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Femi Appliances Limited (FAL) is a Nigerian-based manufacturer of household appliances with many distribution centers across various locations in Nigeria and along the ECOWAS sub-region. FAL is now considering the development of a new motor vehicle vacuum cleaner – VC4.
The product can be introduced quickly and has an expected life of four years, after which it may be replaced with a more efficient model. Costs associated with the product are estimated as follows:
If the new product is introduced, it will be manufactured in an existing factory, having no effect on rates payable. The factory could be rented out for ₦12,000,000 per year to another company if the product is not introduced.
New machinery costing ₦86,000,000 will be required, depreciated on a straight-line basis over four years with a salvage value of ₦2,000,000. The machinery will be financed by a four-year fixed-rate bank loan at 12% interest per year. Additional working capital requirements may be ignored.
The new product will require two additional managers at an annual gross cost of ₦2,500,000 each, while one current manager (₦2,000,000) will be transferred and replaced by a deputy manager at ₦1,700,000 per year. Material Z totaling 70,000 kilos is already in inventory, valued at ₦9,900,000.
FAL will utilize the existing advertising campaigns for distribution centers to also market the new product, saving approximately ₦5,000,000 per year in advertising expenses.
The unit price of the product in the first year will be ₦11,000, with projected demand as follows:
An inflation rate of 5% per year is anticipated, with prices rising accordingly. Wage costs are expected to increase by 7% per year, and other costs (including rent) by 5% annually. No price or cost increases are expected in the first year of production.
Income tax is set at 35%, payable in the year the profit occurs. Assume all sales and costs are on a cash basis and occur at the end of the year, except for the initial purchase of machinery, which would take place immediately. No inventory will be held at the end of any year.
a. Calculate the expected internal rate of return (IRR) associated with the manufacture of VC4. Show all workings to the nearest ₦million. (19 Marks)
b. i. Explain what is meant by an asset beta and how it differs from an equity beta. (2 Marks)
ii. Given the company’s equity beta is 1.2, the market return is 15%, and the risk-free rate is 8%, discuss whether introducing the product is advisable. (4 Marks)
c. The company is concerned about a potential increase in corporate tax rates. Advise the directors by how much that the tax rate would have to change before the project is not financially viable. A discount rate of 17% per year may be assumed for part (c). (5 Marks)
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Ade John is a graduate of XYZ University. For his final project work in the Department of
Electronics and Electrical Engineering, he designed a cell-phone that is rugged, cheap,
handy and not sophisticated.
During his national service year, he kept toying with the idea of manufacturing the cellphone. To ascertain that there is a market for the phone, he carried out a series of market surveys among rural farmers, artisans, market women, etc. Each time, he was convinced that a market actually exists for his design. He also made contact with some manufacturers of cell-phone components. He entered
into an agreement with CKT Japan to import cell-phone accessories to enable him
assemble them in Nigeria. DAB phone is the first of its kind in the Nigerian market and
production and assembly commenced in a small room in his uncle‟s house at Ikare.
The first batch of phones manufactured by DAB Company was supplied to cell-phone
vendors in cities on „sale or return‟ basis. To encourage distributors to accept the
phones, a 15% margin was allowed. In addition, independent sales persons (hawkers)
were given between 10 -12% margin to sell the product. In spite of the low price of DAB
phones, demand was disappointing at the end of the first year. Nevertheless, Ade John is
still optimistic about the commercial viability of the phone if only he could develop an
effective strategy to market the DAB phones
Required:
a. Identify and explain TWO reasons for the slow growth of sales of DAB phones. (4 Marks)
b. With the aid of an S-shaped growth curve, evaluate market development of DAB phones. (6 Marks)
c. Recommend the strategies that Ade John can use to improve sales. (5 Marks)
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Ansoff argued that when a firm is planning its growth strategies, there should be a link between its current products and markets and its future products and markets. The management of Agaba Limited, an Aba-based company, has anchored its strategies for product-market development on Ansoff’s growth vector matrix.
Required:
Distinguish between market development strategy and product development strategy adopted by Agaba Limited. (6 Marks)
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Find Related Questions by Tags, levels, etc.
Most products go through five stages in their life namely, Development, Introduction, Growth, Maturity, and Decline. These stages have helped in the design of marketing strategies, and it is now believed that it can be equally useful for accountants in the determination of the cost of products.
Required:
Identify FIVE benefits of product life cycle costing. (5 marks)
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Organisations that intend to remain focused on the achievement of their objectives develop and apply different business models to guide them in their operations. One of such models is the Ansoff Growth Matrix.
Required:
Explain the Ansoff Growth matrix with emphasis on its components. (10 marks)
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b) Knowing where your products or services are in their development cycle will help you determine refinements or adjustments you may need to make to align them with the vision and strategy you have already developed.
Required:
Outline the FIVE stages that are often followed in the development of a product and service. (5 marks)
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
Femi Appliances Limited (FAL) is a Nigerian-based manufacturer of household appliances with many distribution centers across various locations in Nigeria and along the ECOWAS sub-region. FAL is now considering the development of a new motor vehicle vacuum cleaner – VC4.
The product can be introduced quickly and has an expected life of four years, after which it may be replaced with a more efficient model. Costs associated with the product are estimated as follows:
If the new product is introduced, it will be manufactured in an existing factory, having no effect on rates payable. The factory could be rented out for ₦12,000,000 per year to another company if the product is not introduced.
New machinery costing ₦86,000,000 will be required, depreciated on a straight-line basis over four years with a salvage value of ₦2,000,000. The machinery will be financed by a four-year fixed-rate bank loan at 12% interest per year. Additional working capital requirements may be ignored.
The new product will require two additional managers at an annual gross cost of ₦2,500,000 each, while one current manager (₦2,000,000) will be transferred and replaced by a deputy manager at ₦1,700,000 per year. Material Z totaling 70,000 kilos is already in inventory, valued at ₦9,900,000.
FAL will utilize the existing advertising campaigns for distribution centers to also market the new product, saving approximately ₦5,000,000 per year in advertising expenses.
The unit price of the product in the first year will be ₦11,000, with projected demand as follows:
An inflation rate of 5% per year is anticipated, with prices rising accordingly. Wage costs are expected to increase by 7% per year, and other costs (including rent) by 5% annually. No price or cost increases are expected in the first year of production.
Income tax is set at 35%, payable in the year the profit occurs. Assume all sales and costs are on a cash basis and occur at the end of the year, except for the initial purchase of machinery, which would take place immediately. No inventory will be held at the end of any year.
a. Calculate the expected internal rate of return (IRR) associated with the manufacture of VC4. Show all workings to the nearest ₦million. (19 Marks)
b. i. Explain what is meant by an asset beta and how it differs from an equity beta. (2 Marks)
ii. Given the company’s equity beta is 1.2, the market return is 15%, and the risk-free rate is 8%, discuss whether introducing the product is advisable. (4 Marks)
c. The company is concerned about a potential increase in corporate tax rates. Advise the directors by how much that the tax rate would have to change before the project is not financially viable. A discount rate of 17% per year may be assumed for part (c). (5 Marks)
Find Related Questions by Tags, levels, etc.
Ade John is a graduate of XYZ University. For his final project work in the Department of
Electronics and Electrical Engineering, he designed a cell-phone that is rugged, cheap,
handy and not sophisticated.
During his national service year, he kept toying with the idea of manufacturing the cellphone. To ascertain that there is a market for the phone, he carried out a series of market surveys among rural farmers, artisans, market women, etc. Each time, he was convinced that a market actually exists for his design. He also made contact with some manufacturers of cell-phone components. He entered
into an agreement with CKT Japan to import cell-phone accessories to enable him
assemble them in Nigeria. DAB phone is the first of its kind in the Nigerian market and
production and assembly commenced in a small room in his uncle‟s house at Ikare.
The first batch of phones manufactured by DAB Company was supplied to cell-phone
vendors in cities on „sale or return‟ basis. To encourage distributors to accept the
phones, a 15% margin was allowed. In addition, independent sales persons (hawkers)
were given between 10 -12% margin to sell the product. In spite of the low price of DAB
phones, demand was disappointing at the end of the first year. Nevertheless, Ade John is
still optimistic about the commercial viability of the phone if only he could develop an
effective strategy to market the DAB phones
Required:
a. Identify and explain TWO reasons for the slow growth of sales of DAB phones. (4 Marks)
b. With the aid of an S-shaped growth curve, evaluate market development of DAB phones. (6 Marks)
c. Recommend the strategies that Ade John can use to improve sales. (5 Marks)
Find Related Questions by Tags, levels, etc.
Ansoff argued that when a firm is planning its growth strategies, there should be a link between its current products and markets and its future products and markets. The management of Agaba Limited, an Aba-based company, has anchored its strategies for product-market development on Ansoff’s growth vector matrix.
Required:
Distinguish between market development strategy and product development strategy adopted by Agaba Limited. (6 Marks)
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
Most products go through five stages in their life namely, Development, Introduction, Growth, Maturity, and Decline. These stages have helped in the design of marketing strategies, and it is now believed that it can be equally useful for accountants in the determination of the cost of products.
Required:
Identify FIVE benefits of product life cycle costing. (5 marks)
Find Related Questions by Tags, levels, etc.
Organisations that intend to remain focused on the achievement of their objectives develop and apply different business models to guide them in their operations. One of such models is the Ansoff Growth Matrix.
Required:
Explain the Ansoff Growth matrix with emphasis on its components. (10 marks)
Find Related Questions by Tags, levels, etc.
b) Knowing where your products or services are in their development cycle will help you determine refinements or adjustments you may need to make to align them with the vision and strategy you have already developed.
Required:
Outline the FIVE stages that are often followed in the development of a product and service. (5 marks)
Find Related Questions by Tags, levels, etc.
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