By using the information, manager can use cost of capital for restructure the market price and earning per share in order to bring advantage for company. By extension, it can help determine the decision whether to cancel or invest in project. Moreover, the cost of capital can help investors to determine the performance of the top management. With the intention of compare the ability of financial managers based on evaluation between the
Discuss the benefits to QRL of using marketing techniques such as the PLC and Boston Matrix to help make a decision about its product portfolio. (16 marks) The Boston Matrix and the product life cycle are tools to help a business assess its range of products. The business can assess whether it has a balanced portfolio and whether it has sufficient profit makers and revenue generators both now and in the future. Star products such as the ….... are already profitable and the high potential for growth will mean it will become more significant in the future. They are the cash cows of the future.
There are several main advantages of going public. The first one is that company stock can be used to raise capital. The second one went to the company obtains increased prestige and visibility. And going public can help improve its financial condition by obtaining money that does not have to be repaid. What’s more, company stock in the form of stock options can be offered to employees and contractors as a meaningful form of incentive compensation.
The company’s central value proposition is the benefit of increased productivity. Therefore, it should focus on how the product achieves this through the improved design of the scope, reduction of sedation which could lead to increased number of procedures performed and reduced costs per procedure, and reduced procedure time from 45 minutes to an hour long to only 30 minutes even for “difficult cases”. After those three topics are covered, the projected expenses, anticipated revenue, condensed market plan of action, and terms of the IP protection should be explained. I believe that the company should change their investor pitch to quickly and easily inform how the product is greater than what’s currently available in the market. As stated in the case, the value propositions are concrete but the evidence to support it are ambiguous.
This method is superior to the book value method since it is forward looking. It also takes into account future value creation, as well as for uncertainties in the industry and macroeconomic factors. Alternative methods are the EBITDA multiple and the Value-Driver Formula. The EBITDA multiple applies today’s value to future EBITDA. This method could be misleading, as it accounts for growth twice.
1. Cost of Capital Pratt and Grabowski (2010) defined cost of capital is the expected rate of return required by the managers in order to seeking additional funds for a particular investment. It measures the total costs to finance an investment through a combination of debt and equity taking into account different financial risks. There are several reasons why estimating the cost of capital is vital for the management of the company. First of all, cost of capital forces managers to reconsider the capital structure in order to discover the better approach to raise finances.
Determine the major supporting points that will help in solving the above. I think the real issues here will be resolved by making the assumptions made when plugging in for these equations reasonable. Are Nike’s managers’ estimates of growth reasonable, or are their trends indicating decline more reasonable to use? In addition, what discount rate should be used? What are their costs associated with Equity vs Debt.
Short-run cost functions should be estimated using data for which the level of usage of one or more of the inputs is fixed. Usually time-series data for a specific firm are used to estimate short-run cost functions. Analysts should be careful to adjust the cost and input price data (which are measured in dollars) for inflation and to make sure the cost data measure economic cost. The following are the two possible problems that may arise when measuring cost for short-run cost estimation: Correcting data for the effects of inflation Economic analyses often use data from two or more calendar years. Price inflation causes the value of a dollar to fall over time, and so the same dollar amount in two different years will usually represent different amounts of purchasing power.
IRR represents the discount rate at which the present value of the expected cash inflows from a project equals the present value of the expected cash outflows. Internal rate of return is used to evaluate the attractiveness of a project or investment. If the IRR of a new project exceeds a company’s required rate of return, that project is desirable. If IRR falls below the required rate of return, the project should be rejected. It is to be noted that NPV uses an absolute amount IRR is interpreted in terms of ‘Rate’.
OTISLINE CASE ANALYSIS Q1. What might be the motivation for Otis to launch this project? The following are the reasons identified as the major motivations to launch the OTISLINE project -: High profits in service Industry Service contracts were sought after as these accounted for high profits. The service market was a stable market. Otis, thus, decided to focus on the way it delivered service and the qualitative aspects of service.