Market Entry

Assignment Details

Answer all the questions as mentioned in the paper outline and submit as per submission date provided in the paper outline.

Question 1

Aguilera Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows:

Year Unit Sales
1 81,000
2 94,000
3 108,000
4 103,000
5 84,000

Production of the implants will require $1,600,000 in net working capital to start and additional networking capital investments each year equal to 15 percent of the projected sales increase for the following year. Total fixed costs are $1,500,000 per year, variable production costs are $265 per unit, and the units are priced at $380 each. The equipment needed to begin production has an installed cost of $21,000,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. AAI is in the 35 percent marginal tax bracket and has a required return on all its projects of 18 percent. Based on these preliminary project estimates, what is the NPV of the project? What is the internal rate of Return? (7 marks)

Question 2

Who owns a corporation? Describe the process whereby the owners control the firm’s management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problems can arise? (1.5 marks)

Question 3

Porsche was one of the last manufacturers to enter the sports utility vehicle market. Why would one company decide to proceed with a product when other companies, at least initially, decide not to enter the market? (1.5 marks)

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