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $450,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $135,000. The old machine is being depreciated by $90,000 per year for each year of its remaining life. If DeYoung doesn't replace the old machine, it will have no salvage value at the end of its useful life. The new machine has a purchase price of $775,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, an annual savings of $205,000 will be realized if the new machine is installed. The company's marginal tax rate is 25% and the project cost of capital is 15%.
|
In: Finance
A sample of 25 undergraduates reported the following dollar
amounts of entertainment expenses last year.
684 710 688 711 722 698 723 743 738 722 696 721 685 763 681 731 736
771 693 701 737 717 752 710 697
a) Calculate the standard deviation [5]
b) Find the semi-interquartile range [5]
c) Find the 58th percentile
The percent increase in sales for the last 4 years at Combs
Cosmetics were: 4.91, 5.75, 8.12, and21.60
Compute the geometric mean percent increase.
In: Statistics and Probability
Replacement Analysis
DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $400,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $120,000. The old machine is being depreciated by $80,000 per year for each year of its remaining life.
The new machine has a purchase price of $775,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, annual pre-tax savings of $180,000 will be realized if the new machine is installed. The company's marginal tax rate is 35% and the project cost of capital is 14%.
What is the initial net cash flow if the new machine is purchased and the old one is replaced? Round your answer to the nearest dollar. Cash outflow, if any, should be indicated by a minus sign.
$
Calculate the annual depreciation allowances for both machines, and compute the change in the annual depreciation expense if the replacement is made. Do not round intermediate calculations. Round your answers to the nearest dollar. Negative values, if any, should be indicated by a minus sign.
Year |
Depreciation Allowance, New |
Depreciation Allowance, Old |
Change in Depreciation |
| 1 | $ | $ | $ |
| 2 | $ | $ | $ |
| 3 | $ | $ | $ |
| 4 | $ | $ | $ |
| 5 | $ | $ | $ |
What are the incremental net cash flows in Years 1 through 5? Do not round intermediate calculations. Round your answers to the nearest dollar. Cash outflows, if any, should be indicated by a minus sign.
| CF1 | $ |
| CF2 | $ |
| CF3 | $ |
| CF4 | $ |
| CF5 | $ |
Should the firm purchase the new machine? Support your answer. Do not round intermediate calculations. Round your answer to the nearest dollar. Negative value, if any, should be indicated by a minus sign.
NPV: $
The firm -Select-shouldshould notItem 23 purchase the new machine.
In general, how would each of the following factors affect the investment decision, and how should each be treated?
The expected life of the existing machine decreases.
If the expected life of the old machine decreases, the new machine will look -Select-betterworseItem 24 as cash flows attributable to the new machine would -Select-decreaseincreaseItem 25 .
The cost of capital is not constant but is increasing as DeYoung adds more projects into its capital budget for the year.
The -Select-higherlowerItem 26 capital cost should be used in the analysis.
In: Finance
Replacement Analysis
DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $450,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $135,000. The old machine is being depreciated by $90,000 per year for each year of its remaining life. If DeYoung doesn't replace the old machine, it will have no salvage value at the end of its useful life.
The new machine has a purchase price of $775,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, an annual savings of $205,000 will be realized if the new machine is installed. The company's marginal tax rate is 25% and the project cost of capital is 15%.
What is the initial net cash flow if the new machine is purchased and the old one is replaced? Round your answer to the nearest dollar. Cash outflow, if any, should be indicated by a minus sign.
$
What is the incremental depreciation tax shield (i.e., the change taxes due to the change in depreciation expenses) if the replacement is made? (Hint: First calculate the annual depreciation expense for the new machine and compare it to the depreciation on the old machine.) Do not round intermediate calculations. Round your answers to the nearest dollar. Negative values, if any, should be indicated by a minus sign.
Year |
Incremental depreciation tax shield |
| 1 | $ |
| 2 | $ |
| 3 | $ |
| 4 | $ |
| 5 | $ |
What is the after-tax salvage value at Year 5? Do not round intermediate calculations. Round your answer to the nearest dollar. Negative value, if any, should be indicated by a minus sign.
$
What are the total incremental project cash flows in Years 0 through 5? What is the NPV? Do not round intermediate calculations. Round your answers to the nearest dollar. Negative values, if any, should be indicated by a minus sign.
| CF0 | $ |
| CF1 | $ |
| CF2 | $ |
| CF3 | $ |
| CF4 | $ |
| CF5 | $ |
| NPV | $ |
In: Finance