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64 Cards in this Set
- Front
- Back
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Where is it most expensive to build a plant?
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Europe
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Why is it not profitable to build in Europe?
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Labor laws
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In what department are a bulk of the investments made?
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R&D
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Can everything be developed in-house?
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No, for some things you have to use subcontractors.
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How long does it take to build a plant?
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Two rounds
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If you subcontract, do you get the benefits of the learning curve?
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No, the curve benefits are foregone
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Does this company have finished goods inventory?
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No
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In which regions is marketing important?
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US, and Europe
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What is the typical marketing spend in the industry?
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3-5% of revenue
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What is the first step of the R&D process?
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Develop basic technology, then you can add features.
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When is outsourced R&D available?
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Immediately
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When is in-house R&D available?
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Next round
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Typically how much sales revenue is spent on R&D?
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10%
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How is R&D accounted for?
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In the period in which it occurred. There is no capitalization.
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Can Technology 1 operate in a tech 2 infrastructure?
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No, infrastructure should be optimized for the specific technology.
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How can you see when different technologies are economically viable to be introduced?
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the "demand" page
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Which region values features the most?
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Europe
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Which region is most sensitive to price?
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Asia
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Is there logistics cost if the good is purchased and sold in the same area?
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No, only if shipped
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How is the logistics cost calculated?
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transportation cost + tariff
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If there are 3 plants in the US, and 9 plants in China, how is R&D allocated?
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3/12 to the US, and 9/12 to China
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What is the purpose of Internal Taxation?
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To even out the cost-impact of R&D expenditures
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INSERT TRANSFER PRICING QUESTION HERE.
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INSERT TRANSFER PRICING ANSWER HERE.
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How can you reward your shareholders?
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Dividends and share buybacks
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What market value is used when issuing shares and buybacks?
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Beginning FMV
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What has a higher premium, long or short term debt?
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Short-term
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Can you transfer funds between countries?
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Yes, through Internal Treasury Management.
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Which is the largest market?
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US
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Which market is generally a few years behind the others?
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US
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Which market has the highest growth potential?
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Asia
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Which region is the least receptive of new technologies?
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Asia
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Are market "developments" accurate?
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Generally no, they depend on competition actions in the market. This means growth may not be as accurate as predicted.
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Are quantitative predictions accurate?
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Generally
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What are the three steps for determining demand?
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1) Total market size for each market is calculated
2) Total demand is divided into different technologies 3) Market shares for each company are determined |
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What factors affect market shares?
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- Number of offered handset features
- Number of companies offering each technology - Average selling price - Promotion - Previous round market share |
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What is the maximum number of products in an area?
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Two
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Division of demand between technologies is affected by...
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- Price level
- Number of companies offering products in that technology - Marketing efforts |
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What are factors that affect total market size?
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- Economic conditions
- Average Price Level - Average Promotion Budget - Technical evolution |
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What are factors that affect technology's share of the market?
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- Tech Price level
- Tech Promotion - # of companies offering each technology - Network coverage - Technology attractiveness |
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What are factors that affect the market share of one company?
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- Price
- Promotion - # of offered handset features - Previous round market share - # of companies offering technology |
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What estimating demand percentages are you estimating the percentage for the specific technology?
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No, you're estimating the demand percentage of the total market.
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What are your two production areas?
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Asia, US
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Will production be increased if you underestimate demand?
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No, you'll just have lost sales.
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Is there a limit to how much you can choose to contract manufacture during each round?
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Yes
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Opportunity cost for lost sales is equal to:
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The lost sales margin for each product that you do not sell
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What are the factors affecting production costs?
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- Basic cost level in production area
- Production cost function (U-shaped Curve) - Learning curve effect - Penalty for having too high production target |
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What is the percentage penalty for overestimating demand?
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5% roughly
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What is the economical life of the plant?
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7 years
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What is the depreciation rate?
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15%
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When do you have to pay for the facilities?
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In one period (middle of investment cycle)
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What is the calculation to decide if you can afford your plant?
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Plant capacity x utilization rate x unit price x op. profit before depreciation = available funds
Then --> Plant cost x depreciation = depr cost Subtract the two, and you have available funds for investors and financing. |
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Are all pricing decisions made in USD?
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No, they're made in area currency.
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Are all promotion decisions made in USD?
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Yes, they are.
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What is the max number of features per product?
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10
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When should you over-spend on promotion?
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In the beginning
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What is a "useful rule of thumb" for allocating promotion amount?
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Sales margin x advertising elasticity
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What is the best way to prioritize markets?
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By unit margins, whichever margins are highest get highest priority.
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Should you follow a competitor when making R&D decisions?
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No
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What's the most important thing to remember when investing in R&D?
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How many units must you sell in order to recover money you spent?
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What can you decide in the finance tab?
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- Increase/decrease long-term loans
- share issues and buybacks - dividend payments - treasury management |
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What is the minimum cash requirement at the end of the year?
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2M USD
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What is the optimum equity ratio?
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40-60%
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If your cost of capital is high, how does that affect NPV?
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It lowers NPV and can lower the market value of your company
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What do administration costs include?
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Overhead costs that are not allocated to products
- basic costs per market area - extra cost that depends on # of plants |
