Case Study:

PPM Industries Group is a leading global manufacturer of adhesive tapes and has been a pioneer in the European adhesive tape industry. In 2003, PPM introduced an enhanced adhesive tape, Super Sticky Tapes. PPM had developed a prototype of this tape using solvent-based adhesive formulations during the late 1990s but did not release the stickier adhesive tape because of the Volatile Organic Compounds (VOCs) in the formulation. PPM delayed introducing the product until it was able to develop a new, water-based adhesive formulation. PPMs new water-based formulation had the desired sticking power, while generating fewer air emissions, and was less expensive to manufacture than the proposed solvent-based formulations that PPM had originally developed.

(1) Suppose that PPM just paid a dividend of D₀ = $1.46. Analysts expect the companys dividend to grow by 20% in 2004, 10% in year 2005, and a constant rate of 5% in 2006 and therefore, as they believe that customers are more willing to pay for the green product Super Sticky Tapes. The required return on PPM is 8.00%. What is the best estimate of the intrinsic value of PPMs stock?

Keith Miller, the manager of Environmental Initiatives and Sustainability Group, claims that the lost opportunity costs of delaying the Super Sticky Tapes were substantial, which could offset all the profits generated from the sale of Super Sticky Tapes. PPM reports that the new formulations emit fewer VOCs and other associated pollutants to the environment annually than if the proposed solvent-based process had been implemented.

(2) Is PPMs delaying decision justified? Discuss this question using the stakeholder theory [Hints: describe the costs and benefits of PPMs decision].