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Forecast Incremental Volumes & Profitability for all device Sales: 2021 2022 2023 2024 2025 Volume increase (units) 385,000 500,000 636,000 591,000 568,000 Average selling price/unit 260 240 220 220 220 100,100,000 120,000,000 | 139,920,000 130,020,000 | 124,960,000 40,000,000 50,000,000 | 62,000,000 | 57,000,000 Total revenues Variable production costs 55,000,000 Contribution 60,100,000 70,000,000 77,920,000 73,020,000 69,960,000 As % of total revenues 60% 58% 56% 56% 56% 46,000,000 | 50,000,000 50,000,000 | 48,000,000 Fixed production + sales costs Operating income 38,000,000 22,100,000| 24,000,000 | 27,920,000 23,020,000 | 21,960,000 As % of total revenues: 22% 20% 20% 18% 18% The fixed production and sales costs in the table (above) are allocations based on the costing system of ChipCo. It is not expected that ChipCo will need to increase its production or distribution capacity to meet incremental demand between 2021 and 2025. The data for selling prices and variable production costs are expected averages for ChipCo and its competitors in the region. Since ChipCo currently holds 70% of the logic device market globally, it is expected that this percentage will decline by roughly one percentage point per year for each year from 2021 to 2025. By investing in software developers, ChipCo unavoidably helps its competitors insofar as they too may gain in sales of logic devices. The cost of capital rate used by ChipCo is 10% per annum and the relevant discount factors are as follows: Table: Discount Factor at 10% per annum Years 10% Start 2021 End 2021 2022 2023 0.9091 0.8264 0.7513 2024 2025 0.6830 0.6209 REQUIRED: a. Compute the Net Present Value of the estimated direct returns from the minority equity investments And:

Forecast Incremental Volumes & Profitability for all device Sales: 2021 2022 2023 2024 2025 Volume increase (units) 385,000 500,000 636,000 591,000 568,000 Average selling price/unit 260 240 220 220 220 100,100,000 120,000,000 | 139,920,000 130,020,000 | 124,960,000 40,000,000 50,000,000 | 62,000,000 | 57,000,000 Total revenues Variable production costs 55,000,000 Contribution 60,100,000 70,000,000 77,920,000 73,020,000 69,960,000 As % of total revenues 60% 58% 56% 56% 56% 46,000,000 | 50,000,000 50,000,000 | 48,000,000 Fixed production + sales costs Operating income 38,000,000 22,100,000| 24,000,000 | 27,920,000 23,020,000 | 21,960,000 As % of total revenues: 22% 20% 20% 18% 18% The fixed production and sales costs in the table (above) are allocations based on the costing system of ChipCo. It is not expected that ChipCo will need to increase its production or distribution capacity to meet incremental demand between 2021 and 2025. The data for selling prices and variable production costs are expected averages for ChipCo and its competitors in the region. Since ChipCo currently holds 70% of the logic device market globally, it is expected that this percentage will decline by roughly one percentage point per year for each year from 2021 to 2025. By investing in software developers, ChipCo unavoidably helps its competitors insofar as they too may gain in sales of logic devices. The cost of capital rate used by ChipCo is 10% per annum and the relevant discount factors are as follows: Table: Discount Factor at 10% per annum Years 10% Start 2021 End 2021 2022 2023 0.9091 0.8264 0.7513 2024 2025 0.6830 0.6209 REQUIRED: a. Compute the Net Present Value of the estimated direct returns from the minority equity investments And:

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Forecast Incremental Volumes & Profitability for all device Sales: 2021 2022 2023 2024 2025 Volume increase (units) 385,000 500,000 636,000 591,000 568,000 Average selling price/unit 260 240 220 220 220 Total revenues 100,100,000 120,000,000 139,920,000 130,020,000 124,960,000 57,000,000| 55,000,000 Variable production costs 40,000,000 50,000,000 62,000,000 Contribution 60,100,000 70,000,000 77,920,000| 73,020,000 69,960,000 As % of total revenues 60% 58% 56% 56% 56% Fixed production + sales costs 38,000,000 46,000,000 50,000,000 50,000,000 48,000,000 Operating income 22,100,000 24,000,000 27,920,000 23,020,000 21,960,000 As % of total revenues: 22% 20% 20% 18% 18% The fixed production and sales costs in the table (above) are allocations based on the costing system of ChipCo. It is not expected that ChipCo will need to increase its production or distribution capacity to meet incremental demand between 2021 and 2025. The data for selling prices and variable production costs are expected averages for ChipCo and its competitors in the region. Since ChipCo currently holds 70% of the logic device market globally, it is expected that this percentage will decline by roughly one percentage point per year for each year from 2021 to 2025. By investing in software developers, ChipCo unavoidably helps its competitors insofar as they too may gain in sales of logic devices. The cost of capital rate used by ChipCo is 10% per annum and the relevant discount factors are as follows: Table: Discount Factor at 10% per annum Years 10% Start 2021 End 2021 1 0.9091 0.8264 0.7513 2022 2023 2024 2025 0.6830 0.6209 REQUIRED: a. Compute the Net Present Value of the estimated direct returns from the minority equity investments And:
Transcribed Image Text:Forecast Incremental Volumes & Profitability for all device Sales: 2021 2022 2023 2024 2025 Volume increase (units) 385,000 500,000 636,000 591,000 568,000 Average selling price/unit 260 240 220 220 220 Total revenues 100,100,000 120,000,000 139,920,000 130,020,000 124,960,000 57,000,000| 55,000,000 Variable production costs 40,000,000 50,000,000 62,000,000 Contribution 60,100,000 70,000,000 77,920,000| 73,020,000 69,960,000 As % of total revenues 60% 58% 56% 56% 56% Fixed production + sales costs 38,000,000 46,000,000 50,000,000 50,000,000 48,000,000 Operating income 22,100,000 24,000,000 27,920,000 23,020,000 21,960,000 As % of total revenues: 22% 20% 20% 18% 18% The fixed production and sales costs in the table (above) are allocations based on the costing system of ChipCo. It is not expected that ChipCo will need to increase its production or distribution capacity to meet incremental demand between 2021 and 2025. The data for selling prices and variable production costs are expected averages for ChipCo and its competitors in the region. Since ChipCo currently holds 70% of the logic device market globally, it is expected that this percentage will decline by roughly one percentage point per year for each year from 2021 to 2025. By investing in software developers, ChipCo unavoidably helps its competitors insofar as they too may gain in sales of logic devices. The cost of capital rate used by ChipCo is 10% per annum and the relevant discount factors are as follows: Table: Discount Factor at 10% per annum Years 10% Start 2021 End 2021 1 0.9091 0.8264 0.7513 2022 2023 2024 2025 0.6830 0.6209 REQUIRED: a. Compute the Net Present Value of the estimated direct returns from the minority equity investments And:
QUESTION 6 ChipCo designs architectures and processors, licensing them to device manufacturers including Dell, Apple, HP and LG for use in various devices such as smart phones, tablet devices and personal computers. Because it is a very large company with a dominant market share (approximately 70%), it expands primarily through seeking ways to increase the total size of the world market for such devices. This involves investing selectively in an "ecosystem" of innovative downstream companies focusing on developing the next generation of mobile infrastructures. It is these kinds of complementary products that may result in an expanding market for ChipCo's devices. ChipCo envisages a total cash investment in these downstream software firms of $400 million as of January 1st 2021. This would be in return for minority shareholdings in them. ChipCo's general policy is to seek to sell the investments to private equity firms or other buyers after a period of 5 years. From extensive analysis of the prospects of the individual software firms, ChipCo conservatively estimates its investments in the software firms will be valued at about $450 million as of December 31st 2025. In addition, ChipCo expects to receive dividends on its investments totaling $2 million annually, received at the end of each year from 2021 to 2025 inclusive. If the software firms are successful, then a most-likely estimate is that total sales of devices will increase, yielding the following results for ChipCo and its competitors:
Transcribed Image Text:QUESTION 6 ChipCo designs architectures and processors, licensing them to device manufacturers including Dell, Apple, HP and LG for use in various devices such as smart phones, tablet devices and personal computers. Because it is a very large company with a dominant market share (approximately 70%), it expands primarily through seeking ways to increase the total size of the world market for such devices. This involves investing selectively in an "ecosystem" of innovative downstream companies focusing on developing the next generation of mobile infrastructures. It is these kinds of complementary products that may result in an expanding market for ChipCo's devices. ChipCo envisages a total cash investment in these downstream software firms of $400 million as of January 1st 2021. This would be in return for minority shareholdings in them. ChipCo's general policy is to seek to sell the investments to private equity firms or other buyers after a period of 5 years. From extensive analysis of the prospects of the individual software firms, ChipCo conservatively estimates its investments in the software firms will be valued at about $450 million as of December 31st 2025. In addition, ChipCo expects to receive dividends on its investments totaling $2 million annually, received at the end of each year from 2021 to 2025 inclusive. If the software firms are successful, then a most-likely estimate is that total sales of devices will increase, yielding the following results for ChipCo and its competitors:
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