Describe how brand extensions can be a useful means of introducing a new product into the market as compared to building a new brand “from scratch.” Give examples.

“I know headquarters wants us to add that new product line,” said Dell Havasi, manager of Billings Company’s Office Products Division. “But I want to see the numbers before I make any move. Our division’s return on investment (ROI) has led the company for three years, and I don’t want any letdown.”

Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the company’s Office Products Division for this year are given below:

The company had an overall return on investment (ROI) of 16.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $3,938,000. The cost and revenue characteristics of the new product line per year would be:

Required:

1. Compute the Office Products Division’s ROI for this year.

2. Compute the Office Products Division’s ROI for the new product line by itself.

3. Compute the Office Products Division’s ROI for next year assuming that it performs the same as this year and adds the new product line.

4. If you were in Dell Havasi’s position, would you accept or reject the new product line?

5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line?

6. Suppose that the company’s minimum required rate of return on operating assets is 13% and that performance is evaluated using residual income.

a. Compute the Office Products Division’s residual income for this year.

b. Compute the Office Products Division’s residual income for the new product line by itself.

c. Compute the Office Products Division’s residual income for next year assuming that it performs the same as this year and adds the new product line.

d. Using the residual income approach, if you were in Dell Havasi’s position, would you accept or reject the new product line?

1. Compute the Office Products Division’s ROI for this year.

2. Compute the Office Products Division’s ROI for the new product line by itself.

3. Compute the Office Products Division’s ROI for next year assuming that it performs the same as this year and adds the new product line.

(Do not round intermediate calculations. Round your answer to 2 decimal places.)

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6. Suppose that the company’s minimum required rate of return on operating assets is 13% and that performance is evaluated using residual income.a. Compute the Office Products Division’s residual income for this year.

b. Compute the Office Products Division’s residual income for the new product line by itself.

c. Compute the Office Products Division’s residual income for next year assuming that it performs the same as this year and adds the new product line.

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“I know headquarters wants us to add that new product line,” said Dell Havasi, manager of Billings Company’s Office Products Division. “But I want to see the numbers before I make any move. Our division’s return on investment (ROI) has led the company for three years, and I don’t want any letdown.”

Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the company’s Office Products Division for this year are given below:

The company had an overall return on investment (ROI) of 17.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $2,326,200. The cost and revenue characteristics of the new product line per year would be:

Required:

1. Compute the Office Products Division’s ROI for this year.

2. Compute the Office Products Division’s ROI for the new product line by itself.

3. Compute the Office Products Division’s ROI for next year assuming that it performs the same as this year and adds the new product line.

4. If you were in Dell Havasi’s position, would you accept or reject the new product line?

5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line?

6. Suppose that the company’s minimum required rate of return on operating assets is 14% and that performance is evaluated using residual income.

a. Compute the Office Products Division’s residual income for this year.

b. Compute the Office Products Division’s residual income for the new product line by itself.

c. Compute the Office Products Division’s residual income for next year assuming that it performs the same as this year and adds the new product line.

d. Using the residual income approach, if you were in Dell Havasi’s position, would you accept or reject the new product line?

1. Compute the Office Products Division’s ROI for this year.

2. Compute the Office Products Division’s ROI for the new product line by itself.

3. Compute the Office Products Division’s ROI for next year assuming that it performs the same as this year and adds the new product line.

(Do not round intermediate calculations. Round your answers to 2 decimal places.)

Show less

6. Suppose that the company’s minimum required rate of return on operating assets is 14% and that performance is evaluated using residual income.

a. Compute the Office Products Division’s residual income for this year.

b. Compute the Office Products Division’s residual income for the new product line by itself.

c. Compute the Office Products Division’s residual income for next year assuming that it performs the same as this year and adds the new product line.

Show less

Case Study 7: The Future of the Crossroads Center Read the Crossroads Center case and answer the following question: 1)How would you design a future search conference, strategic planning session, or scenario planning engagement for the client?

The Crossroads Center was founded 16 years ago as a nonprofit drug and alcohol treatment center for adults and adolescents. The center is located in a quiet rural area about an hour from a major urban center. It consists of six separate cream-colored buildings that encircle a large park, walking paths, and a duck pond.Except for a small, almost hidden sign on the main building, most community members cannot distinguish the center from any other set of office buildings or detached apartment units located in the sleepy town.The center has two segments that operate differently depending on the patient’sage. The first is an adult treatment facility, where treatment primarily consists on support provided by psychologists and licensed therapists. Adults who enroll at the center usually find out about it through their health insurance provider, which pays 100 percent of the center’s fees for up to 30 days of inpatient treatment and 30 outpatient visits. The center’s staff can support up to 120 adults at any given time.The second part of the center is an adolescent residential treatment facility,where patients live together in the facility and are supported by a network of clinical psychologists, physicians, nurses, addiction counselors, and therapists. The center also provides staff teachers who give educational assistance while the patients live at the center, which can last for up to 8 weeks depending on a patient’s needs. The residential center is much more expensive to operate, given the additional staff and housing needs, so there are typically just 30 to 40 patients living at the center at any point in time. The funding sources for the adolescent reatment facility include insurance as well, but also grants and foundations as well as federal and state programs.Darrin Spoldi was appointed director of the center almost 3 years ago. During his short tenure, the center received three new grants from national foundations and increased by one third the number of patients that the center has reached. Darrin called Lisa Rodriguez last week with an urgent request. The center was at risk duet o a new law, and he needed some advice to avoid the worst-case scenario.“I’m really glad that you’re here,” Darrin said, as he and Lisa walked along the sidewalk path outside the center. “We’re in a desperate situation, and if we don’t do something soon, we may not be able to keep the center open.”“You sounded very concerned when we spoke last week,” Lisa admitted. “But I had thought when we spoke a few months ago that things were going so well.”“Exactly,” Darrin said quietly, looking down at the weeds on the edge of the sidewalk. “I had just gotten a major grant and our funding seemed more solid thanat any point during my time here. Ironic, as it turns out. Things were sailing smoothly until just recently. In fact, just a few weeks ago we concluded our yearlong study on adolescent recidivism since we hired the additional therapist staff.”“Recidivism? What’s that?” Lisa asked.“It’s our return rate. We follow up with our patients after they leave the center to see how they are doing and whether they are able to maintain the skills they lear during their time here or whether they need to return to a center for additional treatment. We found out that our patients have the lowest rates of return to drug and alcohol abuse among centers like ours in this region. In fact, the rate has improved by about 15 percent over a few years ago.”“To what do you attribute this result?” Lisa wondered.“There’s no question. It’s both our teachers and our therapists,” Darrin said confidently. “Patient after patient in the study we did reported that they had incredible support from the therapists, and having the teachers here on staff kept them focused on their studies, so that when they returned to school they had little difficulty assimilating. About a year and a half ago we added three new the rapiststo the staff, and the change was incredible. I know how good our work is here. I’ve worked in treatment facilities like this throughout my career, and this is the most successful model I’ve seen.”“Tell me about what’s causing your concern for the center,” Lisa asked.“Don’t misunderstand. I might sound calm now, but I suppose I’m just numb from thinking about this. It’s not just a ‘concern.’ This is the biggest crisis I’ve faced my career,” Darrin said. “You might have heard about the changes that the state legislature just made to the social services budget for this fiscal year. Well, the budget for social services includes a set of regulations requiring that treatment facilities that receive state funding have a certain percentage of their staff hold medical degrees from an accredited medical school. I guess the regulations were intended to address the large number of facilities that are run primarily by lower skilled technicians, with few medical professionals actually administering services. Last year’s controversy regarding abuse in nursing home facilities prompted a number of community groups to call for additional regulations. The result, though, is that even facilities like ours face the same criteria. In any case, the law was just recently signed by the governor, and facilities have just 6 months to comply with the law or forfeit all state funding, retroactive to the signing date of the legislation.”“What does that mean for Crossroads?” Lisa asked.“In other words, the center will continue to receive state funding for the next 6 months, but if we cannot comply with the law in that time period, we need to retur 6 months’ worth of funding to the state,” Darrin said.“What would it take to comply?”“Currently, the center’s staff of teachers and therapists put the staff below the required threshold to receive funding. Most of them have advanced academic degrees, but they are not medical practitioners according to the legal definition. We would have no problem if we just let our teachers and therapists go,” Darrin said.“But they are critical members of our staff, and as I said, our patients give them a great deal of credit for their treatment. I just don’t think that is an acceptable solution. Another possibility would be to refuse the state funding, but then trying to operate with our remaining funds would be impossible. With money coming just from the federal government and from our grants, we would not only have to have a layoff of staff, we’d have to reduce the number of patients we serve by about two thirds, and we would turn away a lot of people who need our help. I’ve done a lot of thinking about this in the last several weeks, and I haven’t been able to come up with a solution that is acceptable to anyone.”“Does the community understand what’s happening to the center and what might happen if it closed?”“We have purposely maintained a low profile in the community for the last several years. Before I arrived, it’s my understanding that there was a call among the county supervisors for the center to close or move, and we did not have a lot of support. I don’t know what all of the issues are, but there is some animosity among the board of directors toward the county board of supervisors. Nothing came of it,obviously, and the board of directors recommended that I not spend a lot of time in the community for a while until things settled down. I’m not sure how many community leaders even know how we’ve contributed to the community by own local adults and adolescents,” Darrin concluded.“What have you done so far?” Lisa asked.“A few weeks ago we had a small meeting of the top administrators, about eight of us. We just talked in circles, bouncing back and forth between trying to figure out how to continue to operate without state funding or trying to meet the state’s requirements and maintain our current funding. We didn’t come to any conclusions, but we agreed to meet again this week. I do have to say, though, that the staff has been great about this. Morale is high, and our administrators are highly involved and motivated to find a solution. I’ve worked with other groups that would have given up or quit, but this group is participative, engaged, and smart. They’re keeping each other going,” Darrin said.“Let me summarize. A highly successful local center is going to close because oa state law that holds unintended consequences, and the closure will affect a large number of patients, staff, and community members. It seems to me that there are a lot of groups who have a stake in this center being successful and continuing to operate. There are the patients and staff, obviously, but also the patients’ families,the grants and foundations that contribute to your success, the community, even the state legislature,” Lisa concluded.“You’ve got it,” Darrin said quietly.Lisa continued, “You have a lot on your shoulders here. I can see that it’s affecting you a great deal personally. What do you think of bringing together a larger group to help you decide what to do? We could keep it to your staff, or we could invite members of these other groups.”“It sounds like a good idea,” Darrin agreed. “And at this point I’m at a loss about what to do next, so I’ll take any suggestions. Tell me more. Who would we invite?How long would it take, and how would it be structured?”“Let me think more about that. I can get you a proposal quickly and we can get started as soon as possible,” Lisa said.“For the first time in a few weeks, I’m starting to feel hope,” Darrin smiled. “I’m looking forward to your proposal.”

The manufacturer of a new racecar engine claims that the proportion of engine failures due to overheating for this new engine, (p1) ( p 1 ) , will be no higher than the proportion of engine failures due to overheating of the old engines, (p2) ( p 2 ) . To test this statement, NASCAR took a random sample of 175 175 of the new racecar engines and 185 185 of the old engines. They found that 16 16 of the new racecar engines and 8 8 of the old engines failed due to overheating during the test. Does NASCAR have enough evidence to reject the manufacturer's claim about the new racecar engine? Use a significance level of α=0.05 α = 0.05 for the test. Step 2 of 6 : Find the values of the two sample proportions, pˆ1 p ^ 1 and pˆ2 p ^ 2 . Round your answers to three decimal places.

rest of the steps

Linkin Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company’s current truck (not the least of which is that it runs). The new truck would cost $54,760. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $7,400. At the end of 8 years, the company will sell the truck for an estimated $27,000. Traditionally the company has used a rule of thumb that a proposal should not be accepted unless it has a payback period that is less than 50% of the asset’s estimated useful life. Larry Newton, a new manager, has suggested that the company should not rely solely on the payback approach, but should also employ the net present value method when evaluating new projects. The company’s cost of capital is 8%.
Compute the cash payback period and net present value of the proposed investment.

Special Instrument company is considering replacing its machine with a new model that sells for $40,000, the cost of installation is $6,000. The old machine has been fully depreciated and has a $2500 salvage value. The new machine will be depreciated as a 3-year MACRS asset. Revenues are expected to increase $18,000 per year over the 5-year life of the new machine. At the end of 5 years the new machine is expected to have a $1500 salvage value. What is the NPV for this project if Special Instrument has a required rate of return of 12% and a marginal tax rate of 35%? Operating costs are not expected to increase from the current level of $8,000 per year. Briefly Discuss if you accept or reject the new machine and why.

I got the point where I need to calculate the depreication. How do I go about doing that?

A firm has debt with a face value of $100. Its projects will pay a safe $80 tomorrow. Managers care only about shareholders. A new quickie project comes along that costs $20, earns either $10 or $40 with equal probabilities, and does so by tomorrow. Assume that the time value of money is 0

     1. Is this a positive-NPV project?

    2. If the new project can only be financed with a new equity issue, would the shareholders vote for this? Would the creditors?

     3. Assume the existing bond contract was written in a way that allows the new projects to be financed with first collateral (superseniority with respect to the existing creditors). New creditors can collect $20 from what the existing projects will surely pay. Would the existing creditors be better off?

4. What is the better arrangement from a firm-value perspective?

Part 1 AstroTech Semiconductor incurred the following costs in 2018 related to a new product design:

The development costs were incurred after technological and commercial feasibility was established and after the future economic benefits were deemed probable. The project was successfully completed, and the new product was patented before the end of the 2018 fiscal year.

Required:
Calculate the amount of research and development expense AstroTech should report in its 2018 U.S. GAAP income statement related to this project.

Research and development expense is what?

Part 2

Calculate the amount of research and development expense AstroTech should report in its financial statements according to International Financial Reporting Standards (IFRS).
  

What is the research development expense?

El Paso Water Utilities (EPWU) purchases surface water for treatment and distribution to EPWU customers from El Paso County Water Improvement District during the irrigation season. A new contract between the two entities resulted in a reduction in future price increases in the cost of the water from 10% per year to 5% per year for the next 20 years. If the cost of water next year (which is year 1 of the new contract) will be $530 per acre-ft. using an interest rate of 10% per year,

a) Determine the difference between present worth (in $/acre-ft) of the old and the new contracts (solve using both formula and spreadsheet functions).

b) If new contract also needs a future payment of $2,000 at year 20, what is the equivalent annual worth of the new contract? (solve using both table values and spreadsheet functions)