Core activity area A - Evaluate opportunities to add value Contents

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Core activity area A - Evaluate opportunities to add value

Core activity area A - Evaluate opportunities to add value

Contents:

Session 1: Selecting Capital Investment Appraisal Techniques: (A holistic approach)
Session 2: Using Digital Data Sources for Capital Investment Decisions:
Session 3: Pricing Strategies
Session 4: Business Models
Session 5: WACC

The following ‘I CAN’ questions are set by CIMA:

I can select appropriate capital investment appraisal techniques and apply them in order to support capital investment decisions, including product/ service development, digital transformation projects and acquisitions
I can identify and use relevant digital data sources to assist in capital investment decisions
I can explain which pricing strategies are appropriate
I can select and implement suitable business models that will create value for stakeholders, including business models in the context of digital ecosystems
I can analyse the impact of disruptive and digital operating business models in the context of digital ecosystems
I can explain the relevance of weighted average cost of capital

Session 1: Selecting Capital Investment Appraisal Techniques (A holistic approach)

Syllabus – CIMA P2

1.1 Framework for capital investment appraisal:

1. Understand the Objective

Define the purpose of the investment (e.g., product development, digital transformation, acquisition).
Ensure alignment with company's strategic goals.

2. Review Decision-making Process

Identify the steps involved in making the investment decision.
Recognize pertinent issues affecting the decision (e.g., risk factors, stakeholder interests).

3. Choose Appropriate Appraisal Techniques

Based on the nature and size of the project:

NPV (Net Present Value): Discount future cash flows to determine present value.
IRR (Internal Rate of Return): Identify the discount rate that gives an NPV of zero.
Payback Period: Calculate the time taken for the investment to be repaid by its cash inflows.
MIRR (Modified Internal Rate of Return): Adjust IRR for project-specific factors.
ROCE (Return on Capital Employed) or ARR (Accounting Rate of Return): Evaluate profitability in relation to the capital used.

4. Evaluate Cash Flows

Identify relevant cash flows.
Exclude sunk costs, non-cash, and notional items.
Consider incremental cash flows and opportunity costs.

5. Handle Capital Rationing Scenarios

If limited funds are available, prioritize projects based on their return on investment.
Ensure selected projects align with strategic objectives.

6. Consider Real Options in Appraisal

Account for flexibility options, like delaying, expanding, or abandoning a project.

7. Asset Replacement

When considering the replacement of an asset:

Evaluate the costs and benefits of the existing versus the new asset.

Apply the Equivalent Annual Cost (EAC) method to compare the two assets on an annualized basis.

8. Post completion audit

A systematic review of a project after its completion to determine if it met its initial objectives and to gather insights for future projects.
How to Do It:

Review the project's initial objectives and outcomes: Compare the project's actual outcomes with the initial expectations to identify any variances.

Analyze the processes and methodologies used: Examine the project's procedures, techniques, and decision-making methods to determine their effectiveness.

Gather feedback from stakeholders: Engage with team members, clients, and other relevant stakeholders to gain insights into the project's successes and areas for improvement.

Pros:

Continuous Improvement: Helps in refining the organization's project management practices, leading to better outcomes in future projects.

Cons:

Time-Consuming: Requires additional time and resources, which can be seen as a burden, especially for smaller projects or organizations with tight schedules.

1.2 Digital Transformation Projects

Digital transformation involves integrating digital technologies into all areas of a business, resulting in fundamental changes to how businesses operate and deliver value to their customers.

Consider the speed of technological change and the risk of obsolescence.

1.3 Acquisitions

Assess the strategic fit of the acquisition target.
Consider synergies, cultural fit, and integration challenges.

1.4 Exam Rehearsal Questions – with bullet points areas to be answered in the exam

Q1: Explain the challenges in determining NPV for a new project, particularly in quantifying future cash flows (May/Aug 2021 Trayyner variant 2 task 4)

Estimation Uncertainty: Forecasting future cash flows accurately is challenging due to unpredictable market conditions, technological changes, and external factors like economic downturns.
Discount Rate Determination: Selecting an appropriate discount rate can be subjective. A wrong choice can significantly alter the NPV.
Project Life: Determining the exact duration of a project's cash inflows can be challenging. A longer or shorter project life affects the NPV.
Capital Expenditure and Working Capital Needs: Estimating the initial outlay and additional working capital requirements can be uncertain, particularly for new ventures.
Sunk Costs: Ensuring that only relevant future costs are included and not the costs already incurred.

Q2: Prepare briefing notes for investment appraisals under a capital rationing scenario (May/Aug 2020 Alpaca variant 1 task 1)

Definition of Capital Rationing: Start by explaining that capital rationing involves selecting the best combination of projects when there's a limited budget.
Use of Profitability Index (PI): Under capital rationing, PI (which is the ratio of the present value of cash inflows to initial investment) is more useful than NPV as it provides a measure of the "bang for the buck".
Project Interdependencies: Some projects may be mutually exclusive, meaning if one is undertaken, another can't be. This adds complexity to decision-making.
Multiple Periods Rationing: If rationing is expected over multiple periods, this requires a multi-period model which adds complexity.
Non-Financial Factors: Emphasize that while financial metrics are crucial, non-financial factors such as strategic alignment, risk, and corporate social responsibility also play a role.

Q3: Discuss whether Frinta should have planned for the introduction of additional capacity as a real option in the capital investment appraisal for the acquisition and preparation of Dubblfile to provide this service (Nov 2020/Feb 2021 Frinta variant 6 task 4)

Concept of Real Options: Begin by explaining that real options provide flexibility in decision-making by allowing for future decisions based on unfolding events.
Value of Flexibility: The added capacity can act as a hedge against unexpected demand surges, ensuring Frinta capitalizes on all potential revenue streams.
Cost Implication: While introducing additional capacity may increase initial investment, it could be more cost-effective than retrofitting or expanding capacity later.
Market Volatility: If the market for Dubblfile's service is volatile, having the option to scale quickly can be a strategic advantage.
Risk Management: Real options can be viewed as a risk management tool, allowing Frinta to adapt to changing circumstances without committing fully upfront.

Session 2: Using Digital Data Sources for Capital Investment Decisions

Syllabus – CIMA P2

2.1 Sources

1. Relevant Cash Flows and Opportunity Costs:

Digital Accounting Systems: These are software platforms like QuickBooks or Xero that automate financial tasks such as invoicing, tracking expenses, and generating financial reports.
Example: Using Xero to automatically categorize and forecast cash inflows and outflows, providing a clear picture of potential opportunity costs.

2. Sources of Management Information – Internal and External:

Internal Example: Accessing the company's ERP system to gather production data, aiding decisions about machinery investments.
External Example: Consulting industry-specific online databases to understand competitors' capital investments.

3. Collecting, Analysing, and Presenting High-Quality Data:

Example: Leveraging Microsoft Excel's advanced functions to consolidate, analyze, and visually present data to guide capital expenditure decisions.

4. Business Intelligence Systems:

Definition: These systems, like Microsoft Power BI or Tableau, help in visualizing, sharing, and analyzing data from various sources to make informed business decisions.
Example: Using Tableau to integrate sales and inventory data, aiding in decisions about warehouse capital expansions.

5. Data Analytics and Data Mining:

Definition: Data analytics involves examining datasets to draw conclusions, while data mining seeks to uncover hidden patterns or relationships within large datasets.
Example: Applying machine learning algorithms on past sales data to predict future trends, guiding capital allocation towards products expected to see growth.

2.2 Exam Rehearsal Questions – with bullet points areas to be answered in the exam

Q1: Identify and evaluate the potential advantages that a business intelligence system would bring to managing performance across the group (May/Aug 2021 Trayyner variant 6 task 1)

Data Integration and Consolidation:

Discuss how BI systems allow for the integration of data from different departments or subsidiaries, providing a holistic view of the group's performance.

Real-time Performance Monitoring:

Highlight the capability of BI systems to provide real-time dashboards and metrics, enabling timely decision-making.

Predictive Analytics:

Describe how BI tools utilize historical data to forecast future performance trends, assisting in proactive management.

Enhanced Reporting Capabilities:

Explain the flexibility and customization BI systems offer in report generation, allowing tailored insights for different stakeholders.

Data-driven Decision Making:

Stress the importance of making decisions based on data rather than intuition, and how BI systems facilitate this shift towards a data-centric approach.

Q2: Recommend three sources of data to forecast demand (May/Aug 2020 Alpaca variant 3 task 2)

Historical Sales Data:

Emphasize the importance of analyzing past sales trends and patterns as a primary indicator of future demand.

Market Research and Surveys:

Discuss how targeted surveys and research can provide insights into customer preferences and potential shifts in demand.

External Economic Indicators:

Highlight the correlation between broader economic trends (e.g., GDP growth, unemployment rates) and product/service demand in certain industries.

Competitor Analysis:

Explain the value of monitoring competitor activities, product launches, and pricing strategies to anticipate market demand changes.

Digital Analytics:

Discuss the use of digital tools, like website traffic analytics or social media sentiment analysis, as indicators of interest and potential demand.

Q3: Explain the concerns about using data from a research report as a basis for investment appraisal calculations (May/Aug 2020 Alpaca variant 5 task 1)

Data Reliability:

Question the source and credibility of the research report. Is the data from a reputable and unbiased source?

Timeliness of Data:

Highlight the concern that data might be outdated, and the business landscape could have changed since the research was conducted.

Relevance to Specific Context:

Discuss the possibility that the research report's data might not be entirely applicable to the company's specific situation or industry.

Assumptions and Limitations:

Stress the need to understand the underlying assumptions made in the research report and any potential biases or limitations.

Risk of Misinterpretation:

Emphasize the danger of drawing conclusions without fully understanding the methodology or context behind the research data. Misinterpretation can lead to incorrect investment decisions.

Session 3: Pricing Strategies

Syllabus – CIMA P2

3.1 Price Elasticity of Demand

Use when gauging market's sensitivity to price alterations.
Example: Luxury goods often have elastic demand; staple goods like bread are often inelastic.

3.2 Profit-Maximisation Pricing

Use when aiming for the highest profit margin.
Example: Tech companies with unique innovations may use this to capitalize on early adopters.

3.3 Cost-Plus Pricing

Ideal for industries with stable, predictable demand.
Example: Construction contracts often use cost-plus pricing to ensure all costs are covered with a profit margin.

3.4 Marketing-Based Pricing Strategies

Premium Pricing:

Best for luxury, unique, or high-brand-reputation products.
Example: Brands like Rolex or Louis Vuitton.

Market Skimming:

Use for innovative products with initially high demand.
Example: New technology gadgets like VR headsets at launch.

Penetration Pricing:

Suitable for markets with stiff competition and aiming for rapid market capture.
Example: Streaming services offering initial low prices.

Price Differentiation:

Effective in diverse markets with varying consumer willingness to pay.
Example: Airline seats – economy vs. business class.

Loss Leader:

Use to attract customers to store or service, expecting them to make additional purchases.
Example: Supermarkets pricing milk or bread below cost.

Discount Pricing:

Useful during stock clearance or festive seasons.
Example: Black Friday sales.

Controlled Pricing:

Applied in essential services or goods, often to protect consumers.
Example: Government-regulated electricity tariffs.

Product Bundling:

Ideal for increasing sales of less popular items or clearing stock.
Example: Fast-food meals combining burgers, fries, and a drink at a reduced total price.

3.5 Pricing Over the Product Life Cycle

Introduction: Use skimming or penetration based on market research.
Growth: Stabilize or slightly reduce prices to gain more market share.
Maturity: Apply discounts or bundling to maintain interest.
Decline: Clearance or discounts to move remaining stock.
Example: Smartphones often start with skimming, reduce prices during maturity, and offer significant discounts in the decline phase.

3.6 Exam Rehearsal Questions – with bullet points areas to be answered in the exam

Q1: Discuss the factors to consider when setting the selling price and recommend with reasons the strategy to adopt (Feb 2020 Trevel variant 1 task 3)

Costs: Analyze both fixed and variable costs to ensure prices cover expenses and generate a profit.
Demand Elasticity: Understand how price changes impact demand to determine if a higher or lower price would maximize revenue.
Competitor Pricing: Survey the market to understand the price range of similar products or services.
Target Audience: Understand the demographic and psychographic profile of the target market and their willingness to pay.
Value Proposition: Evaluate the unique benefits or value your product offers and price accordingly.

Q2: Recommend a retail pricing strategy, with a justification that takes into account the product nature (Nov 2020/Feb 2021 Prybloxx variant 1 task 3)

Product Life Cycle Stage: Determine if the product is new, mature, or in decline to select a suitable strategy (e.g., skimming for new products).
Brand Image: For premium brands, a higher price can reinforce the perception of quality.
Market Saturation: In a crowded market, penetration pricing might be effective to gain a foothold.
Product Differentiation: If the product has unique features, value-based pricing could be justified.
Cost Structure: For commodities or products with thin margins, cost-plus pricing might be most appropriate.

Q3: Explain how the costing schedule and competitor pricing info would help to set an appropriate retail price for a new product (May/Aug 2020 Alpaca variant 3 task 4)

Establishing a Baseline: Costing schedules provide the minimum price point needed to break even or achieve a desired profit margin.
Market Positioning: Competitor pricing info helps position the new product as a value buy, a premium option, or somewhere in between.
Margin Analysis: Knowing the costs allows for the determination of the markup and profit margins at different potential price points.
Demand Forecasting: By comparing with competitor prices, one can estimate potential demand at various price points.
Strategic Adjustments: Continuous monitoring of both costs and competitor prices can inform timely adjustments to the retail price.

Session 4: Business Models

Syllabus: E2

4.1 Business Ecosystems and Their Participants

A business ecosystem is akin to a biological ecosystem where various entities interact in a shared environment, mutually benefiting from these interactions.
Features:

Dynamic and Evolving Relationships: Ecosystems involve a complex web of relationships that are often non-linear and can evolve rapidly. Example: App developers might shift their focus between different smartphone platforms based on user adoption rates.

Interdependence: Entities within an ecosystem are often more interdependent. The success or failure of one can ripple through and impact others. Example: If a major online marketplace (like Amazon) faces issues, sellers on that platform might see immediate impacts on their revenue.

Broad Range of Participants: Beyond traditional suppliers and distributors, ecosystems may include third-party developers, platform providers, and even competitors in some collaborative scenarios. Example: Apple's iOS ecosystem includes not just device users and app developers, but also accessory makers and service integrators.

Value Co-Creation: Multiple participants collaborate to create and deliver value, often in innovative ways. Example: Open-source software communities where multiple contributors enhance software capabilities.

Rapid Adaptation: Ecosystems often adapt quickly to technological changes or shifts in consumer behavior. Example: The rapid shift of media ecosystems from physical DVDs to streaming services.

4.2 Elements of Business Models

Define Value:

Identify Target Audience: Determine the specific customer segments the firm aims to serve.
Understand Customer Needs: Conduct market research or surveys to understand what customers truly value.
Align with Company Vision: Ensure that the perceived value aligns with the company's mission and long-term goals.

Create Value:

Resource Allocation: Efficiently allocate resources to areas that generate the most value.
Innovate and Develop: Continuously invest in R&D to create products/services that fulfill customer needs.
Optimize Operations: Streamline processes to enhance product quality and reduce wastage.

Deliver Value:

Effective Distribution: Establish reliable distribution channels to ensure products/services reach the target audience.
Engage and Educate: Use marketing and communication strategies to inform customers about the value the product/service offers.
Adapt to Feedback: Regularly gather customer feedback and make necessary adjustments to better deliver value.

4.3 Capture Residual Value

4.3.1 Introduction:

A pivotal phase in the business value creation journey.
Ensures value generated is effectively harnessed and distributed.
Recognizes and rewards all contributors to a firm's success.
Involves distributing dividends, allocating staff bonuses, and reinvesting in growth.
Essential for sustaining growth, strengthening stakeholder relationships, and fostering future innovations.

4.3.2 Cost Model:

Assess Value Proposition: Determine the unique benefits your product or service offers to customers. Example: A premium organic skincare brand promises high-quality, chemical-free products.
Determine Partnerships: Identify and establish partnerships that can aid in value creation and delivery. Example: An e-commerce company partners with a reliable courier service to ensure timely delivery of products.
Allocate Budget: Based on the value proposition and partnerships, allocate costs appropriately. Example: A tech startup might invest heavily in R&D to develop a groundbreaking app, considering its value proposition of innovation.

4.3.3 Revenue Model:

Identify Customer Segments: Clearly define the different customer groups the firm aims to serve. Example: A fitness brand might target both casual gym-goers and professional athletes with different product lines.
Set Pricing Strategy: Price products/services based on customer segments, market conditions, and any regulatory constraints. Example: A SaaS (Software as a Service) company might offer tiered subscription models catering to freelancers, SMEs, and large corporations.
Continuously Monitor & Adjust: Regularly review revenue streams and adjust based on changing market conditions or customer feedback. Example: An online course platform might offer discounts during a pandemic when more people are looking to learn online.

4.3.4 Sharing Residual Value:

Determine Shareholder Returns: Decide on dividends or stock buybacks to reward shareholders.

Example: A profitable company might distribute quarterly dividends to its shareholders.

Allocate Value to Stakeholders: Ensure employees, partners, and other stakeholders benefit from the firm's success.

Example: A thriving cafe might share a percentage of profits as bonuses to its staff.

Reinvest in Growth: Allocate a portion of the residual value back into the business for R&D, marketing, and other growth activities.

Example: A tech firm reinvesting profits into research for new product development.

4.4 Digital Customers

Customers who predominantly use digital platforms for their buying journey.

Attributes include:

Research Online: Before making purchases, they extensively research products/services online.

Example: A user checking reviews on Amazon before buying a laptop.

Preference for Digital Interactions: Opt for chatbots, emails, or apps over traditional communication means.

Example: A customer using a bank's app for transactions instead of visiting a branch.

Feedback Loop: They actively give feedback and reviews online.

Example: TripAdvisor users reviewing hotels or attractions.

High Adaptability: Quickly adapt to new technologies and platforms.

Example: Swift adoption of new social media platforms like TikTok.

Expect Instant Gratification: Seek rapid responses and services.

Example: Expecting same-day deliveries when shopping online.

4.5 Digital Disruption / Disruptive Technology

Technologies that redefine industries, creating new ways of operating and often making traditional methods obsolete.

Streaming Services: Platforms like Netflix and Spotify have disrupted the television and music industries, respectively.
Ride-Sharing Platforms: Uber and Lyft have redefined traditional taxi services.
E-commerce Platforms: Amazon has transformed retail, affecting brick-and-mortar stores.
Digital Payment Systems: PayPal, Venmo, and other digital wallets have altered traditional banking transactions.
Cloud Computing: Services like AWS and Google Cloud have transformed IT infrastructure management.

4.6 Strategies to Build Disruptive Business Models and Navigate Changes

Build:

Action: Create a new business model from scratch, focusing on innovation and differentiation.
Explanation: By building, companies can introduce fresh perspectives and solutions tailored to unmet market needs.
Example: Apple introducing the iPhone, which redefined the smartphone market.

Buy:

Action: Acquire an existing company that has already made a mark in the desired market.
Explanation: This fast-tracks entry into a market and capitalizes on established brand equity.
Example: Facebook's acquisition of Instagram to expand its social media portfolio.

Partner:

Action: Form strategic alliances with companies that are already disrupting the market.
Explanation: Partnerships can combine strengths, share risks, and accelerate market reach.
Example: Spotify partnering with Samsung to be the default music service on their devices.

Invest:

Action: Inject capital into promising start-ups that align with the company's vision.
Explanation: Investment provides both financial returns and a stake in potential disruptive innovations.
Example: Google's parent company, Alphabet, investing in various tech startups through its venture arm, GV.

Incubate/Accelerate:

Action: Foster young companies by providing resources, guidance, and support.
Explanation: Incubation and acceleration help nurture potential game-changers under the company's guidance.
Example: Microsoft's ScaleUp program, which supports startups by providing co-selling opportunities, technical support, and access to Microsoft's partner ecosystem.

4.7 Digital Operating Models

Cloud-First Model: Prioritizing cloud solutions for scalability, flexibility, and efficiency.

Example: New startups relying primarily on cloud services for their IT needs.

Data-Centric Model: Making decisions based on data analytics and insights.

Example: E-commerce platforms using data analytics to personalize user experiences.

Agile Model: Adapting quickly to changes using agile methodologies.

Example: Software companies adopting agile development for rapid iteration.

Customer-Centric Digital Model: Prioritizing digital touchpoints that enhance customer experience.

Example: Banks offering comprehensive app-based solutions.

Platform Model: Creating platforms that allow third-party entities to create value.

Example: App stores allowing third-party developers to offer apps, benefiting both the developer and platform provider.

4.8 Surviving Digital Disruption

1. Inspirational Leadership:

Leaders must embrace and champion digital transformation, setting the tone for the entire organization. Example: A CEO regularly attending tech conferences and advocating for the adoption of emerging digital tools within the company.
Leaders should inspire teams by highlighting the potential benefits and opportunities digital disruption brings. Example: Organizing monthly showcases where teams present how they've leveraged new digital tools for success.

2. Competitive Edge:

Continuously analyze competitors' digital strategies to identify gaps and opportunities. Example: A retail store enhancing its mobile app features upon noticing competitors lacking robust online platforms.
Leverage data analytics to gain actionable insights and refine business strategies. Example: Using consumer behavior data to personalize online shopping experiences and increase sales.

3. Establish a Strategic Direction:

Clearly define the company's digital vision, ensuring alignment with overall business objectives. Example: A magazine pivoting to a digital subscription model to cater to the changing reading habits of its audience.
Regularly revisit and adapt the digital strategy based on technological advancements and market changes. Example: An e-commerce business integrating new payment methods as they become popular.

4. Influence External Parties:

Engage with key stakeholders, including customers and partners, to gather feedback on digital initiatives. Example: Hosting focus groups to understand customer preferences for a new app.
Collaborate with industry influencers and thought leaders to amplify the company's digital presence. Example: Partnering with a popular tech blogger to review and promote a new digital product.

5. Collaboration:

Foster a culture of inter-departmental collaboration to ensure seamless digital integration across functions. Example: Marketing and IT departments working together to optimize an online ad campaign.
Use collaborative digital tools to enhance communication and productivity. Example: Adopting platforms like Slack or Teams for efficient team communication.

6. Business Judgement:

Make informed decisions by leveraging data analytics, but also consider the qualitative aspects. Example: While data might suggest a product feature is unpopular, qualitative feedback might reveal its significance to a loyal user base.
Continuously assess the ROI of digital investments to ensure they align with business goals. Example: Regularly reviewing the performance of a new chatbot to ensure it's enhancing customer service.

7. Execution:

Prioritize and implement digital initiatives in phases, ensuring each phase aligns with the overall strategy. Example: Rolling out an e-commerce website first, followed by a mobile app, based on customer usage patterns.
Monitor and optimize digital initiatives post-launch to ensure they meet desired objectives. Example: Tweaking the user interface of a new app based on user feedback.

8. Building Talent:

Invest in regular training and upskilling programs to ensure the workforce stays updated with digital trends. Example: Organizing quarterly workshops on the latest digital marketing techniques.
Attract and retain talent that brings digital expertise and a forward-thinking mindset. Example: Offering competitive benefits and creating a culture of innovation to appeal to top tech talent.

4.9 Exam Rehearsal Questions – with bullet points areas to be answered in the exam

Q1: Identify and explain the impact that providing online products could have on the business model (May/Aug 2021 Trayyner variant 1 task 1)

Revenue Stream Alteration:

Shifting to online might diversify revenue streams, introducing subscription models, digital sales, or online advertising.

Cost Structure:

Potential reduction in physical infrastructure costs but an increase in digital infrastructure and cybersecurity costs.

Customer Reach:

Access to a global customer base, but also facing global competition.

Value Proposition:

Need to ensure digital products offer unique value, such as convenience, customization, or instant access.

Supply Chain and Distribution:

A shift from traditional distribution channels to digital delivery methods, potentially streamlining and speeding up product delivery.

Q2: Discuss the suggestion that adding components from another business will be consistent with the business model (Nov 2020/Feb 2021 Prybloxx variant 3 task 1)

Core Competency Alignment:

Assess if the new components align with the company's core competencies and strengths.

Cultural and Operational Fit:

Determine if the operations and culture of the added business components mesh well with the existing model.

Financial Impact:

Analyze potential changes in revenue, costs, and profit margins with the integration of new components.

Value Proposition Enhancement:

Evaluate if the added components bolster the company's value proposition to its customers.

Strategic Direction:

Consider if the addition aligns with the company's long-term vision and strategic objectives.

Q3: Advise the Board on whether acquisition of competing companies is compatible with the existing business model (Nov 2020/Feb 2021 Prybloxx variant 6 task 1)

Market Share Growth:

Analyze if acquiring competitors would significantly boost market share and positioning.

Operational Synergies:

Examine potential efficiencies in operations, distribution, or production post-acquisition.

Diversification vs. Focus:

Determine if the acquisition would diversify the product/service portfolio or strengthen the focus on core offerings.

Cultural Compatibility:

Evaluate potential challenges in integrating company cultures, values, and operational philosophies.

Financial Implications:

Consider the financial health of the competitor, the acquisition costs, and the potential return on investment.

Q4: Evaluate the impact that a new disruptive product range will have on the business model (Nov 2020/Feb 2021 Prybloxx variant 1 task 1)

Analyze Revenue Streams:

Determine how the new product range could diversify or alter the company's current revenue streams.

Assess Cost Structures:

Understand the investment needed for the disruptive product range, including R&D, marketing, and manufacturing.

Evaluate Market Positioning:

Determine if the new product range repositions the company in its market or opens it up to new market segments.

Understand Customer Dynamics:

Gauge how the disruptive product might change the company's customer base or alter its relationship with existing customers.

Review Supply Chain Impacts:

Identify any changes or expansions needed in the supply chain to support the new product range.

Q5: Evaluate the implications that new product features could become disruptive technology (Nov 2020/Feb 2021 Prybloxx variant 3 task 4)

Identify Potential Market Disruption:

Understand how the new features could redefine the market or make existing solutions obsolete.

Assess Competitive Landscape:

Gauge how the disruptive features might give the company a significant edge over competitors.

Understand Regulatory Impacts:

Determine if the disruptive features introduce new regulatory challenges or requirements.

Analyze Adoption Challenges:

Identify potential barriers to customer adoption of the new features.

Gauge Impact on Company Reputation:

Understand how successfully launching (or failing to launch) a disruptive technology can affect the company's brand and reputation.

Session 5: WACC

Syllabus: F2

DVM: initial share price = $10, Dividend per share = $1, Ke = $1/$10 = 10%.
CAPM: explicitly consider risks. Ke=Rf+(Rm-Rf)*Beta (systematic risks) = 1%+(4%-1%)*1.2=0.046
Systematic risks and unsystematic risks: macro economy risks; company specific risks.
Hold well diversified portfolio

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Categories: : CIMA/CGMA Management Case Study (MCS)