DEVELOPING AND SELLING AN INNOVATIVE IDEA Answer exercises 1 through 5. [15 mark
ID: 356763 • Letter: D
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DEVELOPING AND SELLING AN INNOVATIVE IDEA
Answer exercises 1 through 5. [15 marks (3+3+3+2+4)] Note: Answer Exercise 2 by Either Spreadsheet OR Hand Calculations (using appropriate formulae)
Note: “With a hefty bank loan and $200,000 of their own capital…”. Assume that the investment amount is $200,000
For exercise 3, illustrate with 1% increment (from -99% to +100%) on Excel the PW values for 12-year long cash flow. State how many positive RORs were found in this range.
CASE STUDY1 DEVELOPING AND SELLING AN INNOVATIVE IDEA The system serves as a supplement to the electricity provided by the local power company. Aftes some 6 months of testing it was agreed that the system was ready to market and reliably stale that an electricity bill in high rises could be reduced by approximately 40% per month This was great news for low. llers on government subsidy that are required to Three engineers who worked for Mitchell Engineering, a company specalizing in public housing development, to lunch together several times a week. Over time they de- ided to work on solar energy prodaction ideas. After a lot of weekend time over several years, they had designed and de veloped a prototype of a low cost, scalable solar energy plan for use in multfamily dwellings on the Jow end and medium sized manufacturing facilities on the upper end For residen tial applications, the collector could be mounted along side a With a hefty bank loan and $200,000 of their own capital TV dish and be programmed to track the san. The generator they were able to install demonstration sites in three cities in and additional equipment are installed in a closet sized area the sunbelt Net cash flow after all expenses, loan repayment in an apartment or on a floor for mukiple apartment supply. and taxes for the first 4 years was acceptable: $55,000 at the wend ay thlr own utility hills. end of the first year, increasing by 5% each year thereafter. A tbusiness acqpaintance introduced them to a pooenttal buyer of the patent rights and current sutecriber hase mated $500,0 ership. However, adter sertous discussion r excitement of the sales offer, the trio deckded to not sel at this time. They wanted to stay in the business for a while longer to develop some enhancement ideas and to see how much reverue may increase over the next few years. Case Study Exercises Ir is now 12 years after the products wore develoged, and the engtneers invested most of their savings in an innovatlve 000 net cashout after only these 4 years o oW idea. However, the questson of When do we selil? is always preseet in these stustions. To help with the analysis, deter- mine the following I· The rate of Ntum at the end of year 4 for two situations: (a) The business is sold for the net cash amount of During the next year, the fifth year of the partnership, the enghneer who had recelved the patents upon which the collec2. The rate of reture at the end of year 8 for two sltuations tor and generator designs were based became very displeased with the parinering anangements and left the trio lo go tnto partnershlp with an Intematiceal fim in the energy besiness.. The rale of retum now at the end of year 12 With new research and development fiunds and the patent .Consider the cash flow sertes over the 12 years. Is there rights, a competing design was soon on the market and toolk much of the business away from the original two developers. Net cash flow drapped to $40,000 in year 5 and consinued to decrease by $5000 per year. Another offer to sell in year f8 was presented, bet it was only for $100,000 net cash. This . Assume you are an tnvestor with a large amount of was considered too much of ? kess, so the mwo owners did not accept. Instead, they dectided to put $200,000 more of thelr own savings into the company to develop adfitional applika- tions in the housing market $500,000 and (b no sale. (a) The business is sald for the net cash amount of $100,000 and (t no sale. any Indication that maltiple rates of return may be pres- search for ROR values in the range ± 10096 other than the one deterained in exercise 3 above ready cash. looking for an innovative solar energy prod- uct. What amount would you be wiling to offer for the business at this polnt (ond of year 12) If you require a 12% per year retim on all your investments ard, if pur- It is now 12years since the system was publicly lanched. With tncreased advertising and development, net cash flo has been positive the last 4 years, starting at $5000 in year 9 and lncreasing by $5000 each year unil now chased, you plan to own the business for 12 additional years? To help make the decision, assume the current NCF serles coentinues Increasing at $5000 per year forExplanation / Answer
Marketing strategies are often confused with marketing plans. Because they do feed off one another, it is not unusual to find the marketing strategy and the marketing plan baked together into a single document. Although the transition between the two is blurry, a marketing strategy covers the big picture of what the business offers - the value proposition and related brand messaging. The marketing plan is how the business will get across those key message - the platforms, the creative, the timing, and so on. The marketing strategy may also be absorbed upwards into the corporate value statements and other strategy documents.
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