Discuss other factors that newton electronics ltd consider

Assignment Help Finance Basics
Reference no: EM131437428

Question: Newton Electronics Ltd has incurred expenditure of £5 million over the past three years researching and developing a miniature hearing aid. The hearing aid is now fully developed, and the directors are considering which of three mutually exclusive options should be taken to exploit the potential of the new product. The options are as follows:

1. The business could manufacture the hearing aid itself. This would be a new departure, since the business has so far concentrated on research and development projects. However, the business has manufacturing space available that it currently rents to another business for £100,000 a year. The business would have to purchase plant and equipment costing £9 million and invest £3 million in working capital immediately for production to begin. A market research report, for which the business paid £50,000, indicates that the new product has an expected life of five years. Sales of the product during this period are predicted as follows:

                                              Predicted sales for the year ended 30 November

                                                    Year 1      Year 2     Year 3     Year 4     Year 5

     Number of units                       800         1,400      1,800       1,200        500

The selling price per unit will be £30 in the first year but will fall to £22 in the following three years. In the final year of the product's life, the selling price will fall to £20. Variable production costs are predicted to be £14 a unit, and fixed production costs (including depreciation) will be £2.4 million a year. Marketing costs will be £2 million a year. The business intends to depreciate the plant and equipment using the straight-line method and based on an estimated residual value at the end of the five years of £1 million. The business has a cost of capital of 10 per cent a year.

2. Newton Electronics Ltd could agree to another business manufacturing and marketing the product under licence. A multinational business, Faraday Electricals plc, has offered to undertake the manufacture and marketing of the product, and in return will make a royalty payment to Newton Electronics Ltd of £5 per unit. It has been estimated that the annual number of sales of the hearing aid will be 10 per cent higher if the multinational business, rather than if Newton Electronics Ltd, manufactures and markets the product.

3. Newton Electronics Ltd could sell the patent rights to Faraday Electricals plc for £24 million, payable in two equal instalments. The first instalment would be payable immediately and the second at the end of two years. This option would give Faraday Electricals the exclusive right to manufacture and market the new product.
Ignore taxation.

Required:

(a) Calculate the net present value (as at 1 January Year 1) of each of the options available to Newton Electronics Ltd.

(b) Identify and discuss any other factors that Newton Electronics Ltd should consider before arriving at a decision.

(c) State what you consider to be the most suitable option, and why

Reference no: EM131437428

Questions Cloud

When initially laid off union bargained for employees : When initially laid off union bargained for employees and one of the benefits was a commitment by the company that in the event positions opened up the would be "offered future employment opporunities." 11 years later the company needed employees, in..
Interviewing and utilizing external resources : For this assignment, you will submit a one-page document describing the organization you will be analyzing as well as the nature and scope of the analysis. Feedback and suggestions will be provided on interviewing and utilizing external resources..
Offered future employment opporunities : When initially laid off union bargained for employees and one of the benefits was a commitment by the company that in the event positions opened up the would be "offered future employment opporunities." If the court rules that the union has no duty t..
How would you quantitatively determine the cost : A hospital is an acute care short-term stay and emergency medical center that also includes medical departments such as, surgical, obstetrics, infectious disease, radiology, laboratory and mental health. How would you quantitatively determine the c..
Discuss other factors that newton electronics ltd consider : Newton Electronics Ltd has incurred expenditure of £5 million over the past three years researching and developing a miniature hearing aid. The hearing aid is now fully developed, and the directors are considering which of three mutually exclusive..
Cross-cultural communications : You will engage in your cross-cultural experience. To document your experience, prepare a 5-minute video or a PowerPoint presentation with photos (at least 6 slides) describing the experience.
Determining the stakeholder analysis : In a well-written paper, determine and examine the healthcare stakeholders (both internal and external) for an acute care hospital. You should specifically address how the stakeholder benefits from the organization and the organization's responsib..
Consider the ethical and legal issues inherent in forensic : In the Discussion this week, you again reviewed the Specialty Guidelines for Forensic Psychologists published by the American Psychology-Law Society (AP-LS)-the most specific set of guidelines applicable to forensic psychology professionals.
Missing from the nist publications : What areas, if any, are missing from the NIST publications? Identify the strengths and weaknesses of the NIST programs compared to the ISO standard.

Reviews

Write a Review

 

Finance Basics Questions & Answers

  What amount of gain or loss does edie recognize if the

Shauna and Danielle decided to liquidate their jointly owned corporation, Woodward Fashions, Inc. (WFI).  After liquidating its remaining inventory and paying off its remaining liabilities, WFI had the following tax accounting balance sheet.

  Determination of gains or losses

Currency futures contracts are traded on organized exchanges. Assume you sell a contract on Australian US dollars in the amount of A$100,000 on Chicago Mercantile Exchange at $0.7900/A$.

  What is marko willing to pay today to buy abc co

After that time, they feel the business will be worthless. Marko has determined that a rate of return of 13 percent is applicable to this potential purchase. What is Marko willing to pay today to buy ABC Co.?

  Why is the reporting of control procedures required

Why is the reporting of control procedures required, and what information is disclosed about Starbucks' control procedures? Justify your response

  What is the coupon rate

What is The coupon rate and it is true that the asset of an operating lease will show up on the balance sheet

  Byron inc has total current assets of 800000 long-termdebt

byron inc. has total current assets of 800000 long-termdebt of 200000 total current liabilities of 450000 andlong-term

  Explain how the sports exports company could utilize

Explain how the Sports Exports Company could utilize the spot market to facilitate the exchange of currencies. Be specific. Explain how the Sports Exports Company is exposed to exchange rate risk and how it could use the forward market to hedge this ..

  Compute the net investment required for project

LISP Corporation is considering to buy a new dubber for $50,000. The new equipment will replace an older mixer that has been fully depreciated but has a salvage value of $5,000.

  Discuss the assumptions of the capm

Discuss the assumptions of the CAPM. Explain the usefulness of the CAPM and some reasons that it has been criticized over the years.

  Nagano np-30

Nagano NP-30.

  Promote their products to local consumers

Local retailers and producers often use weekly mailed circulars to promote their products to local consumers. The circulars feature a variety of products and make consumers aware of pricing advantages of the products available at local establishme..

  Did the fomc change the interest rate paid on bank reserves

On balance, does the FOMC appear to be more concerned about slow economic growth or high inflation?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd