$($a$)$

Sandawe Industries is a hi$-$tech company in the business of manufacturing

headphones. Sandawe's financial analysts have studied the headphone industry

demand and supply and are confident that the industry demand $($D$)$ for

headphones is related to price $(P)$ as follows:

$D=3,500-200P$

The analysts have also collected the following information about Generation $1$

and $2$ headphone capacity $($in millions of units$)$ as well as Sandawe's innovative

proposal to produce headphones using its new third generation technology:

Sandawe's third generation technology will receive a $10-$year patent and the

appropriate discount rate is $20\mathrm{.}0\%.$

$($i$)$ What is the value of Sandawe's innovative third generation technology to

produce the expected $75$ million headphone capacity?

$(15$ marks$)$

$($ii$)$ What will total industry capacity be at the end of Sandawe's $10-$year patent?

$(5$ marks$)$

$($iii$)$ How much of this total industry capacity will be produced by third

generation technology at the end of Sandawe's $10-$year patent?

$(3$ marks$)$

$($b$)$

Explain how reclassifying research and development as an asset on a company's

financial statements impacts on measures of that company's performance and

estimates of intrinsic value.

$(12$ marks$)$

$($Total: $35$ Marks$)$