. What are Du Pont’s competitive advantages in the TiO2 market as of 1972? How permanent or defensible are they? What must Du Pot do to retain its competitive advantages in the future?
As the paper suggests, Du Pont has been a dominant company in the TiO2 market as it is the only company which possesses the operation technology of ilmenite chloride which eventually led to lowering its cost below its competitors. Given the fact that chloride technology is cheaper than other technologies and Du Pont is the only company that manages the facility, these two factors give Du Pont major advantages over other companies. But it won’t be long before it loses the privilege of these advantages unless Du Pont thinks of new strategy to maintain them. In this case two strategies have been introduced and considered by Du Pont, growth strategy which calls for an aggressive expansion to control the market and limit competitors’ ability to expand. The other one is called maintain strategy which aims for 45% of market share by gradually increasing investment. Each of these strategies carries different kinds of risks which Du Pont should take into consideration.
2. Given the forecasts provided in the case, estimate the expected incremental free cash flows associated with Du Pont’s growth strategy and maintain strategy for the TiO2 market. How much risk and uncertainty surround these future cash flows? Which strategy looks most attractive (i.e., using the DCF (e.g., NPV) method)??
The estimated free cash flows for the two strategies are $391 million for the growth strategy and $365 million for the maintain strategy. (Please refer to the excel sheet for breakdown of calculation).
I believe that both strategies carry the same uncertainty of demand, p...
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...and many other factors.
4. Which strategy should Du Pont pursue?
Du Pont is organized into ten industrial departments. The department responsible for TiO2, the pigments department, is the second smallest of the ten departments. The revenue for this department in 1971 is $180 million which represent only 4.68% of Du Pont’s revenue. Although there is a considerable risk associated with the growth strategy, the committee is willing to grow this department because it is one of the smallest departments for du Pont, and the company performing so well financially as a whole. This leads us to the conclusion that the growth strategy should be pursued. Du Pont can afford to take a risk on this strategy given the small impact this department has on their associated financials, not to mention that the returns with the growth strategy are superior to the maintain strategy.
In order to do this the WACC approach will be used based on the assumption that leverage will stay constant after 2012. Industry average of debt/value is 28.1 percent and debt/equity 71.9 percent. These figures will be used as an estimate for long-term leverage because it is expected that AirThread will maintain a leverage ratio that is constant with the industry. From this the relevered equity beta is found to be 0.9847 which will give an equity rate of return of 9.42 percent. The rate of return on debt will be 5.5 percent. This is the percentage of debt because it is the interest rate of the 10 year U.S. Treasury bond. The WACC is now found to be 7.80 percent. Next, the long-term growth rate of 2.9 percent will be assumed to stay constant. In order to determine the FCF 2013 FCF 2012 of $315.60 will be multiplied by the growth rate. This will give a FCF 2013 of $323.48. The FCF 2013 will then be divided by the WACC minus growth rate. By doing this the PV of terminal value is found to be approximately $4.6 billion. To see the calculations for this step refer to Exhibit 3 in the
After calculating WACC my second analysis would be of the packaging machine investment. I will use incremental analysis and calculate NPV of the incremental cash flows of both strategies (to wait or to invest now). After calculating NPV’s of both scenarios I will calculate the difference between the two.
The strategy for competing in the market was a broad-differentiation strategy. It was broad because it produced a large variety of products such as clamps, inserts, knobs, and similar items. Also, it differentiates from the other metal companies because of its good quality, good delivery, and reasonable price.
Star Appliance is looking to expand their product line and is considering three different projects: dishwashers, garbage disposals, and trash compactors. We want to determine which project would be worth doing by determining if they will add value to Star. Thus, the project(s) that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value, or by solving for the internal rate of return, we should be able to see which projects Star should undertake.
Earlier 2002, the stock price of Agnico-Eagle Mines sharply decreased by $1 finally closed at $13.89. This price has reached one of the lowest level, from the company's historical perspective. As a professional equity portfolio manager, who has a large number of AEM stocks on hand. Acker and his team are necessary to find a proper way to estimated the fair value of AEM as well as its equity. Discounted Cash Flow (DCF) has been chosen to do this job. The theory behind DCF valuation approach is that the firm's value can be estimated by using the expected future free cash flow discounted by an appropriate discounted rate (Koller etc 2005). However several assumptions need to be clearly examined within this approach. The following sections are showing the process of DCF step by step.
We defined several criteria to determine our choice – return, risks and other quantitative and qualitative factors. Targeting a debt ratio of 40% will maximize the firm’s value. A higher earning’s per share and dividends per share will lead to a higher stock price in the future. Due to leveraging, return on equity is higher because debt is the major source of financing capital expenditures. To maintain the 40% debt ratio, no equity issues will be declared until 1985. DuPont will be financing the needed funds by debt. For 1986 onwards, minimum equity funds will be issued. It will be timed to take advantage of favorable market condition. The rest of the financing required will be acquired by issuing debt.
Porcini’s Inc. is considering expanding to other regions. However, the expansion may ruin the quality of the products and services offered to its customers. Therefore, the big question is that, should the firm expand and risk losing its brand and quality of service in the market or should it remain at the current level of production and maintain the level quality of its products and services? This question seems to be easy to be answered but is technical, complex and it will affect the profitability of the firm.
DESCRIBE THE STRATEGIC CONTEXT IN WHICH QUINTANA SHOULD JUDGE MUSIMUNDO’S PERFORMANCE. WHAT ARE THE CHARACTERISTICS OF THE ENVIRONMENT THAT MUSIMUNDO COMPETES IN? WHAT ARE PEGASUS’ STRATEGIC OBJECTIVES FOR MUSIMUNDO? HOW DO THESE FACTORS AFFECT THE BUDGETING PROCESS?
The benefits of these assumptions are that while maintaining the current growth rate of 13%; we can maintain our COGS. One of the major factors contributing to the firm’s poor profit margin is operating expenses.
Through Dupont analysis, we have been able to see the specific strengths and weaknesses of BMW and Audi’s management. BMW’s lower profit margin and asset turnover indicate less efficient cost management and asset management. Their debt multiplier indicates that they’re taking advantage of debt, but the benefit of this isn’t realized because of their problems with cost and asset management. Due to Audi’s more efficient use of their assets, and better cost efficiency, it can be said that their management has performed better than BMW’s over the past year.
This report deals with the case study on Umicore N.V which is a material technology multinational. The case study talks about the impact of Income Taxes in managerial decision making and financial statement presentation. The case study starts with the company’s profile and tells about what the company is and how it is performing currently. While reading deeper you will learn about the tax depreciation method used by the company, capital gain/loss taxations, cost recovery, deferred tax and Income Tax expense. At the end we have given the conclusion in the perspective of Managers and provided some suggestions to the company.
Russel Y., Topper S., Akerman L., Oliveira J., Strydom Z.; 2013; Studying Business NSC Business Studies Grade 12; 2013 Edition; Paardekraal; Excom Publishers; 26/05/2014
In Capital Budgeting Simulation, Net Present Value (NPV), Internal Rate of Return (IRR), and Profitability Index (PI) can be analyzed two mutually exclusive capital investment proposals. Silicon Arts Inc. (SAI) is a four-year-old company, manufactures digital imaging integrated Circuits (ICs) that need to analyze two capital investment proposals to pursue its growth plans. "SAI’s Chairman is planning to increase market share and keep pace with technology, which can be done by either expanding the existing Digital Imaging market share or entering the Wireless Communication market," (Simulation, UOP). An analysis reveals that an expansion into the Wireless communication can be beneficial than Dig-Image. However, a number of risks, internal and external are inherent in joining this industry. This paper will analyze investment risk decisions and mitigation of risks by using a number of strategies.
Finally, I have suggested some recommendations for the issues that I have mentioned above. In reference to the first issue, it will be profitable for the company to change to level monthly production.
primary strategies of each competitor (e.g. low cost leader, focused differentiation, prospector, reactor, etc.), Porter's 5-forces assessment):