المحاسب الإداري المعتمد الجزء 2 F. Professional Ethics
Wendcroft: Pricing, Valuing and Financing a Growth Product
Wendcroft Hydrometrics Inc.
Wendcroft Hydrometrics Inc. is a listed manufacturer with a single product line: FlowLedger, a water meter for farms that sends certified water-use readings directly to regional water authorities. Wendcroft launched FlowLedger three years ago. Since then, several water authorities have made certified metering a condition of irrigation licenses. The same metering regulations bind meter makers directly: each meter model must be certified by the water authorities before it may be sold, and a certified meter must read within 2% of actual water use. Sales are now climbing, and management regards FlowLedger as having entered the growth stage of its product life cycle. More water authorities plan to make certified metering a license condition over the next two years, so management expects unit sales to grow much faster than they did between Year 1 and Year 2. Wendcroft's only assembly line is close to full capacity.
Pricing. Wendcroft sells FlowLedger at $185 per meter. Its market research estimates that, for prices between $170 and $200, the price elasticity of demand for FlowLedger is about −0.4: farmers in regulated districts need a certified meter to keep their licenses, and few certified alternatives exist. Management is considering a price increase within that range.
Share value. Wendcroft's shares trade at $27.40. Management values them with the constant-growth dividend discount model, using these inputs:
- Most recent annual dividend per share, paid last week (D0): $1.20
- Expected constant annual growth rate of dividends: 6.5%
- Shareholders' required rate of return: 10.5%
Expansion and borrowing. To add a second assembly line, Wendcroft plans to take out a $9.0 million term loan at a fixed interest rate of 8% a year, secured on the new line. A non-executive director supports the loan in a note to the board. In her view, Wendcroft's cost and financing structure will let shareholders gain strongly from further sales growth.
Responsibility statement. Wendcroft's largest institutional shareholder has asked it to publish a responsibility statement in its next annual report, and management has drafted a list of actions to include.
Results for the last two fiscal years:
| Year 1 | Year 2 | |
|---|---|---|
| Meters sold | 164,000 | 176,300 |
| Sales revenue ($185 per meter) | $30,340,000 | $32,615,500 |
| Variable costs ($111 per meter) | 18,204,000 | 19,569,300 |
| Contribution margin | 12,136,000 | 13,046,200 |
| Fixed operating costs | 8,450,000 | 8,450,000 |
| Operating income (EBIT) | 3,686,000 | 4,596,200 |
| Interest expense | 1,140,000 | 1,140,000 |
| Income before tax | 2,546,000 | 3,456,200 |
| Income tax at 25% | 636,500 | 864,050 |
| Net income | $1,909,500 | $2,592,150 |
| Common shares outstanding | 1,200,000 | 1,200,000 |
الافتراضات
- The Year 1 and Year 2 figures are actual results, stated to the dollar without rounding. The selling price, variable cost per meter, fixed operating costs, interest expense and 25% tax rate were the same in both years.
- Wendcroft has no preferred stock, and its share count did not change, so EPS changed by the same percentage as net income.
- Leverage measures take Year 1 as the base year. Round only at the final step.
- The dividend discount model inputs are management's estimates. D0 is the dividend already paid, so the next dividend is D1 = D0 × (1 + g).
- The elasticity estimate applies only to prices between $170 and $200 and measures the effect of price alone, with competitors' prices, farm incomes and regulation held constant.
FlowLedger has entered the growth stage of its product life cycle. Select the TWO conditions Wendcroft should plan for during this stage.
اختيار إجابتين. المحدد 0 / 2
Apply the constant-growth model to management's dividend inputs. What is the estimated intrinsic value of one Wendcroft share today? Enter US dollars per share to two decimal places.
بـ 2 منازل عشرية.
Using Year 1 as the base year, calculate Wendcroft's degree of operating leverage as the percentage change in operating income (EBIT) divided by the percentage change in sales revenue from Year 1 to Year 2. Do not round the percentage changes; enter the result to two decimal places.
بـ 2 منازل عشرية.
Using Year 1 as the base year, calculate Wendcroft's degree of financial leverage as the percentage change in earnings per share divided by the percentage change in EBIT from Year 1 to Year 2. As the case assumptions allow, use the percentage change in net income as the percentage change in EPS. Do not round the percentage changes; enter the result to two decimal places.
بـ 2 منازل عشرية.
The director's note to the board makes the three claims below. Classify the effect each claim describes. A category may be used more than once.
Wendcroft's fixed operating costs of $8,450,000 a year do not vary with output, so a given percentage change in meters sold produces a larger percentage change in operating income.
Interest on the term loan is a fixed charge that must be paid whatever the level of profit, so a given percentage change in operating income produces a larger percentage change in EPS, whether up or down.
The new assembly line will be pledged to the bank as security, which the bank could take and sell if Wendcroft defaulted.
Match each action in management's draft responsibility statement to the level of social responsibility it mainly fulfills. A category may be used more than once.
Tell farmers that a calibration drift makes some meters over-read water use by about 1.5%, inside the 2% the regulations allow, and replace those meters free of charge, although no law or contract requires it.
Price FlowLedger to cover its costs and earn a return that funds the second assembly line and the dividend.
Hold back the launch of an upgraded FlowLedger model for four months, until the water authorities have certified it, because the metering regulations forbid selling an uncertified model.
Donate meters and training to a charity that helps smallholder farmers conserve water.
تظهر الدرجات والإجابات الصحيحة والشروح فور تسليم الإجابات. ولا يحصل السؤال غير المُجاب على أي درجة.
جارٍ الفحص…حالات تدريبية أصلية من إعداد صرح. ليست أسئلة من امتحانات IMA، ويخضع تصحيحها لسياسة صرح الخاصة، وهي تختلف عن سياسة الامتحان الرسمي.