What techniques are used in Shrek Essay Example

What techniques are used in Shrek Essay Example What techniques are used in Shrek Paper What techniques are used in Shrek Paper For this piece of coursework I will be evaluating the Technique that is used in the movie trailer of Shrek 2 to attract its target audience. The trailers are ways of launching a new film into market place.Tralier are mainly used for advertising. They contain short clip from the feature film which attract the target audience. The trailer is usually 2 to 3 minutes. Trailer are short because they are only effective for only short period of time as it losses impact. The main jobs of film trailer advertising to show the story in short and persuade the audience to buy film. From the trailer the audience are able to tell what genre (comedy, action, horror, and thriller) and the narrative of film is. From the trailer audience will know who is star of the film are who is the director of film. Films are also promoted in magazines, Newspaper, Internet and posters.  A target audience can depend on age and gender and will contain sound and images that will appeal to that target audience. Trailers are extremely important marketing tool, along with posters as they encourage many people to watch or rent film. Trailer must have many qualities to attract its target audience. It must have a great amount of information in a short amount of time. The target audience in Shrek 2 is all age group because this film can be enjoyed by anyone. Shrek is animated film created by DreamWorks and brought to life by state of the art 3d animation. The music used in the film is also different to other such productions. Instead of the characters bursting in to song all the time, the songs are played by an external person and reflect the mood of the characters in a particular scene. Shrek 2 Film is featured be all star cast providing the voice and a whole host of class new characters in the host of class new character in the enchanting Shrek story. The film has a large intake of digital animation, and has a long list of different animating techniques. Shrek 2 is a computer animated film. The Shrek 2 trailer use various technique to target it audience. One of the techniques used in Shrek 2 trailer is camera angel. Good camera angel is very import ant in any films to attract their target audience. Camera makes audience to view the film from different angel camera shot can make audience to look close-up view of someone or something. Shrek 2 have eye catching colour that will attract most of children. Shrek 2 film trailer highly concentrates on children due to the mixtures of colours and the cartoon characters, it also focus on young adults and adults themselves due to the hummer and animation with star voice throw out the hole movie. The opening of the trailer immediately catches the audience eye as the camera focuses on the words Far Far Away which sit on amounting top, as Shrek, Fiona and Donkey travel by a horse drawn carriage for 700 miles to reach the kingdom of princess Fiona parents . Here Adult humour is shown because the board should traditionally say Hollywood not Far Far away this immediately makes us smile. After the opening clips of the kingdom there is a flash and DreamWorks appears, here a voiceover is used. The voice over is a device that is intended to guide you to understand the film , using the right language and voice tones, to dramatise as much as possible without over hyping. The voice which appears as a standard feature in trailer, build the sense of mystery and suspense. The voice over in Shrek 2 says, DreamWorks invites you to a land of fairytales and then fairytale characters appear like the Pinocchio, ginger bread man, and the three piglets. A voiceover is used to link shots and to increase childrens understandings of what is going to happen in the film. Shrek 2 is aimed at both kids and families. Some scenes in the film were aimed at a specific target audience. For example, the scene where Fairy Godmother makes a performance on the stage and is wearing a red dress and lies down on the piano. There were some scenes that were suitable for kids to watch. For example, the scene where Shrek and other characters found out that Pinocchio wears a thong. Overall, I think the Shrek 2 trailer was persuasive and effective because it has influenced millions of other children and adult across the world to go and watch or buy the film. This was achieved by the producers using a lot of clever and innovative camera shots, sound effects e.g. shots of action and humour. These were sufficient to make people feel and think that this was going to be a great and entertaining film. The trailer had a lot of unique selling point e.g. the actors, Eddie Murphy, Cameron Diaz, Mike Myers and John. These actors are very famous and the best in their field. This is another strong selling point of the film.

The Importance of the Ordeal in the Heros Journey

The Importance of the Ordeal in the Heros Journey The Ordeal is the critical moment in every story, a major source of magic in heroic myth, according to Christopher Vogler, author of The Writers Journey: Mythic Structure. The hero stands in the deepest chamber of the inmost cave and faces a direct confrontation with his greatest fear. No matter what the hero came for, it’s Death that now stares back at her. She is brought to the brink of death in a battle with a hostile force. The hero of every story is an initiate being introduced to the mysteries of life and death, Vogler writes. She must appear to die so she can be reborn, transformed. The ordeal is a major crisis in the story, but its not the climax, which happens closer to the end. The ordeal is usually the central event, the main event of the second act. A crisis, according to Webster’s, is when hostile forces are in the tensest state of opposition. The hero’s crisis, as frightening as it is, is the only way to victory, according to Vogler. Witnesses are an important part of the crisis. Someone close to the hero witnesses the hero’s apparent death and the reader experiences it through their point of view. Witnesses feel the pain of death, and when they realize the hero still lives, their grief, as well as the reader’s, suddenly, explosively, turns to joy, Vogler states. Readers Love to See Heroes Cheat Death Vogler writes that in any story, the writer is trying to lift the reader, raise their awareness, heighten their emotions. Good structure works as a pump on the reader’s emotions as the hero’s fortunes are raised and lowered. Emotions depressed by the presence of death can rebound in an instant to a higher state than before. Just as on a roller coaster, you’re hurled around until you think you might die, Vogler writes, and you get off elated that you’ve survived. Every story needs a hint of this experience or it’s missing its heart. The crisis, a halfway point, is a divide in the hero’s journey: the top of the mountain, the heart of the forest, the depth of the ocean, the most secret place in his soul. Everything in the trip has to lead up to this point, and everything after is about going home. There may be greater adventures to come, the most exciting even, but every journey has a center, a bottom or a peak somewhere near the middle. Nothing will ever be the same after the crisis. The most common ordeal is some sort of battle or confrontation with the opposing force, which usually represents the hero’s own shadow, according to Vogler. No matter how alien the villain’s values, in some way they are the dark reflection of the hero’s own desires, magnified and distorted, her greatest fears come to life. The unrecognized or rejected parts are acknowledged and made conscious despite all their struggles to remain in darkness. Death of the Ego The ordeal in myth signifies the death of the ego. The hero has soared above death and now sees the connectedness of all things. The hero has risked his life for the sake of the larger collective. The Wicked Witch is enraged that Dorothy and her friends have penetrated the inmost cave. She threatens each of them with death. She lights Scarecrow on fire. We feel the horror of his imminent death. Dorothy grabs a bucket of water to save him and ends up melting the witch. We watch her agonizing death instead. After a moment of being stunned, everyone is related, even the witch’s minions. This article is part of our series on the heros journey, starting with The Heros Journey Introduction and The Archetypes of the Heros Journey.

Evaluating practice through theories and models Essay - 1

Evaluating practice through theories and models - Essay Example He was being taken care of by his wife, who was elderly too. The patient had a history of heart failure, diabetes mellitus, and hypertension. His condition was worsened by the fact that he had a low self-esteem, to a point that he wished himself death to unburden his family. He had difficulty in breathing caused by increased ultra filtration. He also had limited water intake because of his renal treatment. In addition to this, he had failed in maintaining his regular food and water balance because he refused to eat and drink. Renal failure also caused him to have difficulty in passing urine (OSU 2013). Mr. Lim depended on his wife and nurses to help him with his activity of daily living (ADL). Mr. Lim and his wife both lacked the critical knowledge of maintaining his condition. These include lack of the will to follow his regimen and dietary adjustments (NKF 2013). Also captured were the psychological effects of the disease on him, and his family’s lack of motivation characterized by depression of both of them. Mr. Lim was negatively affected by these circumstances, and his condition, as a result. Introduction of Orem’s self-deficit theory seemed the best option to get the patient and his family to cope with management of the patient’s condition. Both the patient and his wife were to be subjected to Orem’s self-deficit theory to enable them gain the appropriate knowledge that will benefit all of them. This is because their lack of knowledge of self-care management and supportive education that was essential in Mr. Lim’s management of his chronic condition (Curtin et. al. 2005). Orem’s self-deficit theory was applied, in this case, to improve the condition of Mr. Lim and the psychological well being of his wife. The program took about three months, and the results were encouraging. Mr. Lim was able to portray a positive aura, which was the most essential step in the road to his recovery. This

Business and Professional Communication Essay Example | Topics and Well Written Essays - 750 words

Business and Professional Communication - Essay Example Unlike boys, girls master how to negotiate in a manner that balances their personal needs with those of their peers from childhood. The lessons that people learn during their childhood usually infiltrate into the workplace (Tannen 140). Women tend to use collective pronouns such us â€Å"we† in scenarios where men us â€Å"I†, which makes men most likely to get credit in the workplace for their work. As such, linguistic approach, including pronoun selection determines who gets acknowledged (Tannen 140). Men emerge very insightful of power dynamics when communicating, always attempting to be the ones who control the communication process. On the other hand, women are more accustomed to respond sturdily to relationship dynamic. They often focus on saving other people’s faces (141). One’s mode of speaking reflects who they are and who they aspire to be (Tannen 141). The verbal behavior of an individual determines his or her confidence level. Studies indicate that females are prone to downplaying their certainties whereas men have highest probability to diminish their doubt (Tannen 142). Gender interplays with cultural and individual characteristics in determining one’s propensity to ask questions. Men are less likely to ask questions compared to women because they always want to be one-up (Tannen 142). Societal culture makes conversation a ritual by dictating how individuals speak. The likelihood of a person to get hired depends on the level of his or her ritual o pposition (144). Besides actual authority, which comes from one’s organizational rank, actual authority relies on one’s ability to negotiate effectively. The negotiation skills and power determines the effectiveness of a manager (Tannen 145). Tannen emphasizes that â€Å"people in powerful positions are likely to reward linguistic styles similar to their own† (146). An effective manager needs to be familiar with all communication dynamics in order to

Bulgarian and Romanian Essay Example for Free

Bulgarian and Romanian Essay Bulgarian and Romanian citizens are free to live and work in the I-JK after controls in place since 2007 expired. Home Affairs Select Committee chairman Keith Vaz greeted the first flight from Romania as it landed at Luton airport on Wednesday morning. Romanian Victor Spiersau was aboard and said: l dont come to rob your country. I come to work and go home. The UK has not released forecasts of migrant numbers, but campaigners say up to 50,000 people a year could come. Immigration minister Mark Harper said curbs on access to benefits would ensure hose heading to the uK would contribute to the economy. New arrivals One of the planes passengers, Victor Spiersau, was coming to the country for the first time. Nigel Farage: Its irresponsible to open the door unconditionally The 30-year-old said he already had a car washing Job lined up that would earn him 10 euros (‚Â ¬8) an hour an improvement on the 10 euros a day he received working in the construction industry at home. l dont come to rob your country. I come to work and then go home, he said. Here you paya lot; in Romania its very cheap. Mr Spiersau added: l dont want to stay here. I want to renovate my home and to make a good life in Romania because its much easier to live in Romania because its not expensive. A Home Offce spokesman said the government was working to reduce net migration and would ensure people entering Britain were doing so for the right reasons. However, more than 60 MPs are backing a campaign to extend the restrictions for a further five years, saying the British economy has not sufficiently recovered from the 2008 recession to cope with the change and that It will put pressure on public services and reduce Job opportunltles for Brltlsh workers. Welfare strain Laszlo Andor, the EU commissioner for employment, social affairs and Inclusion, said there were already three million people from Bulgaria and Romania llvlng In other European union member states. continue reading tne maln story Analysis image of Mark Lowen Mark Lowen BBC News, Bucharest Its a special new year for Romanians and Bulgarians, finally gaining equal rights to work freely across the EIJ seven years after their accession. Some, particularly Britain, fear large numbers will come, mindful that a decade ago the government expected 15,000 per year from Eastern Europe but a million and a alf came. No extra flights have been planned from Bucharest but one coach company has tripled services to London. Many here talk of their hopes of a better life with higher salaries but nobody knows quite how many will finally leave. It is unlikely that there will be any major increase following the ending of the final restrictions on Bulgarian and Romanian workers, he said. Mr Andor said his organisation recognised that migrant influxes could strain welfare systems in host countries but since the EIJ provided contingency funds for this it was no reason to put up barriers. He said migrants were essential to economic recovery and must be protected from discrimination. l firmly believe that restricting the free movement of European workers is not the answer to high unemployment or a solution to the crisis, he added. Migration Watch which campaigns for tighter controls on immigration has suggested that many of the two million Romanians and Bulgarians currently working in Spain and Italy could now be tempted to come to the I-JK by the higher wages and access to in-work benefits such as tax credits.

Literature And The Workplace Essay -- Literature Work Labor

Literature and the Workplace The relationship between literature and the workplace environment is primarily one of human emotion and interaction. How a person feels about their work, or the issues faced within the workplace are fodder for fiction, non-fiction, and poetry alike. The majority of the working masses actually have a relatively small number of experiences. Though the work itself may be different, and the specific situations unique, the overall anxiety, fears, and concerns are generally the same. This means the audience for this type of literature is wide. Some of the common themes that are found in the literature of work might include finding one’s vocation and pride in work. These are two of the most positive experiences, and the focus of this paper. The works we will be discussing are the short story, â€Å"My Lack of Gumption,† the essay, â€Å"Pablo Picasso: Living in his own Shadow†, and the poem, â€Å"Old Men Working Concrete.† Each of these works speaks to the pride and passion of the characters doing the work. Literature is a form of expression that allows a greater range of feeling and emotion to be experienced than any other form. Theater must rely on body language and spoken dialect to form a picture and convey feeling. The written word allows insight into the mind, to see and feel what the individual is thinking at the time. Through this work, each person can relate the work to his or her own situation. In this way, literature is interpreted in many different ways depending on the experience and background of the reader. Workplace literature today... ...les; â€Å"Mary Poppins† may provide the inspiration to work with children, brining joy into their life. Young teens may find themselves drawn to Detective stories and pursuing a career in Law Enforcement. The majority of literature has some aspect of human psychology in it. If those humans are employed, there will be an element of work that the reader can relate to and perhaps apply to their own experiences. From technical guides to the literary brilliance of â€Å"Moby Dick†, literature shapes the lives of every reader. It has a place in every environment, be it the workplace or home. Pick up a book, settle under the blanket, and curl up with the mind of the writer – you are sure to find a piece of yourself there. Reference LaRocco, C., & Coughlin, J. (1995). The Art of Work: An anthology of Workplace Literature (one Ed.). Columbus, OH: Glencoe/McGraw-Hill.

Kaplan P4 Mock Exam

ACCA REVISION MOCK June 2010 Question paper Time allowed Reading and planning: Writing: 15 minutes 3 hours This paper is divided into two sections: Section A TWO compulsory questions Section B TWO questions ONLY to be attempted Formulae Sheet and Mathematical Tables are on pages 3, 4, 5, 6 and 7 Do NOT open this paper until instructed by the supervisor This question paper must not be removed from the examination hall Kaplan Publishing/Kaplan Financial KAPLAN PUBLISHING Page 1 of 14 Paper P4 Advanced Financial Management ACCA P4 Advanced Financial Management  © Kaplan Financial Limited, 2010 All rights reserved.No part of this examination may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without prior permission from Kaplan Publishing. The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. Please consult your appropriate professional adviser as necessary.Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials. Page 2 of 14 KAPLAN PUBLISHING Revision Mock Questions FORMULAE SHEET Modigliani and Miller proposition 2 (with tax) ke = kie + (1 ? T)(kie ? kd) Vd Ve Two asset portfolio sp = 2 2 w a s a + w 2 s 2 + 2w a w b rab s a s b b b The capital asset pricing model E(ri) = Rf + ? i(E(rm) ? Rf) The asset beta formula ? ? ? Vd (1 ? T ) ? Ve ? a = ? ?e ? + ? ?d ? ? (Ve + Vd (1 ?T )) ? ? Ve + Vd (1 ? T )) ? The growth model Po = D o (1 + g ) (re ? g) Gordon’s growth approxi mation g = bre The weighted average cost of capital ? Ve ? ? Vd ? WACC = ? ?k e + ? ? k d (1 ? T ) ? Ve + Vd ? ? Ve + Vd ? The Fisher formula (1+i) = (1+r)(1+h) Purchasing power parity and interest rate parity s1 = S o x (1 + h c ) (1 + h b ) f0 = so x (1 + i c ) (1 + i b ) KAPLAN PUBLISHING Page 3 of 14 ACCA P4 Advanced Financial Management The Black-Scholes option pricing model c = PaN(d1) – PeN(d2)e? rt Where: The forex modified Black-Scholes option pricing model c = e? rt [F0N(d1) ? XN(d2)] Or d1 = In(Pa / Pe ) + (r + 0. 5s ) t s t p = e–rt [XN(? d2) ? F0N(? d1)] Where: d 2 = d1 ? s t d1 = and 1n (F0 / X) + s T / 2 s T 2 d 2 = d1 ? s T The put call parity relationship p = c ? Pa + Pee? rt Modified Internal Rate of Return ? PV ? n MIRR = ? R ? (1 + re) – 1 ? PV1 ? 1 Page 4 of 14 KAPLAN PUBLISHING Revision Mock Questions MATHEMATICAL TABLES Standard normal distribution table 0. 00 . 0000 . 0398 . 0793 . 1179 . 1554 . 1915 . 2257 . 2580 . 2881 . 3159 . 3413 . 3 643 . 3849 . 4032 . 4192 . 4332 . 4452 . 4554 . 4641 . 4713 . 4772 . 4821 . 4861 . 4893 . 4918 . 4938 . 4953 . 4965 . 4974 . 4981 . 4987 0. 01 . 0040 . 0438 . 0832 . 1217 . 1591 . 1950 . 2291 . 2611 . 910 . 3186 . 3438 . 3665 . 3869 . 4049 . 4207 . 4345 . 4463 . 4564 . 4649 . 4719 . 4778 . 4826 . 4865 . 4896 . 4920 . 4940 . 4955 . 4966 . 4975 . 4982 . 4987 0. 02 . 0080 . 0478 . 0871 . 1255 . 1628 . 1985 . 2324 . 2642 . 2939 . 3212 . 3461 . 3686 . 3888 . 4066 . 4222 . 4357 . 4474 . 4573 . 4656 . 4726 . 4783 . 4830 . 4868 . 4898 . 4922 . 4941 . 4956 . 4967 . 4976 . 4983 . 4987 0. 03 . 0120 . 0517 . 0910 .1293 . 1664 . 2019 . 2357 . 2673 . 2967 . 3238 . 3485 . 3708 . 3907 . 4082 . 4236 . 4370 . 4485 . 4582 . 4664 . 4732 . 4788 . 4834 . 4871 . 4901 . 4925 . 4943 . 4957 . 4968 . 4977 . 4983 . 4988 0. 04 . 0159 . 0557 . 0948 . 331 . 1700 . 2054 . 2389 . 2704 . 2995 . 3264 . 3508 . 3729 . 3925 . 4099 . 4251 . 4382 . 4495 . 4591 . 4671 . 4738 . 4793 . 4838 . 4875 . 4904 . 4927 . 4945 . 4959 . 4969 . 4977 . 4984 . 4988 0. 05 . 0199 . 0596 . 0987 . 1368 . 1736 . 2088 . 2422 . 2734 . 3023 . 3289 . 3531 . 3749 . 3944 . 4115 . 4265 . 4394 . 4505 . 4599 . 4678 . 4744 . 4798 . 4842 . 4878 . 4906 . 4929 . 4946 . 4960 . 4970 . 4978 . 4984 . 4989 0. 06 . 0239 . 0636 . 1026 . 1406 . 1772 . 2123 . 2454 . 2764 . 3051 . 3315 . 3554 . 3770 . 3962 . 4131 . 4279 . 4406 . 4515 . 4608 . 4686 . 4750 . 4803 . 4846 . 4881 . 4909 . 4931 . 4948 . 4961 . 4971 . 4979 . 4985 . 989 0. 07 . 0279 . 0675 . 1064 . 1443 . 1808 . 2157 . 2486 . 2794 . 3078 . 3340 . 3577 . 3790 . 3980 . 4147 . 4292 . 4418 . 4525 . 4616 . 4693 . 4756 . 4808 . 4850 . 4884 . 4911 . 4932 . 4949 . 4962 . 4972 . 4980 . 4985 . 4989 0. 08 . 0319 . 0714 . 1103 . 1480 . 1844 . 2190 . 2518 . 2823 . 3106 . 3365 . 3599 . 3810 . 3997 . 4162 . 4306 . 4430 . 4535 . 4625 . 4699 . 4762 . 4812 . 4854 . 4887 . 4913 . 4934 . 4951 . 4963 . 4973 . 4980 . 4986 . 4990 0. 09 . 0359 . 0753 . 1141 . 1517 . 1879 . 2224 . 2549 . 2852 . 3133 . 3389 . 3621 . 3830 . 4015 . 4177 . 4319 . 4441 . 4545 . 4633 . 4706 . 4767 . 4817 . 4857 . 4890 . 4916 . 4936 . 952 . 4964 . 4974 . 4981 . 4986 . 4990 0. 0 0. 1 0. 2 0. 3 0. 4 0. 5 0. 6 0. 7 0. 8 0. 9 1. 0 1. 1 1. 2 1. 3 1. 4 1. 5 1. 6 1. 7 1. 8 1. 9 2. 0 2. 1 2. 2 2. 3 2. 4 2. 5 2. 6 2. 7 2. 8 2. 9 3. 0 This table can be used to calculate N (d1), the cumulative normal distribution function needed for the Black-Scholes model of option pricing. If d1 > 0, add 0. 5 to the relevant number above. If d1 < 0, subtract the relevant number above from 0. 5. KAPLAN PUBLISHING Page 5 of 14 ACCA P4 Advanced Financial Management Present value table Present value of ? 1, i. e. (1 + r)-n where r = discount rate n = number of periods until paymentPeriods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Periods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1% 0. 990 0. 980 0. 971 0. 961 0. 951 0. 942 0. 933 0. 923 0. 914 0. 905 0. 896 0. 887 0. 879 0. 870 0. 861 2% 0. 980 0. 961 0. 942 0. 924 0. 906 0. 888 0. 871 0. 853 0. 837 0. 820 0. 804 0. 788 0. 773 0. 758 0. 743 3% 0. 971 0. 943 0. 915 0. 888 0. 863 0. 837 0. 813 0. 789 0. 766 0. 744 0. 722 0. 701 0. 681 0. 661 0. 642 4% 0. 962 0. 925 0. 889 0. 855 0. 822 0. 790 0. 760 0. 731 0. 703 0. 676 0. 650 0. 625 0. 601 0. 577 0. 555 5% 0. 952 0. 907 0. 864 0. 823 0. 784 0. 746 0. 711 0. 677 0. 645 0. 614 0. 585 0. 557 0. 530 0. 505 0. 481 6% 0. 43 0. 890 0. 840 0. 792 0. 747 0. 705 0. 665 0. 627 0. 592 0. 558 0. 527 0. 497 0. 469 0. 442 0. 417 7% 0. 935 0. 873 0. 816 0. 763 0. 713 0. 666 0. 623 0. 582 0. 544 0. 508 0. 475 0. 444 0. 415 0. 388 0. 362 8% 0. 926 0. 857 0. 794 0. 735 0. 681 0. 630 0. 583 0. 540 0. 500 0. 463 0. 429 0. 397 0. 368 0. 340 0. 315 9% 0. 917 0. 842 0. 772 0. 708 0. 650 0. 596 0. 547 0. 502 0. 460 0. 422 0. 388 0. 356 0. 326 0. 299 0. 275 10% 0. 909 0. 826 0. 751 0. 683 0. 621 0. 564 0. 513 0. 467 0. 424 0. 386 0. 350 0. 319 0. 290 0. 263 0. 239 11% 0. 901 0. 812 0. 731 0. 659 0. 593 0. 535 0. 482 0. 434 0. 391 0. 352 0. 317 0. 286 0. 258 0. 232 0. 209 2% 0. 893 0. 797 0. 712 0. 636 0. 567 0. 507 0. 452 0. 404 0. 361 0. 322 0. 287 0. 257 0. 229 0. 205 0. 183 13% 0. 885 0. 783 0. 693 0. 613 0. 543 0. 480 0. 425 0. 376 0. 333 0. 295 0. 261 0. 231 0. 204 0. 181 0. 160 14% 0. 877 0. 769 0. 675 0. 592 0. 519 0. 456 0. 400 0. 351 0. 308 0. 270 0. 237 0. 208 0. 182 0. 160 0. 140 15% 0. 870 0. 756 0. 658 0. 572 0. 497 0. 432 0. 376 0. 327 0. 284 0. 247 0. 215 0. 187 0. 163 0. 141 0. 123 16% 0. 862 0. 743 0. 641 0. 552 0. 476 0. 410 0. 354 0. 305 0. 263 0. 227 0. 195 0. 168 0. 145 0. 125 0. 108 17% 0. 855 0. 731 0. 624 0. 534 0. 456 0. 390 0. 333 0. 285 0. 243 0. 208 0. 178 0. 152 0. 130 0. 11 0. 095 18% 0. 847 0. 718 0. 609 0. 516 0. 437 0. 370 0. 314 0. 266 0. 225 0. 191 0. 162 0. 137 0. 116 0. 099 0. 084 19% 0. 840 0. 706 0. 593 0. 499 0. 419 0. 352 0. 296 0. 249 0. 206 0. 176 0. 148 0. 124 0. 104 0. 088 0. 074 20% 0. 833 0. 694 0. 579 0. 482 0. 402 0. 335 0. 279 0. 233 0. 194 0. 162 0. 135 0. 112 0. 933 0. 078 0. 065 Page 6 of 14 KAPLAN PUBLISHING Revision Mock Questions Annuity table 1- (1+ r) -n r Present value of an annuity of ? 1, i. e. where r = interest rate n = number of periods Periods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1% 0. 990 1. 970 2. 941 3. 902 4. 853 5. 795 6. 728 7. 652 8. 566 9. 471 10. 37 11. 6 12. 13 13. 00 13. 87 2% 0. 980 1. 942 2. 884 3. 808 4. 713 5. 601 6. 472 7. 325 8. 162 8. 893 9. 787 10. 58 11. 35 12. 11 12. 85 3% 0. 971 1. 913 2. 829 3. 717 4. 580 5. 417 6. 230 7. 020 7. 786 8. 530 9. 253 9. 954 10. 63 11. 30 11. 94 4% 0. 962 1. 886 2. 775 3. 630 4. 452 5. 242 6. 002 6. 733 7. 435 8. 111 8. 760 9. 385 9. 986 10. 56 11. 12 5% 0. 952 1. 859 2. 723 3. 546 4. 329 5. 076 5. 786 6. 463 7. 108 7. 722 8. 306 8. 863 9. 394 9. 899 10. 38 6% 0. 943 1. 833 2. 673 3. 465 4. 212 4. 917 5. 582 6. 210 6. 802 7. 360 7. 887 8. 384 8. 853 9. 295 9. 712 7% 0. 935 1. 808 2. 624 3. 387 4. 100 4. 767 5. 389 5. 971 6. 515 7. 024 7. 499 7. 43 8. 358 8. 745 9. 108 8% 0. 926 . 178 3 2. 577 3. 312 3. 993 4. 623 5. 206 5. 747 6. 247 6. 710 7. 139 7. 536 7. 904 8. 244 8. 559 9% 0. 917 1. 759 2. 531 3. 240 3. 890 4. 486 5. 033 5. 535 5. 995 6. 418 6. 805 7. 161 7. 487 7. 786 8. 061 10% 0. 909 1. 736 2. 487 3. 170 3. 791 4. 355 4. 868 5. 335 5. 759 6. 145 6. 495 6. 814 7. 103 7. 367 7. 606 Periods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 11% 0. 901 1. 713 2. 444 3. 102 3. 696 4. 231 4. 712 5. 146 5. 537 5. 889 6. 207 6. 492 6. 750 6. 982 7. 191 12% 0. 893 1. 690 2. 402 3. 037 3. 605 4. 111 4. 564 4. 968 5. 328 5. 650 5. 938 6. 194 6. 424 6. 628 6. 811 13% 0. 885 1. 668 2. 361 2. 74 3. 517 3. 998 4. 423 4. 799 5. 132 5. 426 5. 687 5. 918 6. 122 6. 302 6. 462 14% 0. 877 1. 647 2. 322 2. 914 3. 433 3. 889 4. 288 4. 639 4. 946 5. 216 5. 453 5. 660 5. 842 6. 002 6. 142 15% 0. 870 1. 626 2. 283 2. 855 3. 352 3. 784 4. 160 4. 487 4. 772 5. 019 5. 234 5. 421 5. 583 5. 724 5. 847 16% 0. 862 1. 605 2. 246 2. 798 3. 274 3. 685 4. 039 4. 344 4. 607 4. 833 5. 029 5. 197 5. 342 5. 468 5. 575 17% 0. 855 1. 585 2. 210 2. 743 3. 199 3. 589 3. 922 4. 207 4. 451 4. 659 4. 836 4. 988 5. 118 5. 229 5. 324 18% 0. 847 1. 566 2. 174 2. 690 3. 127 3. 496 3. 812 4. 078 4. 303 4. 494 4. 656 4. 793 4. 910 5. 008 5. 092 19% 0. 840 1. 47 2. 140 2. 639 3. 058 3. 410 3. 706 3. 954 4. 163 4. 339 4. 586 4. 611 4. 715 4. 802 4. 876 20% 0. 833 1. 528 2. 106 2. 589 2. 991 3. 326 3. 605 3. 837 4. 031 4. 192 4. 327 4. 439 4. 533 4. 611 4. 675 KAPLAN PUBLISHING Page 7 of 14 ACCA P4 Advanced Financial Management SECTION A TWO COMPULSORY QUESTIONS QUESTION 1 (a) Hunt plc is a medium sized UK company that trades with companies in several European countries. Trade deals over the next three months are shown below. Assume that it is now 20 April. Two months’ time Receipts Payments ? â‚ ¬393,265 ? ? ? ? Three months’ time Receipts Payments â‚ ¬491,011 â‚ ¬60,505 â‚ ¬890,217 â‚ ¬1,997,651 Kr 8. m ? France Germany Denmark Foreign exchange rates Spot Two months f orward Three months forward Dkroner (Kr)/? 10. 68 – 10. 71 10. 74 – 10. 77 10. 78 – 10. 83 Euro (â‚ ¬)/? 1. 439 – 1. 465 1. 433 – 1. 459 1. 431 – 1. 456 Annual interest rates (valid for two months or three months) Borrowing (%) United Kingdom 7. 50 France 5. 75 Germany 5. 75 Denmark 8. 00 Investing (%) 5. 50 3. 50 3. 50 6. 00 Futures market rates Three month Euro contracts (125,000 Euro contract size). Contracts are for buying or selling Euros. Futures prices are in ? per Euro. Current 20 April June September December 0. 6964 0. 6983 0. 013 Page 8 of 14 KAPLAN PUBLISHING Revision Mock Questions Required: (i) Using the forward market, money market and currency futures market as appropriate, devise a foreign exchange hedging strategy that is expected to maximise the cash flows of Hunt plc at the end of the three month period. (Note: Denmark is not a member of the Euro block. ) Transaction costs and margin requirements may be ignored for thi s part of the question. The basis may be assumed to reduce to zero in a linear manner over the period to expiry of the futures contracts. Futures contracts may be assumed to mature at the month end. 15 marks) (ii) Successive daily prices on the futures market for a June contract which Hunt plc has sold are: Selling price Day 1 Day 2 Day 3 0. 6916 0. 6930 0. 6944 0. 6940 Initial margins are ? 1,000 per contract. Variation margin is 100% of the initial margin. Spot exchange rates may be assumed to not change significantly during these three days. For each of the three days, show the effect on your cash flow of the price changes of the contract. (4 marks) (b) Discuss the advantages and disadvantages of forward contracts and currency futures for hedging against foreign exchange risk. 6 marks) (Total: 25 marks) KAPLAN PUBLISHING Page 9 of 14 ACCA P4 Advanced Financial Management QUESTION 2 Brookday plc is considering whether to establish a subsidiary in the USA. The subsidiary would cost a total of $20 million, including $4 million for working capital. A suitable existing factory and machinery have been located and production could commence quickly. A payment of $19 million would be required immediately, with the remainder required at the end of year 1. Production and sales are forecast at 50,000 units in the first year and 100,000 units per year thereafter.The unit sales price, unit variable cost and total fixed costs in year 1 are expected to be $100, $40 and $1 million respectively. After year 1 prices and costs are expected to rise at the same rate as the previous year’s level of inflation in the USA; this is forecast to be 5% per year for the next five years. In addition, a fixed royalty of ? 5 per unit will be payable to the parent company, payment to be made at the end of each year. Brookday has a four year planning horizon and estimates that the realisable value of the fixed assets in four years’ time will be $20 million.It is the company†™s policy to remit the maximum funds possible to the parent company at the end of each year. Assume that there are no legal complications to prevent this. Brookday currently exports to the USA yielding an after-tax net cash flow of ? 100,000. No production will be exported to the USA if the subsidiary is established. It is expected that new export markets of a similar worth in Southern Europe could replace exports to the USA. United Kingdom production is at full capacity and there are no plans for further expansion in capacity. Tax on the company’s profits is at a rate of 50% in both countries, payable one year in arrears.A double taxation treaty exists between the UK and USA and no double taxation is expected to arise. No withholding tax is levied on royalties payable from the USA to the UK. Tax allowable depreciation is at a rate of 25% on a straight line basis on all fixed assets. Brookday believes that the appropriate beta for this investment is 1. 2. The market rate of return is 12%, and the risk-free rate is 7%. The current spot exchange rate is US $1. 300/? 1, and the pound is expected to fall in value by approximately 5% per year relative to the US dollar.Required: (a) Evaluate the proposed investment from the viewpoint of Brookday plc. State clearly any assumptions that you make. (20 marks) (b) What further information and analysis might be useful in the evaluation of this project? (10 marks) Briefly discuss ethical issues that might need to be considered as part of a multinational company’s investment decision process (5 marks) (Total: 35 marks) (c) Page 10 of 14 KAPLAN PUBLISHING Revision Mock Questions SECTION B TWO QUESTIONS ONLY TO BE ATTEMPTED QUESTION 3 The following data relates to a large company operating in the electronics industry. 0X3 After tax earnings (? million) Dividend per share (pence) Number of ordinary shares (million) Average share price (pence) Net capital investment (? million) Annual increase in inflation (%) 1 30 9. 75 508 740 210 4 20X4 195 11. 0 600 875 270 4 20X5 255 12. 75 650 690 340 3 20X6 295 14. 0 695 20X7 472 15. 5 930 820 1,012 410 520 3 3 A major institutional shareholder has criticised the level of dividend payment of the company suggesting that it should be substantially increased. Required: (a) Briefly discuss the factors that are likely to influence the company's dividend policy. 6 marks) Discuss whether or not the institutional shareholder's criticism is likely to be valid. (6 marks) Hiome plc has experienced a period of above average growth for its industry, but is now growing at a normal rate of about 10% per annum. The company’s directors are reviewing the current dividend policy. One director has suggested that, as the company no longer needs as much internally generated funds to finance new investment, a higher proportion of earnings should be paid out as dividends in order to benefit the company’s shareholders.Another director has read that two eminent economists, Miller and Modigliani, have stated that the pattern of dividend payouts is irrelevant, and therefore shareholders will experience no gain from a higher level of dividends. Discuss whether or not an increase in dividends is likely to benefit the shareholders of Hiome plc. (8 marks) (Total: 20 marks) (b) (c) KAPLAN PUBLISHING Page 11 of 14 ACCA P4 Advanced Financial Management QUESTION 4 (a) One of the most important elements of any decision is the specification of goals or objectives which the decision maker seeks to achieve.The literature on capital budgeting, or investment appraisal, generally assumes the goal of a company is the maximisation of shareholder wealth. Required: Discuss the rationale for this assumption. Include in your discussion an explanation of alternative goals available to companies. (12 marks) (b) XYZ plc is a medium-sized company operating in the chemical industry. It is a profitable business, currently producing at below maximum capacity. It has on e large factory located on the outskirts of a small industrial town. It is the region’s main employer. The company is evaluating a project which has substantial environmental implications.Required: Discuss the inclusion of environmental costs and benefits into the investment appraisal process, and explain how this might be done. (8 marks) (Total: 20 marks) QUESTION 5 Island Energy Ltd is a small private company on the Island of Senyeh ? a small island whose company law and accountancy practices are based on those of the UK. The company is the monopoly provider of all domestic fuels (electricity, gas and heating oil). The company imports oils and gas and generates and distributes its own electricity. The company currently has 20 staff working on engineering and electrical work at varying level of skills and three clerk/typists.The company at present does not have any management staff: the previous Managing Director (an engineer) resigned at the end of 2006 and has not been rep laced; the Chairman (a retired engineer) has taken over the dayto-day management. The remaining board members are also all retired and comprise two lawyers, a teacher, a politician, an engineer and an operations director for a shipping company. Their role is simply to rubber-stamp the Chairman’s decisions – none of them takes an active role in the company and there have been board meetings where it has been difficult to obtain a quorum.Recently the island’s press has started to express concern about the way the company is being run – partly in reaction to public dismay at the resignation of the MD who was felt to be more approachable than the Chairman, and partly because the company is seen to be spending vast sums of money on capital equipment and worries have started to emerge about how this will impact on the price of fuel. Fuel prices on Senyeh are currently 20% above those on other islands in the region. Page 12 of 14 KAPLAN PUBLISHING Revision Mock QuestionsPengers, a member of the government of Senyeh has recently read an article about corporate failure and thinks that Island Energy Ltd may fit some of the criteria; Lakes, another government member, disagrees – arguing that the Chairman has been in place for several years ? and has asked you, a newly qualified ACCA accountant, to apply the model to show that there is no reason for concern. N. B. Accounting data for the company is presented in the Appendix to this question. You find that the model that Pengers read about was Altman’s Z score model applied to private manufacturing companies and that: Z score = 0. 17X1+ 0. 847X2 + 3. 107X3 + 0. 420X4 + 0. 998X5 where: X1 = working capital/total assets X2 = retained earnings/total assets X3 = earnings before interest and tax/total assets X4 = market value of equity/total liabilities X5 = sales/total assets Further research shows that companies with a score less than 1. 23 have a 95% chance of bankruptcy, those with a score greater than 2. 90 are unlikely to become bankrupt and those in between the two figures require additional scrutiny. (a) Calculate the Z score for Island Energy Ltd and comment upon your findings. 12 marks) (b) List any further concerns you may have about the company and any concerns you may have about the use of the model. (8 marks) (Total: 20 marks) Appendix: Island Energy Ltd Income Statement for the year ended 31 December 20X7 TURNOVER Less: Cost of sales GROSS PROFIT Less: Administrative costs OPERATING PROFIT/(LOSS) Bank charges and interest payable PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION Tax on profit on ordinary activities PROFIT/(LOSS) FOR THE FINANCIAL YEAR NET DIVIDEND PAID (NON-EQUITY) TRANSFER TO/(FROM) RESERVES ? 2,374,087 ? 1,923,872 450,215 ? 381,592 68,623 ? 3,999 64,624 ? 8,753 55,871 ? ,120 54,751 KAPLAN PUBLISHING Page 13 of 14 ACCA P4 Advanced Financial Management Island Energy Ltd Statement of Financial Position as at 31 December 20X7 ? NON CURREN T ASSETS Tangible assets CURRENT ASSETS Inventory Receivables Cash at bank and in hand ? 1,622,009 213,979 275,522 487,953 ––––––––– 977,454 ––––––––– TOTAL ASSETS 2,599,463 ––––––––– CAPITAL AND LIABILITIES CURRENT LIABILITIES – TRADE PAYABLES LONG-TERM LOAN CAPITAL AND RESERVES CALLED-UP SHARE CAPITAL RESERVES General reserve Profit and loss reserve 586,117 400,000 64,405 1,129,584 419,357 ––––––––– 1,548,941 ––––––––– TOTAL CAPITAL AND LIABILITIES 2,599,463 –––––––– Page 14 of 14 KAPLAN PUBLISHING ACCA Paper P4 Advanced Financial Management June 2010 Revision Mock – Answers To gain maximum benefit, do not refer to these answers until you have completed the revision mock questions and submitted them for marking. KAPLAN PUBLISHING Page 1 of 17 ACCA P4 Advanced Financial Management  © Kaplan Financial Limited, 2010 All rights reserved. No part of this examination may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without prior permission from Kaplan Publishing.The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. Please consult your appropriate professional adviser as necessary. Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials.Page 2 of 17 KAPLAN PUBLISHING Revision Mock Answers ANSWER 1 (a) (i) Any hedging should be based upon expected net receipts and payments. Net receipts/payments Receipts Two months Three months Three months Forward market hedge 393,265 1. 433 676,928 1. 431 Kr8. 6m 10. 83 Payments â‚ ¬393,265 â‚ ¬676,928 Kr 8. 6m Two months = (? 274,435) Three months = (? 473,045) Three months = ?794,090 Money market hedge (i) Now Payment Euro deposit rate (1. 005833) 2 months (â‚ ¬393,265) Buy Deposit â‚ ¬390,984 (â‚ ¬393,265) 0 Buy at spot (Immediate payment in ? s) 1. 439 (? 271,705) (1. 0125) UK borrowing rate (? 275,101) Forward market The forward market is cheaper.Payment (? 274,435) KAPLAN PUBLISHING Page 3 of 17 ACCA P4 Advanced Financial Management Now Payment Euro deposit rate (1. 00875) 3 months (â‚ ¬676,928) Buy Deposit â‚ ¬671 ,056 (â‚ ¬676,928) 0 Buy at spot (Immediate payment in ? s) 1. 439 (? 466,335) (1. 01875) UK borrowing rate (? 475,079) Forward market The forward market is cheaper. Now Receipt Danish borrowing rate (1. 02) Payment (? 473,045) 3 months Kr8,600,000 Sell Loan Kr8,431,373 (Kr8,600,000) 0 Sell at spot (Immediate receipt in ? s) 10. 71 ? 787,243 (1. 01375) UK deposit rate ? 798,068 Forward market The money market offers the better alternative in this case.Futures hedge – The currency of the contract is Euros Payment of â‚ ¬393,265 1 Set up the hedge: Payment in Euros Buying Euros Buy E contracts Receipt ? 794,090 Number of contracts: = â‚ ¬393,265 ? â‚ ¬125,000 = 3. 15 contracts say 3 contracts Buy 3 â‚ ¬ June future contracts at a current price of ? 0. 6964 Page 4 of 17 KAPLAN PUBLISHING Revision Mock Answers 2 The play off: Now 20 April Spot market ? /Euro (1/1. 439) Futures market ? /Euro ? 0. 6964 Basis 0. 0015 ? 0. 6980 (BAL) 0. 0002 10 days of 71 left BASIS N IL Conversion date 20 June Expiry date 30/6 ?0. 6949 Fwd rate 1/1. 433, i. e ? 0. 6978 3 Profit on the futures: Profit on futures: ? 0. 6980-0. 6964) ? (125,000 ? 3) = ? 600. In sterling, therefore no need to convert. 4 The cash flows: Actual payment: Profit on futures Net payment â‚ ¬393,265 ? 0. 6978 = (? 274,420) ? 600 –––––––– (? 273,820) –––––––– In this case, the futures alternative is cheaper than the forward market. Payment of â‚ ¬676,928 1 Set up the hedge: Payment in Euros Buying Euros Buy E contracts No of contracts = â‚ ¬676,928 ? â‚ ¬125,000 = 5. 42 contracts say 5 contracts Buy 5 E September future contracts at a current price of ? 0. 6983 KAPLAN PUBLISHING Page 5 of 17 ACCA P4 Advanced Financial Management 2 The play off: Now 20 April Spot market ? /Euro (1/1. 39) Futures market ? /Euro ? 0. 6983 Basis 0. 0034 ? 0. 7003 (BAL) 0. 0015 BASIS NIL 72 days of 163 left Conversion date 20 July Expiry date 30/9 ?0. 6949 Fwd rate 1/1. 431 i. e. ?0. 6988 3 Profit on the futures: Profit on futures: ? (0. 7003-0. 6983) ? (125,000 x 5) = ? 1,250. In sterling, therefore no need to convert. 4 The cash flows: Actual payment: Profit on futures Net payment â‚ ¬676,928 ? 0. 6988 = (? 473,037) ? 1,250 –––––––– (? 471,787) –––––––– Again, the futures are cheaper than the forward market. In conclusion, the money market should be used for the Danish Kroner hedge and the futures market for the Euro hedges.Although in reality the outcome of futures hedges is not known with certainty, as the basis will probably not reduce to zero in a linear manner before the expiry dates, i. e. we do not know what the closing futures price will be. (ii) Day one – a movement from 0. 6916 to 0. 6930 would produce a loss of 125,000 (0. 0014) or ? 1 75. You would need to provide an extra ? 175 to maintain the margin at ? 1,000, otherwise the contract will be closed out by the Clearing House. Day two – the price change is the same and a further ? 175 would need to be provided to maintain the required margin. Day three – a profit is made of 125,000 (0. 944 – 0. 6940) or ? 50, which may be taken in cash. Page 6 of 17 KAPLAN PUBLISHING Revision Mock Answers (b) Forward contracts Advantages (i) Forward contracts on the Over The Counter (OTC) market are tailored to the needs of the parties concerned and are flexible in terms of size and maturity. (ii) No payments are required until the contracts are settled. (iii) Contracts are available in a very wide range of currencies. Disadvantages (i) Forward contracts have two prices, a buying and a selling price, which means that companies must bear the cost of the spread between these prices. ii) Prices can vary according to the size of deal and the customer. (iii) Long maturity contracts are rare (normally six months) and some currencies do not have a forward market. Currency futures Advantages (i) There is a single specified price which is transparent. (ii) As the market’s Clearing House is the formal counter party to every transaction. This effectively reduces counter party default risk for those dealing in futures. Disadvantages (i) Futures contracts are not very flexible. Contracts are only of a specified size and maturity and are only available for a very limited number of currencies. ii) The cost of operating the margin system. An initial margin (deposit) is required and further variation margins are necessary on a daily basis. KAPLAN PUBLISHING Page 7 of 17 ACCA P4 Advanced Financial Management ACCA marking scheme (a) (i) Use of net receipts and payments Forward market Money market Futures market Conclusions Maximum (ii) Understanding of variation margin Day 1 and 2 loss Day 3 gain Maximum Marks 1 2 4 6 2 ___ 15 ___ 1 2 1 ___ 4 ___ ( b) Advantages and disadvantages of forward contracts Advantages and disadvantages of futures 3-4 3-4 Max 6 Total ___ 25 ___ Page 8 of 17 KAPLAN PUBLISHING Revision Mock Answers ANSWER 2 a) Brookday’s stated policy is to remit the maximum funds possible to the parent company. The net present value of relevant cash flows to the parent company will be the appropriate decision criterion, and should lead to maximisation of parent shareholder wealth. The dollar profit and relevant cash flow from the subsidiary must be determined first. Projected earnings data of the US subsidiary Year 1 $000 5,000 2,000 1,000 309 4,000 7,309 (2,309) 0 (2,309 Year 2 $000 10,500 4,200 1,050 586 4,000 9,836 664 0 664 Year 3 $000 11,025 4,410 1,102 557 4,000 10,069 956 0 956 Year 4 $000 11,580 4,630 1,158 529 4,000 10,317 1,263 0 1,263 Year 5 $000Sales (Note 1) Variable costs Fixed costs Royalty (Note 2) Depreciation Taxable profit US tax payable (Note 3) Profit after tax (287) (287) Projected cash flo w data of the US subsidiary Year 0 $000 Profit after tax Depreciation Initial investment Additional capital Realisable value of fixed assets (Note 4) Tax on realisable value Working capital available Cash flows available to parent Exchange rate $/? (W2) Year 1 $000 (2,309) 4,000 (19,000) (1,000) Year 2 $000 664 4,000 Year 3 $000 956 4,000 Year 4 $000 1,263 4,000 Year 5 $000 (287) 20,000 (10,000) 4,000 –––––– ––––––– ––––––– ––––––– ––––––– ––––––– (19,000) 1. 300 691 1. 235 4,664 1. 173 4,956 29,263 (10,287) 1. 115 1. 059 1. 006 KAPLAN PUBLISHING Page 9 of 17 ACCA P4 Advanced Financial Management Projected cash flow data for the parent company Year 0 Year 1 Year 2 ? 000 ? 000 ? 000 Available from US s ubsidiary (14,615) 559 3,976 Royalty payment 250 500 UK tax on royalty (Note 5) (125) Net cash flow Discount factors @ 13% (Note 6) Present values (14,615) 1 (14,615) 809 0. 885 716 4,351 0. 783 3,407 Year 3 ? 000 4,445 500 (250) 4,695 0. 693 3,254 Year 4 ? 000 27,633 500 (250) 27,883 0. 13 17,092 Year 5 ? 000 (10,226) (250) (10,476) 0. 543 (5,688) Net present value = ? 4,166,000 The positive NPV means that the project is acceptable. The loss of exports to the USA if the project is undertaken is not a relevant cash flow. Notes: 1 Sales price increases by 5% per year Year 1 Year 2 Year 3 Year 4 Price 100. 00 105. 00 110. 25 115. 80 Units (000) 50 100 100 100 Sales revenue (000) 5,000 10,500 11,025 11,580 Similar calculations are necessary for variable costs, and price adjustments for fixed costs. 2 The royalty is payable in ? s and will depend upon the $/? exchange rate.The ? is expected to fall in value by 5% per year relative to the $. Year 1 Expected exchange rate $/? Royalty (? 0 00) Royalty ($000) 3 4 1. 235 250 309 Year 2 1. 173 500 586 Year 3 1. 115 500 557 Year 4 1. 059 500 529 Year 5 1. 006 5 Losses are assumed to be carried forward and allowed against future profits for taxation purposes. Although the subsidiary will exist for more than four years, the company’s planning horizon is only four years. A value must be placed upon the subsidiary at this time. The only information available is an estimate of realisable value of fixed assets.Tax on this realisable value will be payable as the assets are fully depreciated. Potential working capital available must also be considered. There will be no double taxation on cash flows from the USA. However, the royalty has not been subject to US tax, and will be liable to UK taxation. Page 10 of 17 KAPLAN PUBLISHING Revision Mock Answers 6 Using the capital asset pricing model to determine the discount rate: R project = R project = = RF + (RM ? RF)? project 7% + (12% ? 7%) 1. 2 13% (b) Further information and analysis might include: (i) How accurate are the cash flow forecasts? How have they been established? ii) Why has a four-year planning horizon been chosen? The valuation of the fixed assets at year 4 is highly significant to the NPV solution. How has this valuation been established? Is this valuation based upon future earnings as a going concern? It would be more desirable to evaluate the project over the whole of its projected life. (iii) Risk is taken into account by using a CAPM derived discount rate. How has this rate been derived for a situation involving two countries? Does this fully reflect the risk of the project? Is the use of CAPM appropriate (as it is a single period model)?Other, theoretically weaker measures of risk might be useful as an aid to decision making, e. g. sensitivity analysis of the key variables or simulation. (iv) Cash flow is usually assumed to occur at the end of each year. Greater accuracy would result if consideration were given to when during the ye ar cash flow arises and these cash flows discounted at the appropriate rate. (v) Political and economic factors. How stable is the US government policy? Will a change in government lead to changes in taxation policy, exchange controls, restrictions on the remittance of funds, attitudes toward foreign investment? vi) Are there any intangible benefits of establishing a manufacturing plant in the USA, e. g. making the American public more aware of Brookday’s product? (vii) Real options analysis. The Black-Scholes option valuation model could be used to place a value on any real options. Thus enabling the calculation of a true NPV of project with options: True NPV = Short term NPV + NPV of all real options Multinational companies may engage in activities which, whilst not illegal, are questionable ethically, and may have detrimental long-term effects on the company’s reputation.Ethical considerations include: (i) (ii) (iii) (iv) (v) (vi) Would the investment cause pollutio n or other environmental damage in the country? Does the investment involve experiments on animals, genetic modifications etc? Should the investment be undertaken if the country has a poor record on human rights? If local officials ask for ‘inducements’ to facilitate the investment process, should these be paid? Would the investment in any way assist trading in drugs or arms? Are wages to be paid below subsistence level? Are working conditions of an acceptable standard? c) KAPLAN PUBLISHING Page 11 of 17 ACCA P4 Advanced Financial Management ACCA marking scheme (a) Exchange rates Sales Variable costs Fixed costs Royalty Depreciation US tax payable Tax on realisable value Working capital Discount rate Loss on exports – not relevant UK tax on royalties NPV and conclusion Reward technique even if calculation errors exist Maximum (b) (c) 1 – 2 marks for each good point 1 – 2 marks for each good point Total Marks 2 2 1 1 2 1 2 1 1 2 2 2 1 ___ 20 ___ 10 5 ___ 35 ___ Page 12 of 17 KAPLAN PUBLISHING Revision Mock Answers SECTION B ANSWER 3 a) There is considerable debate as to whether dividend policy can influence corporate value. Much of the debate concerns the question of whether it is the dividend that affects share value, or the information implied by the payment of the dividend. Dividends may provide, in the cheapest and most efficient manner, unambiguous signals about a company's future prospects and management performance. Managers have an incentive to send truthful signals via dividends, as any changes in dividends that are not likely to be accompanied by changes in cash flows will not fool a market that is at least semi-strong form efficient.Dividends therefore may be a valuable communication medium. There are a number of possible practical influences on dividend policy including: (i) (ii) (iii) (iv) Dividends are to be discouraged as they may lead to issue costs associated with raising additional external finance. Corporate growth. The faster a company is growing the lower the dividend payment is likely to be. Liquidity. Cash is needed to pay dividends. The level of corporate liquidity might influence dividend payouts. The volatility of corporate cash flows.Companies may be reluctant to increase dividends unless they believe that future cash flows will be large enough to sustain the increased dividend payment. Legal restrictions, for example, government constraints, limitations on payments from reserves, and covenants on debt that restrict dividends. The rate of inflation. Many shareholders like dividends to increase by at least as much as inflation. The desires and tax position of the shareholder clientele. However, most companies have a broad spread of shareholders with different needs and tax positions. (v) (vi) (vii) b) Statistical data: Earnings per share (pence) Retained earnings (? m) Payout ratio (%) Dividends (? m) Real growth in dividend per share (%) 20X3 25. 6 80 38. 1 49. 5 20X4 32. 5 129 33. 8 66. 0 8. 48 20X5 39. 2 172 32. 5 82. 9 12. 53 20X6 42. 4 198 33. 0 97. 3 6. 60 20X7 50. 8 328 30. 5 144. 1 7. 49 The company's dividend per share has increased, in real terms, by between 6. 6% and 12. 53% per year during the last five years. Although no comparative industry data is available, this appears to be a good performance. The payout ratio has reduced from 38% in 20X3 to 30. % in 20X7, which may be why the institutional shareholder has KAPLAN PUBLISHING Page 13 of 17 ACCA P4 Advanced Financial Management made the criticism. However, there is little point in the company paying out large dividends if it has positive NPV investments which can be financed partially by dividend retention. Although there is by no means a perfect correlation between NPV and earnings per share, the fact that earnings per share have consistently increased over the period suggests that the company's investments are financially viable.The company has consistently had high net capital expenditure relative to earnings, and in such circumstances it is not unusual for dividend payments to be relatively low. The company's share price has not increased by as much as earnings per share but, without information on stock market trends and the relative risk of the company, it is not clear whether or not the company's share price is under performing. Unless the institutional shareholder could invest any dividends received to earn a higher yield (adjusted for any differences in risk) there is little evidence to support the validity of the criticism. c) The argument by Miller and Modigliani (MM) that dividend policy is irrelevant to the value of company was formulated under very restrictive perfect market conditions. If such conditions existed then shareholders would not value an increase in dividend payments. However, there are several real world factors that are likely to influence the preference of shareholders towards dividends or retentions (and hence expected capital gains). These include: †¢ Taxation.In some countries dividends and capital gains are subject to different marginal rates of taxation usually with capital gains being subject to a lower level of taxation than dividends. Brokerage fees. MM ignore brokerage fees. However, if shareholders have a preference for some current income and are paid no or low dividends, their wealth will be reduced if they have to sell some of their shares and incur brokerage fees in order to create current income.If a company needs to finance more new investment it is usually cheaper to fund investment through retained earnings as most forms of external finance involve issue costs. Information asymmetry may exist between shareholders and directors. If the market is not strong form efficient, shareholders may have less complete knowledge of the likely future prospects of the company than directors, which may influence the shareholders’ desire for dividends or capital gains. †¢ †¢ †¢ The implicati ons of an increase in dividends need to be considered by the company.Dividends are often regarded as an unbiased signal of a company’s future prospects, an increase in dividends signalling higher expected earnings. The company should be careful to inform its shareholders of the reason for any increase in dividends. A further factor is the use that the company can make of funds. If the company has a number of possible positive NPV investments, then shareholders will normally favour undertaking these investments (at least on financial grounds), as they will lead to an increase in shareholder wealth.If, however, the company has relatively few projects and can only invest surplus cash at an expected zero NPV, the arguments for retentions is weakened. For strategic and operational reasons most companies keep some funds in the form of cash or near cash, for transactional and precautionary motives and to be in the position to take advantage of unexpected opportunities that may arise . The need for cash for such purposes may influence the level of dividend payout. Page 14 of 17 KAPLAN PUBLISHING Revision Mock Answers ACCA marking scheme a) (b) (c) One mark for each valid point Two marks for calculations. 4 marks for detailed analysis/explanation Two marks for each well-explained point Total Marks Max 6 Max 6 Max 8 ___ 20 ___ ANSWER 4 (a) It is generally assumed that the major objective of decision makers in a company is to maximise the net present value of future cash flows when discounted at a rate which reflects shareholders’ required rates of return. The rationale for this assumption is that of all the stakeholders in a company the demands of the equity investors are paramount.Equity investors are dominant because they own the assets of the company and employ directors and managers (the decision makers) to make the best use of those assets. Ultimately, if the directors do not produce an, at least, adequate return for shareholders they will be out of a job. It is accepted that often alternative goals govern decision making within a company. In some cultures and political environments, the assumed dominance of shareholder interests is questioned. Why shouldn’t the providers of labour, rather than capital, have their rewards maximised?It is important to remember that it is senior management that actually make the decisions within companies and they will be looking for personal reward. They are likely to be interested in the level of their own salaries and pensions and security. It is often claimed that management seek maximum revenue rather than maximum profit, or, knowing that they may only work for a company for a limited time period, are more interested in short-term performance rather than the long-term growth of shareholders’ wealth. Finally there are other stakeholders in the company to be considered.Most companies will try to ‘balance’ the maximising of shareholder wealth with the motivation of work ers and management, the delighting of customers and a good public image. In achieving this balance shareholder wealth will not always be the major objective. (b) In the modern world companies cannot ignore the environmental implications of their actions; to do so may destroy the company because of the effect on their reputation in the eyes of customers or suppliers, or the effect of the imposition of fines and penalties if they break legislation or regulations designed to protect the environment.Including environmental costs and benefits in investment appraisal will probably require the advice of an environmental specialist who can calculate for the company such items as: (i) (ii) the costs of machinery or changes to processes to avoid environmental damage the likely costs of penalties, fines or claims for compensation if environmental damage occurs KAPLAN PUBLISHING Page 15 of 17 ACCA P4 Advanced Financial Management (iii) (iv) he likely effect on future revenues from any adverse p ublicity that would be likely to arise from environmental damage the likely effect on future revenues from positive publicity from going beyond statutory requirements to protect the environment. Once costed, these costs and revenues could be included in the net present value calculations undertaken by XYZ plc in its investment appraisal of the chemical project. A more extreme approach would be to place a subjective valuation on the cost of reinstating the environment to its original condition and treating that as a nominal outflow.ACCA marking scheme (a) (b) One mark for each valid point throughout One mark for each valid point throughout Total Marks Max 12 Max 8 ___ 20 ___ ANSWER 5 (a) X1 = working capital/total assets X2 = retained earnings/total assets X3 = earnings before interest and tax/total assets X4 = book value of equity/total liabilities X5 = sales/total assets And the Z score = 0. 717X1+ 0. 847X2 + 3. 107X3 + 0. 420X4 + 0. 998X5 X1 = 391,337/2,599,463 X2 = 1,548,941/2,59 9,463 X3 = 68,623/2,599,463 X4 = 64,405/986,117 X5 = 2,374,087/2,599,463 = 0. 505 = 0. 5959 = 0. 0264 = 0. 0653 = 0. 9133 Z = 0. 11 + 0. 50 + 0. 08 + 0. 03 + 0. 91 = 1. 63 Whilst Island Energy Ltd is not in the immediate danger zone, its score is in the ‘grey area’ and further analysis is recommended. (b) Further concerns about the company: †¢ †¢ †¢ †¢ Page 16 of 17 The Chairman is also acting as MD so there is no counter-balance to him and, as such, no ‘watchdog’ over his activities. The remainder of the Board does not participate in the running of the company. There appears to be a weak finance function.There is a lack of management depth – there being no middle management. KAPLAN PUBLISHING Revision Mock Answers Concerns about the model: †¢ General limitations about the Z score (and other prediction models). These accounting based models only focus on the financial aspects of a company’s performance. This is only a snapshot of the company – maybe the position is improving. Further analysis is required to fully determine what the situation is with Island Energy Ltd. This may only be a predicator for the short term; we do not know what the company’s future plans are.ACCA marking scheme (a) (b) Calculation of each x or z score = 2 marks , interpretation 2 marks 1 mark for each valid point Total Marks Max 12 Max 8 ___ 20 ___ †¢ †¢ †¢ MARKING SCHEME This marking scheme is given as a guide to markers in the context of the suggested answers. Scope is given to markers to award marks for alternative approaches to a question, including relevant comment, and where well reasoned conclusions are provided. This is particularly the case for essay based questions where there will often be more than one definitive solution. KAPLAN PUBLISHING Page 17 of 17

Drink Business Plan Essay

The following marketing plan forms the basis for the introduction of an innovative new product by the Coca-Cola Company. The analysis allows us to outline the best strategies to follow for the achievement of the company’s strategic goals. â€Å"Bubble Buzz† will be marketed as a unique functional drink while striving to reinforce the company’s status as the leader in innovation and successful product launches. The marketing strategies will enable to reach a market size of an estimated 8,688,300 people (targeted) with a forecasted sales growth prospect of 7. 3% over the next 4 years ($243,029. 47 profits), while satisfying the needs of the still-unserved market for ready-to-drink bubble tea. Success will be reflected by a sizeable capture of market shares within this market, while strategically carrying the company up to the top spot as the market leader in the functional drinks segment of soft drinks. Export potential will be considered in China. [pic] Brief description of the company The Coca-Cola Company’s core undertaking is to benefit and refresh everyone it reaches. Founded in 1886, we are the world’s leading manufacturer, marketer, and distributor of non-alcoholic beverage concentrates and syrups, which are used to produce nearly 400 beverage brands that make up for our wide portfolio. Our corporate headquarters are established in Atlanta, and we are holding local operations in over 200 countries around the world. Our activities cover all sectors of the beverage industry. We are the second leading player in functional and Asian specialty drinks, while ranking number one in value for the ready-to-drink tea sector (ref. 1, p. 1). Brief description of the new product, & strategic role in the future position of the company â€Å"Bubble Buzz† will be a bottled beverage and will be positioned as the only ready-to-drink Bubble Tea product available on the market. The beverage will have a green tea base with enhanced fruit flavors (passion fruit, strawberry and lime) as well as tapioca pearls. It will bring an entirely unique drinking experience to its consumers. It will present itself as a funky and unusual alternative to traditional tea while providing the great taste of authentic fruit juice in an attractive and convenient packaging. The strategic role of Bubble Buzz for The Coca-Cola Company is centered around three objectives: †¢ To stay at the forefront as the market leader in innovative product introductions and successful product launches; †¢ To strengthen and satisfy the needs of the more adventurous Generation Y consumers with a new eye-catching and FUNctional product; †¢ To become the market leader in the functional drinks segment with increased market shares. [pic] INDUSTRY ANALYSIS Consumption: The sales volume for the functional drinks segment (ref. D2) in Canada has reached $342. 2 millions in 2004 for a volume of 125. 9 million liters (ref. 2). This product segment has shown a steady growth since 1999: an increase of 13. 5% over a period of 6 years (Appendix A). The consumption rate per capita in 2004 has reached 3. 94 liters, which represents a 4. 0% increase compared to 1999 (ref. 3). The growth of this particular market is largely due to a slow shift in consumer trends. Trends: Through the early 1960s, soft drinks were synonymous with â€Å"colas† in the mind of consumers. In the 1980s and 1990s, however, other beverages (from bottled water to tea) became more popular. Coca-Cola and Pepsi responded by expanding their offerings through alliances (e. g. Coke & Nestea) and acquisitions (e. g. Coke & Minute Maid), but also by focusing efforts on portfolio diversification. Today, while the soft drink industry’s value has increased in 2004, the volume sales of carbonated soft drinks has declined due to a large proportion of consumers who are opting for the trend towards healthier alternatives in the functional drink segment (energy drinks, smoothies, milk & juice drinks, sports drinks) as well as bottled juices and water (ref. 5). Companies have been actively engaged in new product developments in order to counter the growing concerns about negative health impacts of high-fructose drinks, but also to increase the demand in a market where product offerings are quickly maturing (ref. 4). New flavor introductions and health-conscious formulations have been launched in an attempt to offset the decline in carbonated soft drink sales (ref. 6). The functional market is expected to show sustained growth and consumer interest in the future years as consumption shifts to trendier, healthier and more sophisticated products (ref.7). Profitability & future growth potential: In 1993, Concentrate Producers earned 29% pretax profits on their sales, while bottlers earned 9% profits on their sales, for a total industry profitability of 14%. While the functional drinks sector only accounts for 3. 7% of the total soft drinks sales in 2004 (Appendix B), estimates are forecasting a growth of 7. 3% in sales and 11. 0% in volume consumption by 2009 (ref. 4). SWOT ANALYSIS (Strengths and weaknesses, opportunities and threats) |Strengths |Weaknesses | |Brand strength |Reliant upon line extensions | |Effective stride in new markets |Reliant upon particular carbonated drinks | |Results of operations |Brand dilution | |Strong existing distribution channels |Entrance into difficult non-core categories | | |Saturation of carbonated soft drink segment | |Opportunities |Threats | |New product introductions |Strong competition | |Brand is attractive to global partners |Potential health issues | | |Free trade | Explanations in APPENDIX C COMPETITION Coca-Cola’s top competitors for the soft drinks industry are PepsiCo (31. 6%) and Cadbury-Schweppes (15. 8% of market), which combined, represent about 48% of the total market (ref. 9). Coca-Cola is leading with 43. 7% of the total soft drinks market. In the functional drinks sector, PepsiCo is the current market leader with 60. 5% of the market shares in 2004. Coca-Cola Co is second with 32. 8% (ref. 2, see Appendix D1). Bubble Buzz will launch into a currently unserved subset of that market (RTD â€Å"Ready-To-Drink† Bubble Tea), which is until now unexisting. It is anticipated that the following brands could potentially compete with Bubble Buzz in the functional drinks market: Brisk, Lipton Iced Tea, Sobe (owned by PepsiCo), as well as Snapple’s and Hawaiian Punch (owned by Cadbury/Schweppes). Bubble Buzz also creates a potential situation for cannibalism with Coca-Cola’s very own brands of iced tea and other functional drinks. The current market for traditional Bubble Tea is fragmented, since the distribution is restricted to local outlets and selling points such as counters and small Bubble Tea shops in scattered locations across Canada. However, direct competition from these local players is not anticipated, since the marketing roll-out will initially emphasize on product awareness and both sales channels do not reach or serve the same market (retailing vs. counter/restoration). A strong distribution system already exists with Coca-Cola, since partnerships and channels are already in place. This will facilitate the product’s reach into its target market. Further data concerning competing market shares and distribution channels are available in Appendix D(1-3). Barriers to entry: |Business practices |Manufacturing | |Due to the number of competitors, it will be hard to prevent |Producing bottled Bubble Tea requires sizeable capital | |imitation behaviour (especially from PepsiCo) |investments for the specific needs of the manufacturing chain | | Risk of competing with emerging private labels (e.g. President’s|(from ingredients to final packaging specifications) | |Choice) |The marketing campaign to make this unknown brand popular | |Given the wide array of brands (saturation in the soft drink |requires more promotional expenditures than a traditional brand | |market), it becomes a challenge for Bubble Buzz to stand out |extension | TARGET MARKET. Segment identification: RTD (Ready-to-drink) bottled Bubble Tea, to be established within the Functional Drinks sector Segment needs: The product will cater to both physiological needs (hydrating and nutritional value) and social needs (perception of a social, fun drink with a sense of belonging within peer consumer groups) † (ref. 11, p. 127). Segment trends: The current trends include a shift away from junk foods and carbonated drinks, a growing interest for healthier / beneficial products for the â€Å"mind and body† (ref.10), the trend towards the availability of on-the-go products for those with an active lifestyle, as well as the trend for personalization through customization (or for beverages, through variety-seeking in a wide introduction of flavours † ref. 6). Segment growth potential: Statistical reports anticipate a segment growth of 1. 72% over the next 9 years (2015) for the 10-29 years old subsets (ref. 12). Refer to Appendix E. Size of the segment (population): 8,688,300 (329,600 L). Refer to Appendix E. |Segmentation variables and breakdowns for Canadian consumer market of Bubble Tea | |MAIN DIMENSIONS |VARIABLES |BREAKDOWNS | | |Region |Nationwide (all provinces and territories) with emphasis on urban / metropolitan areas, and| | | |adapted strategies for all geographical groups | | |Area size |5000-19,999 to 4,000,000+ | | |Density |Urban, suburban | | |Climate |All (East, West) | | |Age |10-29 years old (teenagers, studying age and young adults) | | |Gender |Male and Female | | |Income |All under $30,000 | | |Occupation |Students; new graduated; new workers; young professionals | | |Education |Elementary 4th grade, High school, CEGEP and University | | |Race |All: Asian, Black, White, Native; other; with adapted strategy for Asian consumers already | | | |familiar with Bubble Tea | | |Home ownership |Renting apartment/condo, living with parents | | | |(Highly discretionary in personal spending) | | | Personality |Brand conscious, anchored in popular culture, inclined for differentiation and | | | |sophistication, very tolerant towards multiculturalism and internationalism (open-minded), | | | |quick maturation with modern products | | |Lifestyle |Most of them dependent on parents, no major responsibilities, highly influenced by peer | | | |groups, active life, importance of school, work and social life | | |Benefits sought |COMMUNICATION BENEFITS | | | |-Nutritional information | | | |-Informational text on history of product | | | |FUNCTIONAL BENEFITS | | | |-Healthier than soft drinks | | | |-Convenient, easy to take out | | | |PERCEPTUAL BENEFITS | | | |-Quality/Premium price | | | |-Social standing/good-looking | | | Usage rate |Seasonal (peak in summer), daily-basis, weekly basis | | |User status |Non-user, regular user (current user through existing bar-shops) | | |Loyalty status |None, medium, strong | Positioning strategy: The only RTD bottled bubble tea available. Funky & eye-catching bottle, functional packaging, premium-priced, cool, new and unusual, unique drinking experience, aspects of play (tapioca pearls, oversized colored straw), variety of flavors, sweet, refreshing, for hip & young people, healthier alternative to heavy-sugar drinks. CUSTOMER ANALYSIS Profile: Name: Bob Thomson Date of Birth: 25. 03. 85 Age: 20 Occupation: University Student Country: Canada Needs: Healthy lifestyle/Social belonging People: Roommate/Friends/Family Places: Clubs/Coffee shops/University/Gym Activities: Basketball Team Due to his active and quick-paced life, Bob wakes up at 6:30AM every morning. Today, he puts on his trendy Lacoste Polo and Diesel Jeans, and of course, he always has his Puma shoes on. After having called his friends with his new Samsung camera phone, he leaves his apartment and goes to his gym by metro, while listening to his favourite music that he downloaded to his iPod. Bob usually likes to work out before he has to head to University. That way, he feels he has more energy and feels ready to confront his busy day attending courses and getting things done. On his way to school, Bob knows he is thirsty and he feels the need for something very refreshing. He stops at a convenience store next to the gym. Standing in front of all the choices in the beverages aisle, one particular bottle catches his sight. And he instantly recognizes the brand. He knows that this is a bottle of Bubble Buzz, because not only does his other friends often drink it, but he also heard them talk about this brand new product that Coca-Cola just launched. He also previously saw Bubble Buzz ads when he surfed on his favourite websites. He grabs a bottle, and takes a closer look at the nutritive information label. He is very pleased to see that the new drink is more nutritive and definitely healthier than the other soft drinks that were available on the shelves next to it. The higher price of the product doesn’t bother him, since he perceives â€Å"Bubble Buzz† as a high-quality, functional product, which is manufactured by a well renowned company. Plus, he did not feel like simply buying bottled water, or carbonated soft drinks. Because of his inclination towards more sophisticated tastes, and because he likes to try new products on his own, he thinks this bottle is worth the price. Because of his busy schedule, Bob prefers to save time as much as he can. Thus, he decides to buy two bottles. One to quench his immediate thirst, and another one that he wants to save for later in the day. He sees that the packaging is so convenient and easy to carry, and so when he exits the store, he puts the second bottle in his backpack. He attends all of his classes. During his break, he always hangs out with his friends. A lot of them are drinking from different â€Å"Bubble Buzz† flavours. He opens his second bottle, since he had such a great experience with the first one. He liked that the beverage was so unusual, yet refreshing. The drink surpassed many of his expectations. He has no doubt about it. Bob will continue to buy Bubble Buzz for its good taste, and also because at his age, he sees it is the coolest trend right now. [pic] Based on the aforementioned analysis, Bubble Buzz appears to be a profitable and innovative product with a strong outlook for market share presence and segment growth opportunity. Upon implementation of the marketing plan, the Coca-Cola Company will regain increased market shares and claim its targeted situational position of market leader in the functional drinks segment as well as keeping its long-standing consumer recognition for innovative and successful product launches in diversified markets. Projected profits will be $243,029. 47 (see financial projections). Marketing Plan Part 2: Marketing Strategy [pic] The objectives of the marketing plan are strategically centered around 3 criteria: to create a strong consumer awareness towards a completely new bubble tea product from Coca-Cola, to establish a wide brand recognition through the capture of market shares in the functional drinks segment, and to become the top market leader in that particular segment within the forecasted sales figures. [pic] PRODUCT STRATEGY The core o Bubble Tea beverage in a pre-bottled, ready-to-drink format. The actual product o Packaging and labeling: see figure below o Branding: colorful, aspect of play, round shaped, prominent Bubble Buzz logo written in modern font, catchphrases such as â€Å"Think outside the Bubble† and â€Å"Get Your Buzz†. o Trade name: Bubble Buzzâ„ ¢, a Coca-Cola product o Brand personality: energy, funky, cool, functional, original, funny, healthy, etc. o Brand equity: Coca-Cola provides a quality, consistent, innovative and accessible soft drink reputation. Augmented product o Nutritional information, Status (social drink), Features promoting the website, Health benefit of a green tea base (ref. 17) Marketing considerations o Product life cycle: Bubble Buzz is a low-learning product. With a strong marketing campaign, â€Å"sales [will] begin immediately and the benefits of the purchase are readily understood† (ref. 11, p. 301). Since Bubble Buzz is prone to product imitation, Coca-Cola’s strategy is to broaden distribution quickly, which is currently feasible thanks to the company’s high manufacturing capacity. o Product class: Food & beverage ( Soft Drinks ( Functional Drinks (refer to Appendix D2 for a break-down of the functional drinks market). o Bubble Buzz follows the practice of product modification (ref. 11, p. 304): Coca-Cola is introducing an existing beverage (bubble tea) but redefines the drink with a new, more convenient package. Bubble Tea will now become a widely available drink in multiple retailing (distribution) channels. [pic] PRICE STRATEGY The price strategy that will be undertaken should consider the following aspects: 1. Consumer demand 2. The product lifecycle 3. Potential substitutes Customer demand. Customer demand is a crucial factor which is driven by tastes, income and availability of others similar products at a different price (mentioned later in the potential substitutes section). For a lot of consumers, value and price are highly related: ‘’the higher the price, the higher the value’’. Consequently, Coca-Cola’s intention to position Bubble Buzz as a unique, innovative and attractive product gives it a certain control over Bubble Buzz price. To be able to implement higher pricing though, the minimization of the non-monetary costs to customers should also be include along with awareness of the product (notably by advertising) and value (benefits) . The product lifecycle. The company should take advantage also to the fact that the newer the product and the earlier in its lifecycle the higher the price can usually be. It ensures a high profit margin as the early adopters buy the product and the firm seeks to recoup development costs quickly and it also brings a certain prestige to the product. Potential substitutes Coca-Cola is constrained by the monopolistic market in which it competes. The main characteristic however is product differentiation. Other constraints (See Appendix M) PROMOTION STRATEGY Objectives: †¢ To initiate strong awareness about the launch of Bubble Buzz throughout Generation Y (10-29 years old) consumers as well as their parents. †¢ To win market shares over our top functional drinks competitor, PepsiCo. Message: The promotional outputs will convey the clear message that â€Å"Bubble Buzz is a healthy drink for sporty and young people who simply enjoy taking care of their body and life. † Concepts: †¢ â€Å"Think outside the bubble†: Be Bold, Be Original, Be Different, Be Yourself. †¢ â€Å"A good spirit in a good body. † †¢ â€Å"For the out-of-the-ordinary individuals who like to challenge themselves. † Media selection: Before choosing the appropriate medias, it is important to note that Generation Y consumers only give partial attention to media. However, they can be reached through integrated programs. They are typically using more than one communication media at a time; a behaviour that is often called â€Å"multitasking†. This group of consumers doesn’t give its full attention to one single message, but rather uses continuous partial attention to scan the media. Marketers can still communicate with Generation Y by using a variety of targeted promotional tools. Another important tactic to reach our target market is through â€Å"Viral† or â€Å"Buzz† marketing, which Coca-Cola will heavily use in this campaign (campus, contests). Advertising: Refer to APPENDIX H for detailed explanations |Output |Examples | |Television |MTV, Much Music, VrakTV, YTV | |Radio |MIX96, CKOI 96. 9, 94. 7 FM, Universities | |Magazines |For girls: Cosmo, Elle | | |For boys: Sports Illustrated (or Kids edition) | |Internet |Banners on select websites (gaming, sports, etc. ) | | |Official promotional website: www. BubbleBuzz. ca | |Outdoors |Billboards and prints in select areas including: | | |Campuses, transportation (bus, metro, stations) | | |Tourist areas in high seasonal periods | | |Outskirts of key cities in geographical reach | | Others |Not relevant | |Personal selling |Direct contact with retailers, sales kit strategies to be explained later in the | | |text. | |Public relations |Stands or special displays and events in schools, malls, sports events (i. e. 2008 | | |Beijing Summer Olympic Games), sponsorship activities | |Publicity |Conferences, press releases (print and online), buzz marketing through TV coverage | Promotional Mix: Consumer oriented: †¢ Contests: â€Å"Win another Bubble Buzz flavour†, â€Å"Uncover a secret code underneath the bottle cap and win sporting goods and electronics by logging on the website†, â€Å"Win a trip for the 2008 Olympics in Beijing†. (Arguments: It will increase consumer purchases and encourage consumer involvement with the product). †¢ Samples: distributed in supermarkets, school/universities. Samples are a way to avoid product resistance since people are not used to find bubbles in their drinks. Arguments: It will encourage new product purchases and it represents low risk for consumers since they get it for free. They have nothing to loose by trying it. †¢ Point-of-purchase: in supermarkets (to reach the parents of generation Y). Arguments: It is also a mean to increase product trial and provides a good product visibility. †¢ Others: In subsequent years, engage in product placement in TV shows or movies. Trade oriented: †¢ Allowances and discounts: case allowance (Arguments: The â€Å"free goods† approach will be used so it can encourage retailers to buy more of the product to get a certain amount for free). †¢ Cooperative advertising: to encourage retailers to buy our product and to maintain our high level of advertisement that consumers expect from Coca-Cola. Other considerations: †¢ Scheduling of the advertising: Pulse scheduling (promotional presence year-round, but emphasized and intensified before and during summer). †¢ IMC (integrated marketing communication) Target Audience: †¢ Intermediary: personal selling will be more often used. †¢ Ultimate consumer: Coca-Cola will use more of mass media because the amount of potential buyers is large. PLACE (DISTRIBUTION STRATEGY) Bubble Buzz will be distributed through these channels: supermarkets, convenience stores, independent food stores, discount stores, multiple grocers, vending machines, direct sales. [pic] |Projected Financial Performance | |Revenues |$ 597,124. 00 |Based on sales @ different channel’s price | |COGS |214,964. 64 |Based on weighted average percentage in past data | |C. M. |382,159. 36 |Revenues – COGS | |Fixed Costs : | | | |SG&A cost : |113,453. 56 |Half of the O/H costs estimated, based on past data | |Capital expenditures : |25,676. 33 |4. 3% of revenue, based on past data | |Profits |243,029. 47 |CM † SG&A † Capital expenditures | Requirement for success analysis: C. M. per bottle = 382,159. 36 / 328,000 = $1. 17 Break-even: (113,453. 56+25,676. 33) / 1. 17 = 118,914 (bottles) Market share: 118,914 / 1,000,000 = 11. 9% In one year, if Coca-cola can sell 118,914 bottles of Bubble Buzz, or in other words achieve 11. 9% of the functional drink market share, it will break even. After this point, every bottle Coca cola sells will generate average $1. 17 towards the profits. The potential profits can up to $1,030,770. 00[1] based on our target market. Expected Costs: COGS: $597,124 * 36% = $214,964. 64. O/H: $597,124* 38% = $226,907. 12 Expected Revenues (total) = $597,124 (refer to Appendix J) [pic] China is the target country we’re going to expand our product. Reasons: 1. With a total population of 1,313,015,000 in the end of 2005 and 327,714,000 in our target market (age 10 to 25 years old), compared with the total population of Canada—304,453 million, there definitely is a great potential worth to work on. 2. absolute expenditure on food and non-alcoholic beverages is expected to increase from 1,777 billion in 2005 to 2,154 billion in 2010 (though the proportion of consumer expenditure on this part is decreasing from 28. 39% to 25. 75% ) 3. Soft drinks industry is one of the fast growing industries in China, especially fruit/vegetable juice, RTD tea, and Asian speciality drinks and bottled water have shown a sharp increase during 1998 to 2003. 4. Bubble tea was originated in Taiwan. Soon after its introduction in China, it became one of the most popular beverages sold in tea stores on the streets due to the similar taste and similar cultural background. So, it is a good chance for us to enter into this market. 5. Since we are the top sponsor for the upcoming Beijing Olympic in 2008. With more opportunities to expose to the public, it is going to benefit our sale there. Our entry-strategy for entering China is through licensing. Reasons: 1. We have already provided licenses for manufacturing our products in China (licensing the bottlers and supply them with our syrup required for producing). Therefore, added in one or two more products in our production chain would not be that difficult. 2. It is relatively low risk when compared with direct investment there. It is low cost to export our new products there since we can maintain lower labour cost and lower material cost if we produce our products locally, especially in China. Changes to be made: 1. Price: Price sold in China is going to change to accommodate the local desire. As we set our price sold in Canada $2. 00. Compared to the price sold in the bubble tea store ($ 3. 50), it is about 57. 14%. So, with the information we gathered from the tea store in China[2], the price sold there would be 57. 14% of what sold in the tea store—$12 Yuen in China currency. Then, it would be around $7 Yuen, about CAD$1[3]. 2. Naming the product: In order to be recognized and accepted more easily for the local market, we need not only translate our product name but also make sure there’s not hidden unintended meaning that would damage our product. 3. Develop other flavours that would attract the local market: Since milk based bubble tea sell better in China, we will add in this product line. Also, we will avoid using too many artificial colors as they are not appreciated as much as in Canada. Moreover, people in China are becoming more and more health concerned, especially the amount of sugar and additives added in the drinks. We will make some changes in the ingredients used to appeal the local market, i. e. less sugary drinks. 4. Promotion: In contrast to the radio ads in Canada, we will use more TV and Web advertisement there due to the highly exposed environment in China. Also, we will put more emphasis on the ads on the public transportation such as underground/subway system and bus service due to the more frequent use of the public transport service there. Also, since the outdoor display screen is quite popular in big cities, we will also take advantage of it. [pic] [pic] APPENDIX A (ref. 2) [pic] APPENDIX B (ref. 4) [pic] APPENDIX C (ref. 1 & 8) STRENGHTS Brand strength (see Appendix F for brand rankings) The Coca-Cola Company is the largest manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups in the world. The Coca-Cola brand is unarguably one of the most recognizable brands in the 200 countries where it sells its products. The strong brand name is one of the basis for the company’s competitive advantage on several of its core markets. Effective strides in new markets. Coca-Cola has partnered with several companies (such as the joint venture with Nestle) in order to increase the ability to react to demands and changes in the markets of iced tea, coffee and juices. The developing markets are more complex than the carbonated soft drinks. Results of operations In 2004, net-operating revenues totaled approximately $21. 9 billion, an 8% increase from 2002. Gross profit totaled $14. 3 billion in 2004. The company generated $5,968 million from its operating activities and re-invests heavily into its business. The ability to generate significant cash flows is one of the its key strengths (ref. 16). Strong existing distribution channels Coca-Cola has operations worldwide and is well established in its distribution channels (such as store retailers or vending machines). Therefore, a new product launch can typically rely on the existing distribution system in order to reach the majority of its target market while requiring no major supply / delivery developments. WEAKNESSES Relying upon line extensions Coca-Cola is relying on brand extensions increase sales in specific lines, particularly its long-time carbonated soft drink products (i. e. the introduction of Vanilla Coke helped maintain sales for the core Cola beverages). However, there is a strong risk of cannibalizing existing sales in the long term (for example, Bubble Tea might deter on sales for iced tea). Reliant upon particular carbonated drinks The long-time presence of Coca-Cola’s Coke beverage has established this particular line as a flagship product. While the core Coke products bring a solid base of sales and loyalty to the company, consumers’ expectations also become more and more anchored and single-lined, taking away freedom in the areas of line diversification and product modifications (taste, packaging, price). Brand dilution The tremendous amount of existing brands and new product being introduced by the company could diminish the value and differentiating strength of each product that is being manufactured. Entrance into difficult non-core categories The Coca-Cola Company is a truly global multinational business giant. While some categories of products are distributed in many areas of the globe (Coke, Powerade, etc. ), geographical needs already require that these global brands are heavily adapted to their target region. Furthermore, many smaller and diversified product lines are more or less popular in one particular region over another. Therefore, the process of diversifying the production and marketing each product involves costly investments. These capital requirements typically increase as the product becomes heavily focused (for example, since the Coca-Cola brand is highly recognizable worldwide, marketing a bottle of Coke in Japan would be less difficult than marketing a bottle of â€Å"Qoo† in that same country † â€Å"Qoo† being a lesser-known non-carbonated drink which was one of Coca-Cola’s newest brand introduction in 1999). Saturation of carbonated soft drink segment Due to the countless number of brands available on the market, it becomes increasingly difficult in the soft drinks segment to innovate and create new products that genuinely stand out from their competition. And as we have seen, an analysis of the industry has shown that growth in the soft drinks market becomes difficult and challenging when the conditions and consumer trends cause a market demand that stays stagnant. OPPORTUNITIES New product introductions The functional drinks market is one that particularly allows more innovation opportunities and gives greater freedom for creativity in the design, production, manufacturing, distribution, promotion and retailing choices and processes. Brand is attractive to global partners. Because of the company’s size (including value, brand name and operating revenues) and wide portfolio base, Coca-Cola enjoys a strong purchasing power over its suppliers, and also attracts large partnerships with various levels of consumer reach (e. g. Burger King, movie studio promotions, sponsorship agreements, etc. ). Existing brand awareness also provides an international playing field for powerful marketing strategies. THREATS Strong competition Coca-Cola is competing in a global market that is characterized by an oligopoly between several (but few in numbers) competitors. The fight for market shares and sales in crowded markets becomes a complex one. Potential health issues. The current trend of consumer and consumers groups’ awareness towards goods and services is both beneficial and threatening for companies in the food and beverages industry. Over the last few years, concerns over health issues have risen in the media through an expanded and ever-growing network of â€Å"knowledge outputs† (journals, TV channels, internet and so on). The move of the younger generation towards a healthier lifestyle call for careful planning and decision-making in new product developments. Large companies can also easily become the target of consumers’ apprehension.