How to answer question c and d (theory parts)

A CASE STUDY IN STRATEGIC OBJECTIVES TAYLOR CORPORATION The Taylor Corporation is considering 3 possible strategies for increasing the market share of the company from its present 20% level. While the projects are not independent projects, the company is restricted to a financing constraint of $500,000, at an optimum cost of capital of 10% per annum. The 3 strategies are as follows: 1. Accounting Strategy: Invest $100,000 immediately to expand the working capital cycle by offering extended credit terms to prospective customers and also carry larger safety stocks to prevent stock-outs. Market share is expected to rise to 25% (a +5% increase in year 1, and maintaining this in years 2 and 3) by implementing such a strategy. 2 Marketing Strategy: Invest $200,000 immediately and $165,000, $50,000 and $30,000 respectively at the beginning of each of the following 3 years for a comprehensive promotional program. This is expected to increase market share by +10% (i.e. to a level of 30% in year 1 and maintaining this in years 2 and 3). 3 Manufacturing Strategy: Invest $500,000 immediately to purchase a state-of-the-art Flexible Manufacturing System (FMS). Market share is expected to remain static for years 1 and 2 and then more than double (ie to a level of 50%) in the third year. The current operational cash-based revenues and costs for the company are as follows: Current sales @ $100 per unit less: Volume-related variable costs 50% of Sales $1,000,000 $ 1 mil ( $looper whit (500,000) = 10 k units less: Non-volume-related variable costs (300,000) Cash-based EBIT $ 200,000 It is expected that the non-volume related activities required to service a market share of between 25% and 50% would increase costs by 10% of current expenditure levels. *$ 300K The planning period of the company is three years. Assume that there are no terminal values or taxes. Required: (a) Calculate the NPV under the 'Accounting Strategy." (b) Calculate the NPV under the 'Marketing Strategy." ( c ) Compare the 'Accounting vs Marketing NPVs', and discuss the advantages and disadvantages under each strategy. Which strategy should the Taylor Corporation choose? (d) Calculate the NPV under the 'Manufacturing Strategy.' Discuss the cost-benefit aspects of making FMS investments as against the Accounting and Marketing strategies. CMA2TI Page 27