Please answer item 20 only.
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19. You are the manager in charge of global operations at BankGlobal-a large com-
mercial bank that operates in a number of countries around the world. You must
decide whether or not to launch a new advertising campaign in the U.S. market. Your
accounting department has provided the accompanying statement, which summarizes
the financial impact of the advertising campaign on U.S. operations. In addition, you
recently received a call from a colleague in charge of foreign operations, and she
indicated that her unit would lose $8 million if the U.S. advertising campaign were
launched. Your goal is to maximize BankGlobal's value. Should you launch the new
campaign? Explain. (LOI, LO6, L07)
Financial Impact on U.S. Operations
Total Revenues
Variable Cost
TV Airtime
Ad development labor
Total variable costs
Direct Fixed Cost
Depreciation-computer equipment
Total direct fixed cost
Indirect Fixed Cost
Managerial salaries
Office supplies
Total indirect foxed cost
Pre-Advertising Campaign
$18,610,900
5,750,350
1,960,580
7,710,930
1,500,000
1,500,000
8,458,100
2,003,500
$10,461,600
Post-Advertising Campaign
$31,980,200
8.610,400
3,102.450
11,712,850
1,500,000
1,500,000
8,458,100
2,003,500
$10,461,600
20. According to The Wall Street Journal, merger and acquisition activity in the first quarter
rose to $5.3 billion. Approximately three-fourths of the 78 first-quarter deals occurred
between information technology (IT) companies. The largest IT transaction of the quarter
was EMC's $625 million acquisition of VMWare. The VMWare acquisition broadened
EMC's core data storage device business to include software technology enabling multiple
operating systems such as Microsoft's Windows, Linux, and OS X-to simultaneously
and independently run on the same Intel-based server or workstation. Suppose that at
the time of the acquisition a weak economy led many analysts to project that VMWare's
profits would grow at a constant rate of 2 percent for the foreseeable future, and that the
ompany's annual net income was $39.60 million. If EMC's estimated portunity cost
of funds is 9 percent, as an analyst, how would you view the acquisition? Would your
conclusion change if you knew that EMC had credible information that the economy was
on the verge of an expansion period that would boost VMWare's projected annual growth
rate to 4 percent for the foreseeable future? Explain. (LOI, LOS, LO6, L07)
21. Recently, European Union (EU) governments approved a five-year EU trade protec-
tion against grain-oriented electrical steel (GOES) from Russia, Japan, China, South
Korea, and the United States. The protection would consist of minimum import prices
on shipments of GOES from any of the five listed countries. This measure was enacted
as a punishment for exporters in these countries for allegedly dumping their product
(i.e., selling below cost) on the European market. The European Steel Association
lauded the plan, noting it would help protect an important subdivision of the steel
industry. However, transformer manufacturers, who use GOES as an input to their pro-
duction, have protested the minimum prices. They argue minimum prices will result in
prices for GOES that are too high and lead some of these manufacturers to downsize
or move production facilities outside the EU. Describe the various rivalries depicted
in this scenario, and then use the five forces framework to analyze the industry.
(LOI, LO3, L04, L07)