Business Case #1 questions, due by 10:59 am (PT) on Wednesday, August 3, 2022: Q1. Based on the stage of growth that you believe this company to be in what type of financing can this company expect to obtain? Make sure to clearly identify the stageof growth that you think the company is in and support your analysis with examples from the business case. In your answer elaborate on the different types of financing options for short-term working capital needs and long-term capital assets. Q2. From cash flow forecasts from exhibit 1, which option - Slow Expansion" or "Aggressive Expansion" provides the most shareholder value over the 5-year period? Please quantify this value. Assume that shareholders expect a 20% required return on their investments. Q3. After year 5 assume that growth in net income and cash flow will continue at 5% in perpetuity. Based on this assumption which option provides the grester value to shareholders? Again, please quantify this value. Business case #2 questions, due by 10:59 am (PT) on Wednesday, August 10, 2022: Q1. Using the balance sheet from exhibit 2 and assuming that Pbotonics' cost of raising debt is 7% and its cost of raising equity is 20%6 what is the cormpanys weighted average cost of capital? Q2. Assuming that Photonics has unlimited funding, which products abould Photoricici launch? Support your recommendation by providies an aklyestr on each product's projected cash flow over a 5-year period and the everall econianic value that each product launch provides. You wall need to integrate the principles of capital budgeting decision-malang in your a salysts. Q3. Based on your analysis from questian 2 which preduct or products woald yed a3senmend Photonies launch if photonics has accest to only 550 miltion dollars of \$50 miliaet dollars af funding will need to rover the Written by - Iohn Mentler Oregon State Ulion Analysis A Promising Start: In the summer of 2016, Photonics, a leader in the production of biometric sensors, started to experience a decline in sales growth for one of their most popular products, OxyAlert. OxyAlert was launched in 2013 and quickly became the industry standard in analyzing the oxygen levels of surgically repaired tissue after emergency care procedures. In the first year of sales this product captured 25% of the market in post operation biometric devices. By the second year it had rapidly overtaken the industry leader with a 55% share of the market. The success of this product was primarily due to innovative features that were not found on any other product. Features such as wireless disposable sensor probes and advance analytic software allowed doctors to shorten the recovery time of their patients in ICU units. which decreased per patient ICU expense by 10%. Based on these innovative features Photonics was able to charge a premium for this product and establish themselves as one of the most profitable companies in the industry. Several competitors have now closed the gap in product design and functionality. In the spring of 2016, SeaBridge, one of Photonics biggest rivale, launched the product TotalDiagnostic. This product contains similar disposable sensory technology as OxyAlert, however, it allows doctors to analyze a broader range of a patient's biometrics. While this product was priced around 10% higher than OxyAlert, doctors had the added advantage of not only maintaining the same recovery rates but also decrease the rate of post surgical infection by 15\%. By the early part of 2017. TotalDiagnostic had captured 30% of the market. Photonics response was swift. They immediately reduced the price or Ony:Mert by 20% in order to regain market share. From March through May, sales of OxyAlert rebounded. While protit margins of the company did take a hit, it appeared that the price reduction stabilized the company's market share Unfortunately, receat sales reports from fune show that pre-orders for orydert are stightly down. Erom. Research.to Commercialimation! Photonics was founded in 2010 by Racthes Walker, a professor of Bioengineering, From 2003 through 2003 , Dr. Walker authored several papeca no photonic measuring systems and it's applications in bioenetrics. ly 3009 whe deseloged a prototype sensor that that was extremely non-invasive to the putient. She realized that this type of serisor combined with actianced computer algarithans could quicidy analyze osyzen levels in surgically repaired timsees givire dactors "real tine" informatian on the likelibnod that a patientio body woild ancept or isfect the repaired tisaue. Dr. Walker betieved that she had an important techoology thut could be heghty protitable if she coud find a way to coennertiatize it. Given the unieunness afith technoloig she was able to obtain a passt in 2010 . She fert fairly thinfifent that her obstacles existed. The cost to turn this technology into a commercialized product was fairly substantial. However, more importantly, this was a highly disrupted technology that would require hospitals to change ICU and post operation processes. She wasn't even sure if hospitals had a desire to change their current. practices. After interviewing several prominent hospital administrators, she concluded that that demand would be high if she could find a way to rass-produce her prototype at a cost that was on par with biometric sensors currently being sold to bospitals and other surgical centers. After several investor presentations, she was able to attract significant funding fromn a venture capital firm that specialized in fanding small biomedical start-ups. With a $15 million dollar investment, Photonics was able to launch its first product, The BMD 1000 , in January 2012 In the first three months of 2012 , sales of the BMD 1000 were tepid at best: While the product design was innovative, it did not integrate well with the curreat technology employed by most hospitals. Based on the criticisms of this product. Dr. Walker and her engineering team went back to the drawiag board. The redesigned product was named OxyAlert and was introduced to the industry with much fanfare in January of 2013. By July of 2013 , Photonics had secured orders with several large: health care facilities on the East Coast. One year later, OxyAlert become the standard in the biometrics device industry. Gash is King: In 2016 Photonics posted proflts of 520M on net profits margins of 15% which were above industry averages. Photonics is able to achieve higher profit mazgins due to the company's unique business model. Photonics has very little long-term capital invested in manufacturing the compary's product. Instead it relies on outsourced contract manufactures to prodece its product. As a resule the coniparyy. can easily design and launch new products without the burden of constantly. upgrading and retrofiting its manufacturing facilisies. The company can also focua on what it does best whict is designing and implierienting rew techitologies for it cusfomers. Waile this business model has allowed the company to dramatically reduct operational cost and increased its flecability in the markec place, it is not Whthout its risk. Because the sales cycle in thir industry is long and fiture sales are diffrult to predict, Photonics strupgle with markgine its supply chain. Coatract manufactarers need a steady dowv of enders from Photonics in order to stay proflitable. To satiafy the needs of ita contract mancfactures. Photonica carnies a iarger levet of inventory thas mest of ita competitora. Larger levels of "on-handt imventory nffectively tie wig cash. This presents the umique dilenims where the coenpany is highily profitahile but strugeiles to maintain positive cash flow company's 5 -year cash flow projections in two scenarios "Aggressive Asian Expansion with OxyAlert" and "Slow Asian Expansion with OxyAlert." In the "Aggressive Expansion" scenario the company will need to raise an additional $200 million dollars preferably through an initial public stork offering (IPO). This funding will be used to support large inventory acquisitions and a new warehouse facility. In the "Slow Expansion" scenario the CFO estimates that the company can fund its imventory acquisitions and other capital needs with operational cash flow and will not need to rely on external funding. Reinventing the business - Now Product. Development: While market expansion is of the outmost importance, Dr. Walker also realizes that the company's current product line will be obsolete in a couple of years. Five years is the typical product life cycle in this industry. Fortunately, the company employs some of the brightest engineers in the field wao have beez developing three newinteresting products that can ensure the company's sales growth. The first product is an improved version of OxyAlert, codenamed "OxyAlertit." The second product is completely new to the industry and will allow doctors in emergency rooms to diagnose certain conditions of incapacitated patients through quick blood tests. This product is codoamed "AutoAtnalytics." The third product is a complimentary product to OxyA'Aert that will enhance OxyAlert's diagnostic capabilities. This product is codenamed "Diagnostic Solutions," The following are brief descriptions of each product's financial costs and revenue projections. For all projects assume a 20% tax rate oa net income. OxyAlerill The marketing degarment believes that this product will not conpletely renlace Oxydlert, as there will still be some customers who will want the older and cheaper vervion. However, they do believe that there could be some sales caanithalization of the old product. In the next five years sales for OxyAtert aro forectusted to steadily decrease ty 10% each year in the North American market: Fint year wales of DxyAlertll are jrofectind to be $50 million with a 155% inicrease in revenue each year through year 5 In the pritar two years the company hast mpent 510 million to develop thits jutuduct. To manufacture this new prodoc, Photomica contrart ensnufactures requiles an additinnal 540mtillion iaveatment in new equipment parchases, Bhotonics will ayren to pay 100% of this investanest and in turn with owit the equipanent outrypht. This equipment witt have a 5 yoar kife and will depreciate ty 58 million perywar. With this bew equipthene the coatract inanafarturer will be able to prodnce the prodoct at a lower cost. As areaith, rurrent casts Incremental adminiztrative asd overhesd expense will he 35% of rewemar. Wotkingt capital requaremeata will be 104 of reoentin in orther to -A19nalytion" This product is neither a complimentary product not a replacemest prodect for OxyAlert. The launcta of this product is intended to create a new product line by extending, Photonics core cornpetencies into the cmergency rosponse market The marketing depattment forrecasts first year revenue at 525 million with initial one time marketing expense of $25 million. Hased on projected deand, revenue is expected to increase by 5% year over year for the reraining 4 year. Prior yeazs" development cost for this product has totaled $5 milliea dollars. The contract. manufacturer estimates thiat it wall need an additional 510 million dollars in new cquipment parchses to manafacture this arodact. Because the equipment can be repurposed for otber custoners, Photons's' will noe pay the coatract manufacturer for this equipment and will be owned oatright by the contract nimufacturer. Because of the lack of experience in enanufacturian this type of product, the contract masuafturer expects the cost to make this prodoct will be socnewhat high. As a result, cost of goodis sold will increase to 45% of revenue. Incremental SC QA will be 25% of revenue wath an additional working capital requirement of 15% of reveaue "Dingnesticsolutions" Diagnostic Solutions is a series of networked probes that will allow coastomen to use Oxythert in more efficiest ways. Marketing betieves that this complimentary prochuct will actually help the sales of OxyAert asd prevent the full adoption of its competitor's product, Tota Diagneatic, in the marketplace. Market share for OxyAlert is prujectod to slightly incruase by 2 percent over the nest 5 years. The fitanter team betieves that this will provitle an additional $2 miltson of cash flow per ywar in thit five year time period. Whille this prodoct will help the salies of OxyNerth is will be sold sp paratedy. Retwrum prujections for Disgnostic Solatians will be 515 sales of thagnostic Sosutions are projected to increase by anly 19 per year over the neat fineyears. As this is a coebplimentaty pirodact, the devioppinat cost was wille requife an adsitional $20 midian of capital. The econemue usefoll life of this quipinent is 7 years and with deprectate by 32857 in thiod per year. Theremental cost of goods mid wall be in line with current cornpany margins of 439 . Incremental ewetheus and artministarive cost will be 32R Projected worlang. capical will be In of riverne. fiven that this is a compsimentary product, the company will not ininur atty additionat eoe time marketing expenant for laumihing thingivoduct. Decistons and Reconamendapoes: Authe yyar progressis, inverters and eretiters art orting oervous thar the peodoce inatisitive profacts. Its time to formmate a bear- Austast 1, 202tai Business Case #1 questions, due by 10:59 am (PT) on Wednesday, August 3, 2022: Q1. Based on the stage of growth that you believe this company to be in what type of financing can this company expect to obtain? Make sure to clearly identify the stage of growth that you think the company is in and support your analysis with examples from the business case. In your answer elaborate on the different types of financing options for short-term working capital needs and long-term capital assets. Q2. From cash flow forecasts from exhibit 1, which option - "Slow Expansion" or "Aggressive Expansion" provides the most shareholder value over the 5-year period? Please quantify this value. Assume that shareholders expect a 20% required return on their investments. Q3. After year 5 assume that growth in net income and cash flow will continue at 596 in perpetuity. Based on this assumption which option provides the greater value to shareholders? Again, please quantify this value. Business case #2 questions, due by 10:59 am (PT) on Wednesday, August 10, 2022: Q1. Using the balance sheet from exhibit 2 and assuming that Photonics" cost of raising debt is 7% and its cost of raising equity is 20% what is the company's weighted average cost of capial? Q2. Assuming that Photonics bas unliusited funding which products should Photonics lasich7 Support your recotumeutation by pioviding an afulysi on eaca product's projected cash flow over a 5 year period and the overall economic value that earh product launch provides. You will need to intecrate the jutinciples of capital budgeting deciaion-malding in your amalyais: Q.. Based on yout analysis froap gquestion 2 which prodiect or giroduct woukfyed recommend Photonies launch of Photonura has access to only $50 anilian dodars of fubulingt Assume that the 5$0 million dollars of fundiag will need to cover the uptront capital equigument purchuses and one time marketine expense. lasieias itventory puirchaven (Cast of Coods Scilu). overtheat expensen anit ather iapile working apital requirements will be funsed through inkernslby peapratnd cash Fxhibif: 1 Aggressive Fixmansion Slow Expansion Business Case #1 questions, due by 10:59 am (PT) on Wednesday, August 3, 2022: Q1. Based on the stage of growth that you believe this company to be in what type of financing can this company expect to obtain? Make sure to clearly identify the stageof growth that you think the company is in and support your analysis with examples from the business case. In your answer elaborate on the different types of financing options for short-term working capital needs and long-term capital assets. Q2. From cash flow forecasts from exhibit 1, which option - Slow Expansion" or "Aggressive Expansion" provides the most shareholder value over the 5-year period? Please quantify this value. Assume that shareholders expect a 20% required return on their investments. Q3. After year 5 assume that growth in net income and cash flow will continue at 5% in perpetuity. Based on this assumption which option provides the grester value to shareholders? Again, please quantify this value. Business case #2 questions, due by 10:59 am (PT) on Wednesday, August 10, 2022: Q1. Using the balance sheet from exhibit 2 and assuming that Pbotonics' cost of raising debt is 7% and its cost of raising equity is 20%6 what is the cormpanys weighted average cost of capital? Q2. Assuming that Photonics has unlimited funding, which products abould Photoricici launch? Support your recommendation by providies an aklyestr on each product's projected cash flow over a 5-year period and the everall econianic value that each product launch provides. You wall need to integrate the principles of capital budgeting decision-malang in your a salysts. Q3. Based on your analysis from questian 2 which preduct or products woald yed a3senmend Photonies launch if photonics has accest to only 550 miltion dollars of \$50 miliaet dollars af funding will need to rover the Written by - Iohn Mentler Oregon State Ulion Analysis A Promising Start: In the summer of 2016, Photonics, a leader in the production of biometric sensors, started to experience a decline in sales growth for one of their most popular products, OxyAlert. OxyAlert was launched in 2013 and quickly became the industry standard in analyzing the oxygen levels of surgically repaired tissue after emergency care procedures. In the first year of sales this product captured 25% of the market in post operation biometric devices. By the second year it had rapidly overtaken the industry leader with a 55% share of the market. The success of this product was primarily due to innovative features that were not found on any other product. Features such as wireless disposable sensor probes and advance analytic software allowed doctors to shorten the recovery time of their patients in ICU units. which decreased per patient ICU expense by 10%. Based on these innovative features Photonics was able to charge a premium for this product and establish themselves as one of the most profitable companies in the industry. Several competitors have now closed the gap in product design and functionality. In the spring of 2016, SeaBridge, one of Photonics biggest rivale, launched the product TotalDiagnostic. This product contains similar disposable sensory technology as OxyAlert, however, it allows doctors to analyze a broader range of a patient's biometrics. While this product was priced around 10% higher than OxyAlert, doctors had the added advantage of not only maintaining the same recovery rates but also decrease the rate of post surgical infection by 15\%. By the early part of 2017. TotalDiagnostic had captured 30% of the market. Photonics response was swift. They immediately reduced the price or Ony:Mert by 20% in order to regain market share. From March through May, sales of OxyAlert rebounded. While protit margins of the company did take a hit, it appeared that the price reduction stabilized the company's market share Unfortunately, receat sales reports from fune show that pre-orders for orydert are stightly down. Erom. Research.to Commercialimation! Photonics was founded in 2010 by Racthes Walker, a professor of Bioengineering, From 2003 through 2003 , Dr. Walker authored several papeca no photonic measuring systems and it's applications in bioenetrics. ly 3009 whe deseloged a prototype sensor that that was extremely non-invasive to the putient. She realized that this type of serisor combined with actianced computer algarithans could quicidy analyze osyzen levels in surgically repaired timsees givire dactors "real tine" informatian on the likelibnod that a patientio body woild ancept or isfect the repaired tisaue. Dr. Walker betieved that she had an important techoology thut could be heghty protitable if she coud find a way to coennertiatize it. Given the unieunness afith technoloig she was able to obtain a passt in 2010 . She fert fairly thinfifent that her obstacles existed. The cost to turn this technology into a commercialized product was fairly substantial. However, more importantly, this was a highly disrupted technology that would require hospitals to change ICU and post operation processes. She wasn't even sure if hospitals had a desire to change their current. practices. After interviewing several prominent hospital administrators, she concluded that that demand would be high if she could find a way to rass-produce her prototype at a cost that was on par with biometric sensors currently being sold to bospitals and other surgical centers. After several investor presentations, she was able to attract significant funding fromn a venture capital firm that specialized in fanding small biomedical start-ups. With a $15 million dollar investment, Photonics was able to launch its first product, The BMD 1000 , in January 2012 In the first three months of 2012 , sales of the BMD 1000 were tepid at best: While the product design was innovative, it did not integrate well with the curreat technology employed by most hospitals. Based on the criticisms of this product. Dr. Walker and her engineering team went back to the drawiag board. The redesigned product was named OxyAlert and was introduced to the industry with much fanfare in January of 2013. By July of 2013 , Photonics had secured orders with several large: health care facilities on the East Coast. One year later, OxyAlert become the standard in the biometrics device industry. Gash is King: In 2016 Photonics posted proflts of 520M on net profits margins of 15% which were above industry averages. Photonics is able to achieve higher profit mazgins due to the company's unique business model. Photonics has very little long-term capital invested in manufacturing the compary's product. Instead it relies on outsourced contract manufactures to prodece its product. As a resule the coniparyy. can easily design and launch new products without the burden of constantly. upgrading and retrofiting its manufacturing facilisies. The company can also focua on what it does best whict is designing and implierienting rew techitologies for it cusfomers. Waile this business model has allowed the company to dramatically reduct operational cost and increased its flecability in the markec place, it is not Whthout its risk. Because the sales cycle in thir industry is long and fiture sales are diffrult to predict, Photonics strupgle with markgine its supply chain. Coatract manufactarers need a steady dowv of enders from Photonics in order to stay proflitable. To satiafy the needs of ita contract mancfactures. Photonica carnies a iarger levet of inventory thas mest of ita competitora. Larger levels of "on-handt imventory nffectively tie wig cash. This presents the umique dilenims where the coenpany is highily profitahile but strugeiles to maintain positive cash flow company's 5 -year cash flow projections in two scenarios "Aggressive Asian Expansion with OxyAlert" and "Slow Asian Expansion with OxyAlert." In the "Aggressive Expansion" scenario the company will need to raise an additional $200 million dollars preferably through an initial public stork offering (IPO). This funding will be used to support large inventory acquisitions and a new warehouse facility. In the "Slow Expansion" scenario the CFO estimates that the company can fund its imventory acquisitions and other capital needs with operational cash flow and will not need to rely on external funding. Reinventing the business - Now Product. Development: While market expansion is of the outmost importance, Dr. Walker also realizes that the company's current product line will be obsolete in a couple of years. Five years is the typical product life cycle in this industry. Fortunately, the company employs some of the brightest engineers in the field wao have beez developing three newinteresting products that can ensure the company's sales growth. The first product is an improved version of OxyAlert, codenamed "OxyAlertit." The second product is completely new to the industry and will allow doctors in emergency rooms to diagnose certain conditions of incapacitated patients through quick blood tests. This product is codoamed "AutoAtnalytics." The third product is a complimentary product to OxyA'Aert that will enhance OxyAlert's diagnostic capabilities. This product is codenamed "Diagnostic Solutions," The following are brief descriptions of each product's financial costs and revenue projections. For all projects assume a 20% tax rate oa net income. OxyAlerill The marketing degarment believes that this product will not conpletely renlace Oxydlert, as there will still be some customers who will want the older and cheaper vervion. However, they do believe that there could be some sales caanithalization of the old product. In the next five years sales for OxyAtert aro forectusted to steadily decrease ty 10% each year in the North American market: Fint year wales of DxyAlertll are jrofectind to be $50 million with a 155% inicrease in revenue each year through year 5 In the pritar two years the company hast mpent 510 million to develop thits jutuduct. To manufacture this new prodoc, Photomica contrart ensnufactures requiles an additinnal 540mtillion iaveatment in new equipment parchases, Bhotonics will ayren to pay 100% of this investanest and in turn with owit the equipanent outrypht. This equipment witt have a 5 yoar kife and will depreciate ty 58 million perywar. With this bew equipthene the coatract inanafarturer will be able to prodnce the prodoct at a lower cost. As areaith, rurrent casts Incremental adminiztrative asd overhesd expense will he 35% of rewemar. Wotkingt capital requaremeata will be 104 of reoentin in orther to -A19nalytion" This product is neither a complimentary product not a replacemest prodect for OxyAlert. The launcta of this product is intended to create a new product line by extending, Photonics core cornpetencies into the cmergency rosponse market The marketing depattment forrecasts first year revenue at 525 million with initial one time marketing expense of $25 million. Hased on projected deand, revenue is expected to increase by 5% year over year for the reraining 4 year. Prior yeazs" development cost for this product has totaled $5 milliea dollars. The contract. manufacturer estimates thiat it wall need an additional 510 million dollars in new cquipment parchses to manafacture this arodact. Because the equipment can be repurposed for otber custoners, Photons's' will noe pay the coatract manufacturer for this equipment and will be owned oatright by the contract nimufacturer. Because of the lack of experience in enanufacturian this type of product, the contract masuafturer expects the cost to make this prodoct will be socnewhat high. As a result, cost of goodis sold will increase to 45% of revenue. Incremental SC QA will be 25% of revenue wath an additional working capital requirement of 15% of reveaue "Dingnesticsolutions" Diagnostic Solutions is a series of networked probes that will allow coastomen to use Oxythert in more efficiest ways. Marketing betieves that this complimentary prochuct will actually help the sales of OxyAert asd prevent the full adoption of its competitor's product, Tota Diagneatic, in the marketplace. Market share for OxyAlert is prujectod to slightly incruase by 2 percent over the nest 5 years. The fitanter team betieves that this will provitle an additional $2 miltson of cash flow per ywar in thit five year time period. Whille this prodoct will help the salies of OxyNerth is will be sold sp paratedy. Retwrum prujections for Disgnostic Solatians will be 515 sales of thagnostic Sosutions are projected to increase by anly 19 per year over the neat fineyears. As this is a coebplimentaty pirodact, the devioppinat cost was wille requife an adsitional $20 midian of capital. The econemue usefoll life of this quipinent is 7 years and with deprectate by 32857 in thiod per year. Theremental cost of goods mid wall be in line with current cornpany margins of 439 . Incremental ewetheus and artministarive cost will be 32R Projected worlang. capical will be In of riverne. fiven that this is a compsimentary product, the company will not ininur atty additionat eoe time marketing expenant for laumihing thingivoduct. Decistons and Reconamendapoes: Authe yyar progressis, inverters and eretiters art orting oervous thar the peodoce inatisitive profacts. Its time to formmate a bear- Austast 1, 202tai Business Case #1 questions, due by 10:59 am (PT) on Wednesday, August 3, 2022: Q1. Based on the stage of growth that you believe this company to be in what type of financing can this company expect to obtain? Make sure to clearly identify the stage of growth that you think the company is in and support your analysis with examples from the business case. In your answer elaborate on the different types of financing options for short-term working capital needs and long-term capital assets. Q2. From cash flow forecasts from exhibit 1, which option - "Slow Expansion" or "Aggressive Expansion" provides the most shareholder value over the 5-year period? Please quantify this value. Assume that shareholders expect a 20% required return on their investments. Q3. After year 5 assume that growth in net income and cash flow will continue at 596 in perpetuity. Based on this assumption which option provides the greater value to shareholders? Again, please quantify this value. Business case #2 questions, due by 10:59 am (PT) on Wednesday, August 10, 2022: Q1. Using the balance sheet from exhibit 2 and assuming that Photonics" cost of raising debt is 7% and its cost of raising equity is 20% what is the company's weighted average cost of capial? Q2. Assuming that Photonics bas unliusited funding which products should Photonics lasich7 Support your recotumeutation by pioviding an afulysi on eaca product's projected cash flow over a 5 year period and the overall economic value that earh product launch provides. You will need to intecrate the jutinciples of capital budgeting deciaion-malding in your amalyais: Q.. Based on yout analysis froap gquestion 2 which prodiect or giroduct woukfyed recommend Photonies launch of Photonura has access to only $50 anilian dodars of fubulingt Assume that the 5$0 million dollars of fundiag will need to cover the uptront capital equigument purchuses and one time marketine expense. lasieias itventory puirchaven (Cast of Coods Scilu). overtheat expensen anit ather iapile working apital requirements will be funsed through inkernslby peapratnd cash Fxhibif: 1 Aggressive Fixmansion Slow Expansion