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XZZ Ltd . is considering purchasing the brand ( Doing - well ) . The management engaged your services to determine the viability of the

XZZ Ltd. is considering purchasing the brand (Doing-well). The management engaged your services to determine the viability of the project. Extensive research on your part has revealed the following:
Expected sales (units) will start at 60,000 in year 1 and increase each year over the previous one by the percentages in the table :-
Yr 1; Yr 2 ;Yr 3; Yr 4 ;Yr 5
Sales (units) est. 60,000; 20%; 20%; 10%; 10%
Price per unit: $15 in year 1, then it increases by $5 in year 2, this new price will increase by 15% in year 5.
Unit cost: $5 in year 1, then in year 2 due to the accumulated effects of inflation should increase by 20%, the new price will increase by 33.3% in year 4, and remain constant in year 5.
Cost of capital: 15%
The Present Value Interest Factors (PVIF) based on a 15% cost of capital are:
Yr 1; Yr 2; Yr 3; Yr 4; Yr 5
PVIF (15%): 0.870; 0.756; 0.658; 0.572; 0.497
The following costs will also be incurred when the product is introduced:-
Yr 1; Yr 2; Yr 3; Yr 4; Yr 5
Depreciation: 16,000; 17,500; 17,500; 18,000; 18,000
Overheads: 35,000; 60,000; 70,000; 75,000; 90,000
Other: 8,250; 9,900; 10,900; 12,000; 13,200
The Marketing will start at $100,000 in year 1, and due to inflationary pressure increase by 5% annually.
The company capital charge: 10%, from year 3 the acceptable capital charge will be 15%.
Role of Branding Index: 82%
After year 5 earnings are expected to experience constant growth of 5%.
The relevant tax rate is 25%
The capital employed will start at $60,000 and increase by the following percentages over the previous year amount.
Yr 1; Yr 2; Yr 3; Yr 4; Yr 5
Capital employed: 60,000; 25%; 40%; 10%; 15%
Calculate the brand equity of Doing-Well and hence advise XZZ Ltd. on the most they should pay for it.

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