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Developing Winning Competitive Strategies Participant’s Guide

January 2, 2023/in Uncategorized /by

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Created by

Arthur A. Thompson, Jr. The University of Alabama

Gregory J. Stappenbeck GLO-BUS Software, Inc.

Mark A. Reidenbach GLO-BUS Software, Inc.

Ira F. Thrasher GLO-BUS Software, Inc.

Christopher C. Harms GLO-BUS Software, Inc.

GLO-BUS is published and marketed exclusively by McGraw-Hill Education, Inc., 1333 Burr Ridge Parkway, Burr Ridge, IL 60527

No part of this document may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of GLO-BUS Software, Inc., including, but not limited to, in any network or other electronic storage or

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Developing Winning Competitive Strategies

2020 Edition

GLO-BUS: Developing Winning Competitive Strategies Participant’s Guide

GLO-BUS

This Participant’s Guide provides you with information about GLO-BUS and suggestions for successfully managing your camera and drone company. Here is a quick reference to the contents:

How the GLO-BUS Exercise Works ………………………………………………………………………………………… 3

Your Company’s Operations………………………………………………………………………………………………….. 3

The Worldwide Market for Action-Capture Cameras ………………………………………………………………. 6

The Worldwide Market for UAV Drones ………………………………………………………………………………….. 6

Performance/Quality (P/Q) Ratings of AC Cameras and UAV Drones ……………………………………… 7

The Retailers and Buyers of Action-Capture Cameras and UAV Drones …………………………………. 8

The Competitive Factors that Determine AC Camera Sales and Market Share ………………………… 9

The Competitive Factors that Determine UAV Drone Sales and Market Share ………………………. 13

The Importance of the Competitive Factors that Determine Sales and Market Share …………….. 16

Crafting a Strategy to Be Competitively Successful ……………………………………………………………… 17

Making Decisions ………………………………………………………………………………………………………………… 19 Product Design Decisions ……………………………………………………………………………………………… 20 AC Camera Marketing Decisions ……………………………………………………………………………………. 21 UAV Drone Marketing Decisions…………………………………………………………………………………….. 24 Compensation, Training, and Facilities Decisions …………………………………………………………….. 26 Corporate Social Responsibility and Citizenship Decisions ……………………………………………….. 29 Finance and Cash Flow Decisions ………………………………………………………………………………….. 29 Decision-Making Procedures …………………………………………………………………………………………. 31

What the Board of Directors Expects: Results in Five Key Areas…………………………………………. 32

Scoring Your Company’s Performance ………………………………………………………………………………… 34

Important Advice …………………………………………………………………………………………………………………. 35

What You Can Expect to Learn …………………………………………………………………………………………….. 36

Welcome to GLO-BUS. You are taking over the operation of a company that is in a neck-and-neck race for global market leadership in two product categories: action-capture cameras (comparable to those designed and marketed by global industry leader GoPro) and unmanned aerial view (UAV) drones that incorporate a company designed and assembled action-capture camera. Your company competes against rival companies that design, assemble, and market these same two products and that are run by other members of your class. All makers of these two products—action-capture (AC) cameras and UAV drones—compete head-to-head in four market regions across the world—Europe- Africa, Asia-Pacific, Latin America, and North America, and all companies currently have the same unit sales volumes, revenues, and global market shares in both product categories.

In the most recent year, your company had worldwide sales of 840,000 action-capture cameras and 140,000 UAV drones. Prior-year revenues were $334.1 million and net earnings were $15 million, equal to $0.75 per share of common stock. The company is in sound financial condition, is performing well, and its cameras and drones are well-regarded by buyers. Your company’s board of directors has charged you with developing a winning competitive strategy—one that capitalizes on growing consumer interest in action-capture cameras and UAV drones and improves the company’s overall performance year-after-year.

Your first priority as a GLO-BUS participant should be to absorb the contents of this Participant’s Guide and get a firm grip on the character of the market for action-capture cameras and UAV drones, the operations of your company, the cause-effect relationships affecting various aspects of your company’s operations, and the procedures for participating in the exercise.

GLO-BUS: Developing Winning Competitive Strategies Participant’s Guide

GLO-BUS is a PC-based exercise, modeled to reflect the real-world character of the globally competitive market for AC cameras and UAV drones. The operations of your company and the companies run by other students in your class are patterned after those of actual enterprises that design, assemble, and market AC cameras and UAV drones. Cause-effect relationships and revenue- cost-profit relationships are based on sound business and economic principles. GLO-BUS enables you and your co-managers to apply what you have learned in business school and to practice making reasoned, businesslike decisions aimed at improving your company’s overall performance. Everything about your company and the competitive environment in which your company operates has been made “as realistic as possible” in order to provide you with a close-to-real-life managerial experience.

Each decision period in GLO-BUS represents a year. The first set of decisions you will make is for Year 6. You will make decisions each period relating to the design and performance of your company’s two products (21 decisions), assembly operations and workforce compensation (up to 8 decisions for each product), pricing and marketing (7 decisions for cameras and 6 for drones), corporate social responsibility and citizenship (up to 6 decisions), and the financing of company operations (up to 8 decisions). In addition, there are 9 entries for cameras and 8 entries for drones involving assumptions about the competitive actions of rivals; these entries help you to make useful forecasts of your company’s unit sales (so you have a good idea of how many cameras and drones will need to be assembled each year to fill customer orders). Plus, there is accounting and cost data to examine, import duties and exchange rate fluctuations to consider, and shareholder expectations to satisfy. Video Tutorials for each decision page will help you get started. And there are Help sections for each page that provide valuable information about each decision entry, important cause-effect relationships, and decision-making tips.

Complete results of each decision period become available online about 15 minutes after the deadline for each decision round. Detailed information and feedback provided in the Camera & Drone Journal, the Competitive Intelligence Report, and the Company Operating Reports provide essential information about each company’s performance, assorted industry outcomes, updated demand forecasts, your company’s competitive standing vis-à-vis rivals, and other statistics that enable you to determine what actions to take to improve your company’s performance in upcoming decision rounds.

The decision round schedule developed by your instructor indicates the number of decision periods that you will be running the company. You should use the practice round(s) to become familiar with the software, digest all the information provided on the decision pages and in the reports, and get a glimpse of what to expect before your management team’s decisions start to count.

The Corporate Lobby page functions as your “gateway” for all GLO-BUS activities—click the buttons at the top to see everything that is available. Plus, the Corporate Lobby page reports the latest interest rates and exchange rate impacts. Take a couple of minutes to familiarize yourself with the features and information on your Corporate Lobby page, all of which will come into play during the exercise. The Recommended Decision Procedures link (Participant’s Materials button) is especially worth a few minutes of your attention.

Your company began operations five years ago and maintains its headquarters in Taiwan. It assembles wearable or mountable video cameras smaller than a teacup and camera-equipped drones at recently-constructed facilities in Taiwan. The company’s action-capture camera models deliver stunning video quality and have powerful photo capture capabilities. Once the cameras are assembled and tested, they are shipped directly to multi-store chains and online retailers that sell electronics products and to a wide variety of local retail shops selling cameras or sporting goods equipment or outdoor adventure trips in Europe-Africa, Asia-Pacific, Latin America, and North America. For example, shops selling or renting snow skis, snowboards, snowmobiles, all-terrain vehicles, go kart racers, water skis, surf boards, bicycles, hunting and fishing equipment, sky-diving gear, and scuba diving gear often sell or rent miniature, wearable action-capture cameras to customers wanting to video their

How the GLO-BUS Exercise Works

Your Company’s Operations

GLO-BUS: Developing Winning Competitive Strategies Participant’s Guide

experiences; likewise, the providers of white-water rafting trips, sky-diving and parasailing flights, deep sea fishing trips, helicopter rides, nature trips, and other outdoor action experiences frequently sell or rent action-capture cameras to their customers.

The unmanned aerial view (UAV) drones assembled at the Taiwan plant are sold directly to buyers at the company’s website and to other online retailers of commercial drones. These drones are much more sophisticated and multi-featured than inexpensive toy drones sold for recreational use. Indeed, the company you will manage and the drone-makers you will be competing against produce copter drones as wide as four-feet that can be used for a variety of commercial and business purposes and retail in the $850 to $2,000+ range. UAV drones are commonly used by professional photography enterprises movie studios and to capture often stunning shots (panoramic scenery, hovering over an open shark’s mouth, explosive action scenes) from heights and angles not feasible with handheld or tripod cameras. Network and local TV stations use UAV drones to take videos of fires, storm damage, a live volcano, sporting events (golf and football), and other newsworthy events where film footage taken from particular angles or heights or distances is more revealing. Insurance companies use UAV drones to document damage to homes and buildings inflicted by hurricanes, tornadoes, hail, and floods, thereby expediting the process of paying claims; drones are particularly useful in helping insurers inspect areas that are hard to access (such as roofs and condemned buildings). Fire departments use camera drones to monitor fires in large buildings and direct where fire hoses and other firefighting efforts need to be aimed. Large commercial farms use camera drones to monitor crops and crop harvesting; ranchers use drones to track the location and well-being of farm animals. Construction companies use daily drone flights to gather data and 3-D images showing progress at project sites and identify areas where the project might be falling behind schedule. Companies use periodic drone flights to help protect against theft and vandalism at plant sites and remote facilities. Indeed, unmanned drones equipped with professional quality, action-capture cameras are being used by growing types of private and public enterprises for a growing variety of purposes, resulting in rapidly-growing market demand for UAV drones across the world.

The two product categories your company competes in consists of as few as 4 or as many as 12 companies, as determined by your instructor. All companies begin the GLO-BUS exercise in the same competitive position—equal sales volumes in each of the world’s four geographic regions, equal global market shares in both cameras and drones, and equal revenues, profits, costs, product quality and performance, brand recognition, and so on. All competing companies are thus presently on an equal footing in all respects.

In upcoming years, the managers of all companies will undertake strategic actions to boost the performance of their respective companies—these actions will involve altering prices, product performance and quality, advertising, and other competitively-relevant factors that impact buyer choices of which company’s brand to purchase. The differing actions of competing companies will almost certainly result in substantially different cross-company unit sales volumes and market shares in all regions of the world because the actions of some companies will prove more effective in attracting buyers than the actions of other companies. Companies that succeed in outcompeting rivals in the sales of either cameras or drones or both will gain sales and market share at the expense of rivals. Some companies will suffer losses of sales and market share in cameras and/or drones in one or more geographic regions—despite striving (or hoping) to do the opposite—because they are outcompeted by one or more rivals offering what buyers consider to be more attractive products.

Bigger sales and market shares, of course, do not necessarily equate to better profitability and overall performance than below-average sales volumes and market shares—firms that sell top-quality products at premium prices often have smaller unit sales volumes and smaller revenues, yet their profits and returns on investment may well be greater than those of firms selling less expensive, lower-performing products to the mass market. Moreover, each competing company’s production and other operating costs for cameras and drones are certain to change over time, as managers of the competing companies pursue different actions to operate efficiently and build a competitive advantage linked to lower costs or better product quality or some other factor that yields competitive advantage. It remains to be seen which companies will end up being the most profitable and achieving the best overall performance.

GLO-BUS: Developing Winning Competitive Strategies Participant’s Guide

The company has regional facilities in Milan, Italy; Singapore; Sao Paulo, Brazil; and Dallas, Texas to conduct the company’s marketing efforts in the four geographic regions of the world market, to support the merchandising efforts of regional retailers who stock the company’s action cameras and UAV drones, and to process camera/drone warranty claims (including making needed repairs).

Assembly and Shipping. The company assembles cameras and drones usually within two weeks of receiving an order and strives to ship an order no later than 2-3 days after assembly. No camera models or drone models are assembled in advance, warehoused in company facilities, and then used to fill incoming orders.

The company has a staff of people engaged in product R&D; this group has the capability to develop new and improved models of cameras and drones as directed by top management. Once company co- managers settle on the desired specifications and performance features for the company’s line-up of camera and drone models, the needed parts and components are obtained from suppliers having the capabilities to make deliveries to the company’s Taiwan assembly site on a just-in-time basis, thus eliminating the need to maintain inventories of parts or components.

The company has two buildings for assembling products at its Taiwan site—one for cameras and one for drones (the drone assembly process also includes assembly of an action-camera model having features and specifications suitable for use in camera-equipped drones). Both cameras and drones are assembled by four-person product assembly teams (PATs), with each PAT performing the needed tasks at its own assigned workstation. Shipping department personnel package orders for shipment and stack them on the loading dock for pickup by independent freight carriers. The cameras are delivered to buyers anywhere from 3 days to 3 weeks later, depending on a retailer’s location and the means of transportation—shipments to distant retailers are shipped via a combination of air and ground freight and those to customers in select parts of Asia are shipped by ground freight. The cost of boxing cameras, packaging them for shipment, and freight averages $5 per camera. Shipping costs for drones, most of which are air freighted to customers and delivered within 5 to 10 business days after receipt of the order, average $60 per unit.

Many countries have opted to impose import duties on cameras and drones sourced from Taiwan. Going into Year 6, import duties equal 4% of the average price the company charges customers in Europe-Africa, and 6% of the average price being charged to customers in both Latin America and the Asia-Pacific; there are no import duties on either cameras or drones shipped to customers in North America. Import duties in all four regions of the world market are subject to change in upcoming years.

Competitive Efforts. To capitalize on ongoing technological advances and the pipeline of product enhancement capabilities flowing from the company’s expenditures for product R&D, each year the company typically changes the specs for important components, adds/modifies performance features, upgrades the internal software, makes assorted other design-related changes, and introduces new and/or improved models. In addition, strong competition from rival companies pushes management to make price and marketing adjustments to improve buyer appeal for the company’s camera/drone models and to enhance the company’s ability to compete more effectively.

Stock Listings. The company’s stock is publicly traded on the NASDAQ exchange in the United States. The closing price in Year 5 was $12 per share. The company’s financial statements are prepared in accord with generally accepted accounting principles and are reported in U.S. dollars. The company’s financial accounting is in accord with the rules and regulations of all authorities where its stock is traded.

Worldwide unit sales of wearable and/or mountable, miniature action-capture cameras are reliably projected to grow 6-8% annually for the next five years (Years 6-10) and then to grow at a slower 4-6% annual rate during the following five years (Years 11-15). However, the projected growth rates differ by geographic region, as shown below.

The Worldwide Market for Action-Capture Cameras

GLO-BUS: Developing Winning Competitive Strategies Participant’s Guide

Projected Growth of Unit Sales of Action-Capture Cameras

Worldwide North America Europe-Africa Latin America Asia-Pacific

Years 6-10 6.0%-8.0% 4.5%-6.5% 4.5%-6.5% 8.5%-10.5% 8.5%-10.5%

Years 11-15 4.0%-6.0% 2.5%-4.5% 2.5%-4.5% 6.0%-8.0% 6.0%-8.0%

Note: Actual growth within the forecast 2% range varies from region to region. In one region the actual growth rate may be near the high end of the forecasted range, in another region in the same year it may be near the low end, and in still another region it may be near the midpoint of the range. Moreover, the forecast growth rates are all based on the assumption that in future years the competitive efforts of rival companies will, on the whole, not differ significantly from the levels prevailing at the end of Year 5. Future growth rates may turn out to be higher than forecast in the event more buyers are attracted to purchase action-capture cameras because of a dramatic decline in camera prices and/or significantly higher camera quality/performance and/or sharp and sustained increases in the marketing and competitive efforts of rival companies to grow camera sales volumes. Conversely, factors that can drive away potential buyers and cause the growth in buyer demand to fall below the forecast amounts include sharply higher camera prices and/or a strong downward trend in camera quality/performance and/or complacent efforts on the part of rival companies to please buyers and capture the available growth opportunities. In other words, the forecast growth rates, while reliable, are not guaranteed in the event the competitive efforts in the industry become significantly stronger or weaker than the levels prevailing in Year 5.

Because the growth rate in four geographic regions can be anywhere within the forecast 2 percent range, company managers have to deal with uncertainty about where within the projected growth range the actual growth rate in camera demand for a particular geographic region in a particular year will turn out to be. Bear in mind here that the managers of real-world companies do not operate with certainty about what their industry’s growth rate in unit volume for the upcoming year will turn out to be, correct to the first decimal place—a forecast somewhere within a 2-percentage-point range is really a pretty good forecast!

Competition. Competition in the worldwide market for action-capture cameras revolves around price, product quality and performance, the number of models offered, the number and types of retailers that stock and merchandise each brand of camera, the amount of merchandising support companies provide to these retailers, advertising, sales promotion activities (the duration of sales promotion campaigns and the sizes of the price discounts offered to retailers during these promotional campaigns), the length of warranties, and brand reputation.

Worldwide unit sales of unmanned aerial view (UAV) drones are reliably projected to grow 15.5%- 17.5% annually during Years 6-7, 12.0-14.0% annually during Years 8-9, 9.0%-11.0% annually in Years 10-11, 6.0% -8.0% annually in Years 12-13, and 3.75%-5.75% annually during Years 14 and 15. However, the projected growth rates differ considerably by geographic region, as shown below.

Projected Growth of Unit Sales of Unmanned Aerial View Drones

Period Worldwide North America Europe-Africa Asia Pacific Latin America

Years 6-7 15.5%-17.5% 15.0%-17.0% 15.0%-17.0% 17.0%-19.0% 17.0%-19.0%

Years 8-9 12.0%-14.0% 11.0%-13.0% 11.0%-13.0% 14.0%-16.0% 14.0%-16.0%

Years 10-11 9.0%-11.0% 8.0%-10.0% 8.0%-10.0% 11.0%-13.0% 11.0%-13.0%

Years 12-13 6.0%-8.0% 5.0%-7.0% 5.0%-7.0% 8.0%-10.0% 8.0%-10.0%

Years 14-15 3.75%-5.75% 3.0%-5.0% 3.0%-5.0% 5.0%-7.0% 5.0%-7.0%

The Worldwide Market for Unmanned Aerial View Drones

GLO-BUS: Developing Winning Competitive Strategies Participant’s Guide

Note: As noted above in regard to the growth rates of action-capture cameras, actual growth of for UAV drone sales within the forecast ranges varies from region to region. The forecast growth rates, while reliable, are not guaranteed in the event the competitive efforts in the industry become significantly stronger or weaker than the levels prevailing in Year 5.

Again, while company managers have to deal with uncertainty about where within the projected 2% growth range the actual growth rate for drones for a particular geographic region in a particular year will turn out to be, a forecast somewhere within a 2-percentage-point range is really a pretty good forecast!

Competition. Competition in the worldwide market for UAV drones differs somewhat from that for action-capture cameras and is centered on price, product quality and performance, the number of models offered, the relative appeal of rival company websites as concerns providing complete information about different models and the ease of placing orders, the comparative amounts competitors elect to spend on search engine advertising to help draw shopper traffic to their website (where a big percentage of drone sales are transacted), the length of warranties, the relative success competitors have in attracting third-party online retailers to display and merchandise their brand of UAV drones (and thereby broaden their access to potential purchasers of drones), and brand reputation.

P/Q Ratings for Action-Capture Cameras. The World Digital Video Federation (WDVF), a well- respected affiliation of camera industry trade groups and camera experts, tests the performance and quality of the action-capture camera models of all competitors and assigns a performance-quality or P/Q rating ranging from a low of 1.0 stars to a high of 10.0 stars to each company’s line of action- capture cameras—each company’s star rating is reported to the nearest tenth of a star (i.e. 2.3, 4.7, 6.5). The WDCF’s P/Q ratings are based on an array of factors: (1) image sensor size, (2) size of the LCD display screen, (3) image quality of the pictures/video, (4) number of modes for videos and still photos, (4) camera housing, (5) editing/sharing capabilities, (7) included accessories (such as capacity of flash memory card, rechargeable batteries, a plug-in battery-charger, and carrying case) (8) number of extra performance features, (9) the number of camera models a company offers, (10) a company’s cumulative spending on product R&D, and (11) the amount a company spends annually on training for each of its camera-related PATs and improving its camera-related assembly methods (since such spending can affect defects encountered and the need for repairs). Ratings are updated annually.

Currently, the action-capture camera lines of all competitors have a 4.0-star P/Q rating. Competition among rivals is, however, likely to result in different P/Q ratings for the camera offerings of different companies in forthcoming years. This is because all buyers both within a geographic region and across the four geographic regions do not prefer to buy precisely the same quality camera with precisely the same performance features and pay precisely the same price. Diverse buyer preferences thus make it highly that some camera companies will opt to cater to buyers shopping for low-priced action cameras having basic features (and perhaps a P/Q rating of 1-3 stars), while other camera makers may decide to design cameras to satisfy buyer preferences for a premium-priced, full-featured action camera (with perhaps a 7-star to 10-star rating), and still other camera-makers may choose to target “middle market” buyers content with a medium-priced camera having a P/Q rating in the 4-6 star range.

P/Q Ratings for UAV Drones. Three years ago, the Global Alliance for Safe and Responsible Use of Commercial Drones was formed to help lobby government authorities responsible for regulating airspace to establish drone-use regulations that would enable commercial enterprises to benefit from the rapidly-advancing capabilities of aerial drones to provide valuable pictures and data. Membership quickly grew to include drone manufacturers, the suppliers of materials and components used in the production of drones, a wide variety of commercial enterprises and trade associations with interest in using drones for various purposes, and organizations engaged in drone technology research. Two years ago, members of the Global Alliance voted overwhelmingly to develop a methodology for rating the performance and quality of the hundreds of brands and varieties of drones available for sale worldwide, but most especially UAV drones suitable for a variety of commercial uses. Eighteen months ago, the first performance-quality or P/Q ratings of UAV drones were released for posting on the Global Alliance’s website, along with the methodology for determining the ratings. Ratings are a function of (1)

Performance/Quality (P/Q) Ratings of AC Cameras and UAV Drones

GLO-BUS: Developing Winning Competitive Strategies Participant’s Guide

the caliber of the built-in action-capture camera, (2) the caliber of the built-in GPS/Wi-Fi/Bluetooth components, (3) battery life (maximum flight time per charge), (4) number of rotors, (5) rotor performance and flight controller features/capabilities, (6) body frame construction, (7) the caliber of the obstacle sensors, (8) quality of the camera stabilization device, (9) number of extra performance features, (10) the number of drone models a company offers, (11) a company’s cumulative spending on product R&D, and (12) the amount a company spends annually on training its each of its drone-related PATs and improving its drone-related assembly methods (since such spending can affect defects encountered and the needs for repairs). Each brand of UAV drones was assigned a P/Q rating of 1.0 to 10.0 stars, with each company’s star rating being reported to the nearest tenth of a star. Ratings are updated annually.

As of Year 5, the UAV drone offerings of all competitors in your industry group had a 4.0-star P/Q rating. However, given the expected rapid advances in drone technology and the many new features and improvements that are expected to be incorporated in UAV drones in upcoming years, it is likely that the P/Q ratings of competing brands of UAV drones will quickly diverge. Drone buyers across the world are not looking for drones with the very same features, performance, and quality because the purposes for which they intend to use UAV drones vary greatly, thus creating a market for drones with varying combinations of features—which, in turn, results in drones with varying costs being sold at varying prices. Consequently, it is likely that some drone makers will opt to cater to buyers shopping for low-priced drones having basic features (and perhaps a P/Q rating of 1-3 stars), others will elect to target buyers willing to pay well above-average prices for a more full-featured drone (with perhaps a 7- star to 10-star rating), and still other drone-makers opting to compete for the patronage of “middle market” buyers whose performance-quality requirements equate to P/Q ratings in the 4-6 star range.

Action-Capture Camera Retailers. Worldwide, there are some 50,000 retailers of wearable (or mountable/attachable), teacup-size video cameras scattered across the world—each of the four major geographic regions of the world market has 12,500 retailers of action-capture cameras, some of which are multi-store retail chains (100 per region), online electronics retailers (400 per region), and local retail enterprises that sell or rent these cameras (12,000 per region). Retailers with store locations that also sell cameras on their websites are not included in the online category. Multi-store chains account for the biggest percentage of action-capture camera sales, with online retailers second and small local retailers third. Retail markups over the wholesale prices run 50% to 100%; thus, the models of a company with 4-star-rated action-capture cameras wholesaling for an average of $200 could retail for an average of $300-$400. Such markups allow retailers to put selected models or brands of cameras on sale from time-to-time at 10% to 20% off regular price and still make a decent profit margin.

Retailers typically carry anywhere from 2-4 brands of action-capture cameras and stock only certain models of the brands they do carry, but in all four geographic markets there are around 20 “full-line” action camera retailers that stock most all brands and models. Most all chain-store retailers carry at least 2 and often 3-4 of the best-selling brands. The makers of weak-selling brands of action cameras have difficulty convincing major retail chains to devote much display space and merchandising efforts to their models. Online retailers are, however, more amenable to merchandising low-volume brands, especially those with relatively high P/Q ratings (favored by buyers concerned about camera performance and quality) and/or minimal performance features but ultralow prices (which are favored by bargain-hunting shoppers).

Online Retailers of UAV Drones. There are 100 online retailers of UAV drones in each of the four geographic regions. Because your company sells its UAV drone models at the company’s own website in direct competition with other online retailers of UAV drones, these online retailers are inclined to stock and display your company’s brand of drones only if they can purchase your drone models at an attractive percentage discount to the price being charged on your website. In other words, if you offer to sell online retailers your models of UAV drones at say 20% off the price being charged on your website, then a greater number of online retailers will be inclined to stock and merchandise your drone models than if you only offer them a 10% price discount. Moreover, the bigger the percentage discount you offer to these online retailers, the bigger the sales they will generate—discounts of 15% to 20%

The Retailers and Buyers of Action-Capture Cameras and UAV Drones

GLO-BUS: Developing Winning Competitive Strategies Participant’s Guide

may result in 3rd-party online retailers accounting for 25% to 35% of your company’s total sales volume. Generally, if your company’s price discounts are under 10%, very few online retailers will purchase your drone models for resale on their websites because their profit opportunities are minimal (even if they charge prices higher than your company’s website prices in hopes of attracting buyers who have never visited your company’s website).

The Buyers of Action-Capture Cameras. People interested in purchasing a wearable video camera in order to record their action adventures for personal viewing and also to share their experiences with others (perhaps on Facebook or other sites) are generally quite aware that there can be big differences in the prices and performance of the various brands of action-capture cameras. Many do extensive internet research to educate themselves about the features, performance, and prices of different action- capture camera brands and models. The World Video Camera Federation’s much publicized P/Q ratings are trusted by people who are shopping for action cameras or already own one, and the Federation’s frequently-visited website has detailed information concerning the results of its performance tests and the basis for its P/Q ratings of each action-capture camera brand. Moreover, both the makers of these cameras and online electronics retailers have extensive information on their websites about currently available models. There are also assorted websites and publications that publish/post information about and reviews of new and improved camera models. Consequently, it is easy for most potential buyers of action cameras to do considerable comparison shopping before deciding which camera brand to buy—they tend to be quite aware of the prices and P/Q ratings of different brands, the various retail locations and websites where action cameras can be purchased, the warranties of competing brands, and the fact that retailers have periodic weekly sales promotions that feature sizable discounts off the regular retail price. Potential buyers also pay at least some attention to the media ads they see for various action cameras brands and their purchasing decisions are to some degree influenced by these ads. Many price-sensitive consumers shopping for their first action-capture camera are inclined to wait to make a purchase until the retailers of these cameras in their geographic area have weekly sales promotions featuring discounted prices.

The Buyers of UAV Drones. Individuals and enterprises interested in purchasing a UAV drone for commercial use are generally quite aware that there can be big differences in the prices and performance of the various brands of UAV drones. many do extensive Internet research to educate themselves about the features, performance, and prices of different brands and models of UAV drones. The readily available P/Q ratings for various brands of drones compiled by the Global Alliance for Safe and Responsible Use of Commercial Drones are considered trustworthy, and the Global Alliance’s frequently-visited website has detailed information concerning the results of its performance tests and the basis for its P/Q ratings of each drone brand. Moreover, both drone-makers and third-party online electronics retailers of drones have extensive information on their websites about the currently available models they offer for sale. Because of mushrooming interest in the features and capabilities of UAV drones, a growing number of websites and media publications have begun posting/publishing articles about the features and capabilities of newly-available drones and newsworthy developments in the drone industry. Consequently, it is common for likely drone purchasers to do considerable comparison shopping before deciding which drone brand to buy—they are familiar with the P/Q ratings of rival brands, the retail prices and information posted at company websites and the websites of other online retailers of drones, and the warranties of rival brands. Potential buyers also pay at least some attention to the search engine advertising they encounter when browsing for information about UAV drones, and their decisions to ultimately purchase this or that brand are affected by these ads.

Competition among rival makers of action-capture cameras centers around 11 factors:

1. Average Wholesale Price to Retailers— The most important price-related consideration affecting a company’s camera sales/market share is the extent to which its average wholesale price for the camera models it sells to retailers in each region is above/below the region’s industry (all-company) average. A company whose average wholesale price is above the industry (or “all-company”) average in a region is burdened by a price-based competitive disadvantage. The bigger the percentage by which a company’s average wholesale price is above the regional average, the

The Competitive Factors that Determine AC Camera Sales and Market Share

GLO-BUS: Developing Winning Competitive Strategies Participant’s Guide

bigger is the company’s price-based competitive disadvantage and the bigger is the resulting negative impact on its cameras sales and market share in the region. Conversely, the bigger the percentage by which a company’s average wholesale price is below the regional average, the bigger is the company’s price-based competitive advantage and thus the bigger is the positive impact on its cameras sold and market share in the region. In other words, the further a company’s average wholesale price is above the regional average, the bigger the number of action-camera shoppers who will opt to buy lower-priced rival brands whereas the further a company’s average wholesale price is below the regional-average, the bigger the fraction of action-camera shoppers in the region a company can attract to buy its lower-priced brand.

However, the size of any company’s pricing disadvantage/advantage versus rivals (and the resulting loss/gain in camera sales and market share) can be decreased/increased by its competitive standing versus rivals on the other 10 competitive factors. Any company whose wholesale price exceeds the regional average can partially offset or even overcome its price disadvantage when it has competitive edges over rivals on some/many other relevant buyer considerations—such as an above-average P/Q rating, more models for buyers to select from, or longer-than-average warranties. But the further a company’s average wholesale price to retailers is above the regional average prices, the harder it is for a company to use non-price enticements to overcome rising buyer resistance to the company’s higher priced camera models.

Similarly, any company whose price to retailers is below the average prices of its regional rivals can widen its price-based advantage over rivals when it also has a competitive edge over these rivals on some or many of the other 10 competitive factors that influence camera sales and market share in a region. In addition, the further a company’s price is below the average being charged by regional rivals, the easier it becomes to offset any competitive disadvantages relating to a below- average P/Q rating, shorter-than-average warranties, a below-average number of models, and other competitively relevant factors.

One other price-related factor is also relevant. The buyers of action cameras in Latin America and the Asia-Pacific region are more sensitive to cross-brand price differences than are camera buyers in North America and Europe-Africa. Thus when camera-makers raise their wholesale prices to retailers in a region this quickly translates into higher retail prices in the region because retailers mark up the wholesale price they pay camera-makers by 50% to 100%. Consequently, when the product offerings of competing companies entail only minor differences in P/Q ratings (and other factors that shape buyers’ brand preferences), then cross-brand differences in wholesale price will have a bigger impact on unit sales and market shares in Latin America and the Asia-Pacific than in North America and Europe-Africa.

2. P/Q Ratings—The vast majority of action-capture camera shoppers consider the widely-available and much-publicized annual P/Q ratings compiled by the World Digital Video Federation to be a trusted measure of the performance and quality of competing brands of AC cameras. Market research indicates buyers worldwide consider the P/Q ratings of competing brands of AC cameras to be one of the two most important factors (along with price) in shaping their choice of which action-camera brand to purchase. A company whose P/Q rating is above the regional average P/Q ratings of rivals in a region enjoys an important competitive advantage on the performance-quality aspect of its camera models. Likewise, a below average P/Q rating constitutes an important performance-quality-based competitive disadvantage. The more a company’s P/Q rating is above the industry average, the more that camera shoppers in the region are attracted to purchase the company’s camera brand—unless the company’s higher P/Q rating is undermined by (1) unfavorable comparisons against rivals on such other buyer-relevant features as comparatively few models for buyers to choose among, a significantly weaker brand reputation, or a much shorter- than-average warranty or (2) charging a price premium for the added performance-quality that buyers consider “too high” or “not worth the extra cost.”

Market research further reveals that the buyers of action cameras in North America and Europe-Africa are more sensitive to cross-brand differences in P/Q ratings than are camera buyers in the Asia-Pacific and Latin America regions. Thus, when two brands of action cameras have slightly different prices and P/Q ratings (and all other buyer considerations are, on balance, virtually identical between the two brands), then a bigger percentage of buyers in North

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America and Europe-Africa will purchase the brand with the higher P/Q rating while a bigger percentage of buyers in Latin America and the Asia-Pacific will purchase the cheaper-priced brand—resulting in bigger sales for the camera brand with the higher P/Q rating in the North America and Europe-Africa regions and bigger sales for the lower-priced camera brand in the Latin America and Asia-Pacific regions.

However, beware of assuming the differing cross-region sensitivities to price and P/Q ratings mean buyers in North America and Europe-Africa care little about price or that buyers in Latin America and the Asia-Pacific care little about P/Q ratings. Camera prices and P/Q ratings matter greatly in all geographic regions.

3. Number of Models—Companies offering buyers a bigger selection of models than rivals enhance their company’s competitiveness by giving camera buyers more opportunity to find a model well suited to their preferences. Companies offering comparatively fewer models than rivals risk losing sales and market share to competitors offering greater selection, unless they offset their narrower selection with other appealing competitive attributes (such as a lower price, higher P/Q rating, longer warranties, and so on).

4. Advertising Budget—Media advertising is used to inform the public of the prices and features of newly introduced models, to tout the merits of buying the company’s brand, and to inform shoppers of special sales promotion campaigns and discounted sales prices. Even though retail dealers act as an important information source for customers and actively push the brands they carry, advertising on the part of camera-makers (often done in conjunction with the advertising efforts of retailers stocking its brand) strengthens brand awareness, helps pull buyers into retail stores carrying the brand, and informs the public about the features and prices of a company’s latest action camera models. The competitive impact of advertising depends on the size of your company’s current-year advertising budget in each region. Companies whose advertising is above the all-company regional-average gain an advertising-based competitive edge that positively impacts their company’s regional sales volume and market share; the bigger the percentage competitive advantage, the bigger the positive impact. Companies whose spending is below the regional average suffer from an advertising-based competitive disadvantage that negatively impacts their regional sales and market share; again, the bigger the percentage competitive disadvantage, the bigger the negative impact.

5. Sales Promotions (number of weeks)—Rival companies can run from 0 to 20 week-long sales promotion campaigns annually to tout their action-capture cameras—all such campaigns involves offering retailers a discount of some size off the regular price. Periodic sales promotion campaigns are of interest to retailers stocking the company’s models because they call attention to the brand, spur consumer interest and store traffic, and help increase unit sales. Market research indicates that the competitive impact of sales promotions depends on whether the number of sales promotion events a company has annually is above/below the industry average in each region. Companies having above-average number of sales campaigns gain a promotion-based competitive edge that positively impacts their regional sales volume and market share. Conversely, a below-average number of weekly promotions results in a competitive disadvantage that negatively impacts a company’s regional sales volume and market share. The bigger the percentage competitive advantage/disadvantage, the bigger the positive/negative impact.

6. Sales Promotions (% discount)—Retailers that are offered, say, a 15% discount off regular wholesale price on units sold during a sales promotion event can be counted on to pass the savings along to consumers in the form of corresponding sale prices of 15% off the regular retail price. In the camera business, just as in most other businesses, bigger sales price discounts attract more buyers than smaller price discounts. Thus, promotional campaigns involving sale prices of 15% to 20% off the regular price have substantially greater sales-enhancing impact than promotions offering only 5 or 10% discounts, even if a company holds more sales with such small discounts. In other words, the size of the discounts off regular price a company offers during sales promotion events is a very crucial factor in determining the sales-enhancing impact of its promotional campaigns, more so than the number of promotional events. Companies offering discounts above the regional average gain a competitive advantage that positively impacts the company’s regional sales volume and market share, with the size of the positive impact depending on the size of the

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competitive advantage. Companies offering discounts below the regional average have a competitive disadvantage that negatively impacts the company’s regional sales volume and market share, with the size of the negative impact depending on the size of the competitive disadvantage.

7. Retailer Support Budget—Support for regional retailers involves providing retailers with in-store signs, up-to-date product-information brochures, and engaging video-enabled point-of-purchase (POP) displays that showcase uses of the company’s camera models and accessories. A portion of the retailer support budget is also used to support the trips of company marketing personnel to visit the stores of high-volume retailers and work with store managers/clerks in expanding/improving the footprint of the company’s POP displays. Companies whose retailer support expenditures are above the regional average gain a competitive edge in attracting retailers to stock their brand compared to companies providing below-average amounts of retailer support—the bigger a company’s retailer network in a region, the stronger is its brand exposure to camera shoppers and the stronger the resulting positive impact on its regional sales and market share.

8. Website Product Displays / Info—The level of expenditures for website displays and information is a proxy for the time, effort, and creativity that a company puts into (1) posting periodically refreshed and visually appealing displays of its various camera models, along with ample and useful information about each model’s features, capabilities, and specifications, (2) providing site visitors with the capability to create side-by-side model comparisons, (3) enabling site visitors to post their reviews of particular models, and (4) providing good after-the-sale product support to customers. Many potential buyers make a point of visiting the company’s website to gather information about the company’s models and research how the features, capabilities, and specifications of its models compare against those of rival brands. The product displays, informational content, and customer reviews at each company’s website, along with the website’s visual appeal and functionality, is thus an important element in prompting buyers to visit a nearby retailer of the company’s brand, personally inspect the company’s various models, and perhaps make a purchase. Visits to a company’s website also enable customers to obtain needed after-the- sale technical support, download apps and software updates for previously-purchased camera models, browse product manuals, discover how to file a warranty claim, and use the chat function to pose questions to online personnel.

9. Retail Outlets—A company’s sales and market share in a geographic region are strongly influenced by the number and type of retailers (multi-store chains, online electronics retailers, and local retail shops) it can convince to stock its brand and display its models. In general, having more of each type of retailer selling the company’s brand is better than having fewer retailers because of the added display exposure and the added convenience to camera buyers of being able to buy a given brand at more locations. Companies with an above-average number of retailers in a region enjoy a competitive edge that positively impacts their regional sales volume and market share. Companies with a below-average number of retailers in a region suffer from a competitive disadvantage that negatively impacts their regional sales volume and market share. In the last two months of each year, camera retailers decide whether to stick with the camera brands they are currently stocking or whether to make some adjustments based on five considerations: (1) which camera brands in their region are growing in popularity and declining in popularity among buyers (as measured by changes in each company’s market share in the region), (2) each camera maker’s P/Q ratings for its line of action cameras as compared to the regional average, (3) the number of week-long sales promotion campaigns each company undertook as compared to the regional average, (4) the size of the promotional discount each company offered during these weekly sales promotions relative to the regional average, and (5) each company’s expenditures to support the merchandising efforts of camera retailers in the region relative to the regional average.

10. Warranty Period—Camera buyers, of course, find longer warranties more appealing than shorter warranties. A company whose warranty period exceeds the regional average gains a competitive edge that positively impacts its regional sales/market share, whereas a company whose warranty period is below the regional average suffer a competitive disadvantage that negatively impacts its regional sales volume and market share. The further a company’s warranty period is above/below the regional average, the bigger the positive/negative impact.

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11. Company Image (brand reputation)—The “image rating” for each company in the industry that is based on its P/Q rating for action-capture cameras, its P/Q rating for UAV drones, its global market share of action camera sales, its global market share of UAV drone sales, and its actions to display corporate citizenship and conduct operations in a socially responsible manner over the past 4-5 years—a total of 5 factors. All companies had an overall worldwide image rating of 70 at the end of Year 5. Image ratings/brand reputations are updated at the end of each year, using the existing P/Q ratings, year-end global market shares, and information relating to the social responsibility efforts of rival companies. Newly-released brand image ratings are widely-publicized and become quickly known to buyers considering the purchase of action cameras and UAV drones.

Market research confirms that the prior-year company image ratings (brand reputations) of rival companies have a moderately strong influence on the brand choices of camera buyers in the upcoming twelve months. Thus, companies with prior-year image ratings above the industry average have a meaningful competitive edge over rivals with below-average image ratings in attracting camera buyers to purchase their brand and in recruiting additional retailers to stock and merchandise their camera models for a period of 1 year (at which time new end-of-year company image ratings/brand reputations are released). The importance of a strong brand reputation in attracting camera buyers is big enough that companies with comparatively weak reputations must exert enough extra effort on the other 10 competitively relevant factors to boost overall buyer appeal for their brand and overcome their image/reputation disadvantage. When weak image companies significantly improve the overall buyer appeal and competitiveness of their camera models from one year to the next, they can definitely win market share from strong image rivals despite having an image rating disadvantage. Should companies with once-weak brand reputations continue to improve their overall image ratings over a period of several years, they can definitely turn the liability of a weak brand reputation into a strong brand reputation and competitive asset.

Competition among rival makers of UAV drones centers around 9 factors:

1. Average Direct-Sale Price to Online Customers—Companies charging a price that is below the regional average gain a price-based competitive advantage that positively impacts their regional sales and market share, whereas companies charging a price that is above the regional average results in a price-based competitive disadvantage. The bigger the percentage by which a company’s average retail price is below/above the regional average, the bigger the resulting positive/negative impact on its regional sales volume and market share.

However, any company whose retail price is above the industry average in a region can partially offset or even totally overcome its price disadvantage when it has a competitive edge over rivals on some or many other important sales-determining factors—such as a P/Q rating that is above the industry average P/Q rating, an above-average number of models, longer-than-average warranties, an above-average number of third-party online retailers, above-average expenditures for search engine advertising, and an above-average brand reputation. Price disadvantages become progressively easier to overcome as a company’s P/Q rating rises further above the industry average. P/Q ratings that are 1-2 stars (or more) above the industry average can command prices hundreds of dollars above the industry average because a sizable fraction of the commercial enterprises that purchase UAV drones place a high value on the added performance of drones with P/Q ratings of 7 stars and higher—perhaps as many as 5% of the world’s drone buyers can be enticed to pay prices perhaps as high as $2,000-$2,500 for UAV drones with 9-star or 10-star P/Q ratings. But the further a company’s price to retailers is above the industry average in a region, the harder it is for a company to use enticements other than higher P/Q ratings to overcome rising buyer resistance to higher retail prices for its drone models. Likewise, the further a company’s price is below the industry average in a geographic region, the easier it becomes to offset any competitive disadvantages relating to lower P/Q ratings, shorter warranties, fewer models, and so on.

One other price-related factor is also relevant. The purchasers of drones in Latin America and the Asia-Pacific regions are more sensitive to price differences than are drone purchasers in North America and Europe-Africa. In other words, when the drone offerings of competing

The Competitive Factors that Determine UAV Drone Sales and Market Share

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companies entail only minor differences in P/Q ratings (and other factors that shape buyers’ brand preferences), then price differences will have a bigger impact on unit sales and market share in Latin America and the Asia-Pacific than in North America and Europe-Africa.

2. P/Q Rating—The vast majority of drone shoppers consider the widely-available and much- publicized annual P/Q ratings compiled by the Global Alliance for Safe and Responsible Use of Commercial Drones to be a trusted measure of the performance and quality of competing brands of drones. Market research indicates buyers worldwide consider the P/Q ratings of competing drone brands to be one of the two most important factors (along with price) in shaping their choice of which brand to purchase. A company whose drones have a P/Q rating above the industry average thus has an important competitive advantage over rivals, whereas a below-average P/Q rating constitutes an important competitive disadvantage. P/Q ratings that are more than 1 star above or below the industry average result in particularly strong competitive advantages or disadvantages and thus have strong positive or negative impacts on sales volumes and market shares in each region. The competitive advantage that attaches to an above-average P/Q rating can make a company’s drone brand even more appealing to buyers (and thus translate into even bigger sales volume and market share) if it is supplemented by charging an attractively small price premium for the added performance-quality, by also offering a longer-than-average warranty and/or an above- average number of models to choose from, and so on. Likewise, a company selling drones with an above-average P/Q rating can erode its performance-quality advantage by charging a price that buyers consider “unreasonably high” for the added performance and quality or by weakening the competitiveness of its product offering with other subpar characteristics (a short warranty or a weak brand reputation or an unappealing website) that undercut the P/Q rating advantage.

Market research further reveals that when two brands of drones have slightly different prices and P/Q ratings (and all other buyer considerations are, on balance, an even tradeoff between the two brands), then a slightly bigger percentage of buyers in North America and Europe-Africa will purchase the brand with the higher P/Q rating while a slightly bigger percentage of buyers in Latin America and the Asia-Pacific will purchase the cheaper-priced brand.

3. Number of Models—An above-average number of models enhances a company’s competitiveness in the marketplace by giving drone buyers wider product selection and thus more opportunity to find a model with the features and specifications that best matches how they plan to use the drone. Companies with a below-average number of models risk losing sales and market share to competitors offering greater selection, unless they offset their narrower selection with other appealing competitive attributes (a lower price, a higher P/Q rating, a longer warranty, etc.).

4. Retailer Recruitment / Support Budget—This expenditure covers the costs of calling on prospective online retailers to (1) personally communicate the expected rapid growth of the UAV drone market, the advantages of a company’s drone models, and the R&D effort the company is making to improve future models of its drones, (2) build a relationship with these prospects via a face-to-face visit, and (3) explain the kinds and amount of merchandising support the company provides. Retailer support includes providing periodically-refreshed pictures of the company’s various drone models for online retailers to display in their webstores, supplying comprehensive and up-to-date information about each model, and engaging in collaborative efforts to service buyer requests for various kinds of after-the-sale product support (filing warranty claims, downloading product manuals, obtaining software updates and useful apps, and so on).

Companies whose expenditures for website displays are above the regional average have website display-based competitive edge that positively impacts their regional sales volume and market share. Conversely, below-average expenditures for website displays results in a competitive disadvantage that negatively impacts a company’s regional sales volume and market share. The bigger the percentage competitive advantage/disadvantage, the bigger the positive/negative impact.

5. Discount Offered to 3rd-Party Online Retailers—While exerting efforts to recruit third-party retailers and support their efforts to merchandise the company’s drone models is important, the crucial inducement to securing the commitment of 3rd-party online retailers to market a company’s drones is the size of the percentage discount off the price that a drone-maker is selling drone models at its website. Understandably, third-party online retailers have zero

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interest in buying a drone-maker’s models at the same price the drone-maker is charging at its website, then marking the purchase price up by some percentage (10% or more to cover their own costs and allow for an attractive profit) and trying to secure orders at prices above a drone maker’s website prices. Hence, a drone-maker wanting to gain wider buyer access and additional sales volume through 3rd-party online retailers can do so only by offering to sell its drones to these online retailers at an attractively large percentage discount off its own website price. The bigger the percentage discount offered, the greater the number of 3rd-party retailers that will agree to stock and merchandise a drone-maker’s brand. But, as should be expected, the bigger the amount by which a drone-maker’s percentage discount offer exceeds the industry regional average, the bigger the number of 3rd-party online retailers it will attract to sell its brand of drones in that region and the greater will be the resulting regional sales volume and market share it achieves.

6. Search Engine Advertising—Search engine ads are a means of attracting more drone shopper traffic to a company’s website and thereby helping achieve a bigger unit sales volume and market share in a region. A company whose expenditures for search engine advertising is above the all- company regional-average gains a search engine advertising-based competitive edge that positively impacts its regional sales volume and market share; the bigger the percentage competitive advantage, the bigger the positive impact. A company whose expenditures are below the regional average suffers from a search engine advertising-based competitive disadvantage that negatively impacts its regional sales and market share; again, the bigger the percentage competitive disadvantage, the bigger the negative impact.

7. Website Product Displays / Info—The level of expenditures for website enhancement is a proxy for the time, effort, and creativity that a company puts into (1) posting periodically refreshed and visually appealing displays of its various drone models, along with ample and useful information about each model’s features, capabilities, and specifications, (2) providing site visitors with capability to create side-by-side model comparisons, (3) enabling site visitors to post their reviews of particular models, (4) making it easy and quick for buyers to place orders and pay for their purchase via credit card or wire transfer, and (5) providing good after-the-sale product support to customers. Bigger than average expenditures for website expenditures attract more website visitors because of the resulting enhanced visual appeal, functionality, features and information. Many potential buyers make a point of visiting the company’s website to gather information about the company’s models and research how the features, capabilities, and specifications of its models compare against those of rival brands. Visits to a company’s website also enable customers to obtain needed technical support, download apps and software updates for previously-purchased drone models, browse product manuals, and discover how to file a warranty claim.

8. Warranty Period—Shoppers for UAV drones find longer warranties more appealing than shorter warranties. A company whose warranty period exceeds the regional average gains a competitive edge that positively impacts its regional sales/market share, whereas a company whose warranty period is below the regional average suffers a competitive disadvantage that negatively impacts its regional sales volume and market share. The further a company’s warranty period is above/below the regional average, the bigger the positive/negative impact.

9. Company Image (brand reputation)—Just as with action-cameras, market research confirms that the prior-year company image ratings (brand reputations) of rival drone-makers have a moderately strong influence on the brand choices of drone buyers in the upcoming twelve months. Thus, companies with prior-year image ratings above the industry average have a competitive edge over rivals with below-average image ratings in attracting drone buyers to purchase their brand for a period of 1 year (at which time new end-of-year brand image ratings become available and are widely publicized). The bigger a company’s image rating advantage or disadvantage, the bigger the positive or negative impact on its sales of drones in the upcoming year.

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Companies with comparatively weak brand reputations must exert enough extra effort on some (or many) of the other 8 competitive factors to overcome a weak image disadvantage and boost overall buyer appeal in order to increase sales and market shares above prior-year levels. Winning big chunks of sales and market share away from rivals with strong image ratings in a single year is difficult. But it is certainly feasible for drone-makers with below-average image ratings to nibble away at the business of strong-image rivals, gaining 1 or 2 points of market share in a single year, (maybe more) if they significantly improve the overall buyer appeal and competitiveness of their drone models relative to the models of rivals. Should companies with once-weak brand images continue to improve their image ratings over a period of several years, they can definitely turn the liability of a once-weak brand image into a strong brand image and competitive asset.

Just as in the real world, the 11 competitive factors for action cameras have differing impacts—some carry more weight than others in a company’s sales volumes and market shares in each geographic region. As indicated above, the prices and P/Q ratings of camera rivals are the two most important competitive factors affecting buyer decisions of which camera brand to purchase. Moreover, buyer decisions to purchase one brand instead of another are more influenced by brand reputation, number models, number of retail outlets, advertising, the warranty period, and the size of promotional discounts than by differences in the number of promotional campaigns, in retailer support expenditures, and in website expenditures. The weight for brand reputation falls somewhere in between the weights for the most and least important competitive factors.

Similarly, the 9 competitive factors for UAV drones have differing impacts on which drone brands have more buyer appeal than other. The prices and the P/Q ratings of rival brands are usually the two most influential competitive factors affecting buyer decisions of which UAV drone brand to purchase. Furthermore, the brand preferences of drone shoppers are likely to be more influenced by such competitive factors as brand reputation, the number of models, and warranty periods than they are by search engine ads and the efforts of rival companies to enhance their websites (where many sales transactions occur) and market their drones at the websites of other online electronics retailers. The influence of brand reputation falls somewhere in between the importance for the most and least important competitive factors.

The Weighting of Each Competitive Factor Is Not a Fixed Amount. The weighting placed on the 11 competitive factors for action cameras and the 9 competitive factors for drones closely mirror what is believed to actually prevail in real-world marketplaces. While knowing precisely the weighting used for each competitive factor might seem helpful, such knowledge is not as useful as you might think.

Price is most definitely a very influential competitive factor. Big price differences in a region matter a lot in accounting for differences in sales/market share. But as the spread between the highest-priced company and the lowest-priced company becomes smaller and smaller, the weaker is the unit sales/market share impact of price differences and the greater is the role of the differences on other competitive factors in causing the sales and market shares to differ. For example, in the rare instance that all companies should happen to charge the same price in a region, then price becomes a total competitive non-factor and has zero impact on buyer appeal for one brand versus another—in such a case, 100% of the regional sales and market share differences among rivals will stem directly from differences on the other competitive factors. So how much price matters in determining a company’s unit sales/market share in a region is not a fixed amount but rather is an amount that varies from “big” (when price differences are also “big) to “small” (when prices differences are “small”) to “zero” (when the prices of rivals are identical). Precisely the same is true for the other competitive factors. So while it is true that some competitive factors affect buyer brand preferences more than others, what matters most in determining sales and market shares is the sizes of the differentials on each competitive factor. Big differences on a less important competitive factor like the length of warranty periods can end up having a bigger sales/market share impact than very small/insignificant differences on more important competitive factors (like price and P/Q rating).

The Importance of the Competitive Factors that Determine Sales and Market Share

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Essential understanding: The more that a company’s brand appeal to buyers on any one competitive factor (whether it be price, P/Q rating, brand reputation, number of models to choose from, length of warranty, and so on) is above/below the industry average in a region, the bigger is the weighting/impact of that factor in accounting for why its regional net sales/market share is above/below the industry average. Conversely, the closer to the industry regional average is a company’s price or P/Q rating or brand reputation or number of models and so on, the smaller is the weighting/impact of that factor in accounting for why its unit sales/market share is above/below the industry average. When a company’s competitive effort on each of the various competitive factors approximates the industry averages in a region, then its resulting unit sales volume/market share will also approximate the region’s industry average. So which particular competitive factors actually turn out to be most important all depends on how that company’s competitive effort stacks up against the industry average competitive effort, factor by factor. All unit sales and market share outcomes in all regions are thus 100% competition-based and are a function of the size of each company’s competitive advantage or disadvantage versus the industry averages for all the competitive factors.

Special Note: After each decision round, you can review a Comparative Competitive Efforts Report (1-page for each geographic region) showing each company’s competitive effort on each of the competitive factors for action cameras and UAV drones. It is imperative that you review this information to determine how well your company’s competitive effort on each factor compares to the industry averages—on which factors does your company have a competitive advantage and on which factors is your company at a competitive disadvantage? This information puts you in position to correct any important competitive disadvantages and to consider ways to further exploit any competitive advantages in the upcoming decision round. Ignoring the information in the Comparative Competitive Efforts report puts your company in the risky position of heading into a market contest with little or no clue as to competitors’ prior-year prices, P/Q ratings, brand reputations, models, warranties, and so forth and the extent to which your company was or was not outcompeted by rivals.

With so many competitive factors determining unit sales and market shares of and with the sales and market share impacts of these factors varying from year-to-year because of shifts in each company’s competitive advantage/disadvantage versus rivals on all these factors, you have wide-ranging options for crafting a strategy capable of producing good overall company performance and competing successfully in the AC camera and UAV drone market segments. For example, you can:

• Employ a low-cost leadership strategy and pursue a competitive advantage keyed to operating more cost-efficiently than rivals and thereby being in a strong position to profitably sell action cameras and/or drones at prices below those of rivals.

• Employ a strategy to differentiate your company’s cameras and/or drones from rival brands based on such attributes as product performance and quality, number of models, warranties, and other competitive factors that matter to buyers—and thereby outcompete rivals with a product offering that has greater overall appeal to a highly profitable number of buyers.

• Employ a “more value for the money” strategy (for example, selling 8-star cameras and drones at lower prices than other 8-star brands) where your competitive advantage is an ability to incorporate “upscale” product attributes with high buyer appeal at a lower cost than rivals—and thereby underprice rival brands having comparable attributes and P/Q ratings.

• Focus your strategic efforts on being the clear market leader in either action-capture cameras or UAV drones.

• Focus your company’s competitive efforts on gaining sales and market share in those geographic markets where your company already has high sales and/or attractively large profit margins (as compared to other regions) and putting less emphasis on winning sales in those regions where your company has a low market share or small profit margins and regions where competition is especially fierce (as compared to other regions).

Crafting a Strategy to Be Competitively Successful

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• Pursue essentially the same strategy and competitive advantage across all four regions or, instead, craft regional strategies tailored to improve the company’s competitiveness region- by-region and counteract/overcome the strategic actions and competitive maneuvers of specific rivals in specific regions.

There’s a very big window of opportunity for you to craft some version of the above strategic approaches. And because GLO-BUS has no built-in bias that favors any one strategy over all the others, there are multiple strategic approaches and sets of competitive efforts/action that, if properly designed and well-executed, are capable of producing competitive success in the global market for cameras/drones, provided they are not overpowered or thwarted by even more potent strategic approaches and competitive actions/efforts that are well-executed by rival companies.

No One Strategy for Competing “Guarantees” Success. Because the sales and market share outcomes for a company are 100%-based on the competitiveness and overall buyer appeal of its brand versus the competitiveness and overall buyer appeal of rival brands, it is neither conceptually nor competitively possible for there to be some preselected surefire strategy or competitive approach or some undefeatable combination of competitive efforts/actions that is “guaranteed” to propel a company into the ranks of the top-performing companies, irrespective of the strategies and competitive efforts undertaken by rival companies. Consider the following:

• Are the companies that are being outperformed by the company pursuing a so-called surefire strategy going to sit idly, do nothing, and watch that company overwhelm them, decision round after decision round thereby running the risk of a poor grade? Not likely. It is unreasonable to expect any company to passively accept competitive defeat and unconditionally surrender.

• Do managers of rival companies whose performance is suffering have strong incentives to aggressively pursue actions to boost the performance of their companies? Certainly.

• Do all the managers of rival companies lack the capacity figure out why their companies are being outcompeted and outperformed? Very unlikely.

• Aren’t the reasons fairly obvious? Don’t these reasons revolve around prices and/or P/Q ratings and/or number of models offered and/or warranties and/or assorted marketing efforts that are not sufficiently competitive with those of the high-performing company and that have resulted in weak buyer appeal? Most certainly.

• Might part of the reason for their underperformance also be due to “high” unit costs that are squeezing profitability? Yes—at least for some companies.

• Can one or more of the companies being outcompeted and outperformed be reasonably expected to launch a strong counterattack and initiate new and potentially potent competitive efforts to improve their company’s performance? Yes. There is nothing to prevent any company from reducing prices and/or increasing P/Q ratings and/or adding models and/or lengthening warranties and/or boosting its marketing efforts (perhaps by significant amounts), and there is plenty of reason for underperforming companies to pursue such actions aggressively.

• Might such actions prove effective in bolstering the competitiveness and overall buyer appeal of their brands, thereby narrowing the competitive gap and the performance gap between the underperforming companies and the industry leader? Definitely. It is common for underperforming companies to reverse their fortunes by undertaking actions that succeed in boosting buyer appeal for their product offerings and greatly improving their overall performance—this occurs both in GLO-BUS and in the real world.

• Is there a reasonable chance that one or more companies could even overtake the industry leader by devising a potent strategy and series of competitive actions/maneuvers that enable it to outcompete the former industry leader in the marketplace and become the best- performing company in the industry? It should come as no surprise—there are many instances, both in GLO-BUS and the real-world, where well-managed trailing companies have overtaken industry leaders.

GLO-BUS: Developing Winning Competitive Strategies Participant’s Guide

There is no such thing as an “unbeatable” strategy and competitive approach that will always overpower and outperform all other strategies, irrespective of the strategies and competitive efforts employed by rival companies. What drives the sales/market share success/failure of any one company’s strategy for competing in the marketplace is always how well the overall buyer appeal and competitiveness of its cameras/drones matches up in each decision round with the overall buyer appeal and competitiveness of the cameras/drones of rival companies on each of the competitive factors. As long as your company’s competitive efforts/actions and operating decisions produce an overall buyer appeal for your camera/drone product line as compared to the offerings of rival companies and so long as your company exerts sufficiently aggressive competitive efforts, then you can expect a satisfactory percentage of buyers to prefer purchasing your cameras/drones over rival company brands.

While it is important to win attractive sales/market shares in each region, such outcomes are not sufficient to produce the best profit outcomes. For a company to rank among the industry’s top-performers, its net revenues must cover costs by an amount sufficient to produce good-to-excellent profitability. This requires not only sufficient competitive success in the marketplace to produce attractively large revenues but also consistent managerial success in operating the company cost- efficiently—operating inefficiencies and wasteful spending impair a company’s profitability and overall performance.

Just as in real-world companies that operate in competitive marketplaces, your company’s strategy and competitive actions/efforts will need to evolve as the decision rounds unfold in order to respond and adjust to the shifting strategies and competitive efforts of rival companies. So even if your company’s performance in the year just completed is quite good, do not expect to lock your competitive efforts and decisions entries in concrete—some adjustments (maybe many adjustments) will almost certainly be needed to counter the freshly initiated competitive efforts/actions of rivals.

Be Very Wary about Following the Advice of Outside Sources. You are well-advised to be highly skeptical about following any advice and tips regarding what to do that comes from prior participants in the GLO-BUS exercise at your school or from sources you discover from internet searches. While you might be tempted to view such anecdotal information as “helpful” or “important to know” or “worth considering,” just bear in mind that your company will be competing against companies run by students in your class—any information you run across about the experiences of companies run by other teams of students in other industries at your school or elsewhere in the near or distant past are of dubious relevance. Why? Because the chance that the head-to-head competition and outcomes in whatever past industries produced the tips and advice you have gotten will closely match the exact levels of competitive effort in each region that the companies in your industry have already undertaken and will undertake in the future is very small (most likely close to zero). So, following such advice carries significant risk of being “off the mark” or even “dead wrong” in helping you identify what levels of competitive effort are needed to compete effectively against the rival companies in your class. The most accurate and dependable source of information for guiding your efforts to compete successfully is always found in the Competitive Intelligence Report you receive after every decision round.

As indicated earlier, there are 56 different types of decision entries and 17 entries involving assumptions about the competitive actions that rivals are likely to take. In some cases, entries for the same decision type (like selling price or advertising and the length of warranties) are required for each of the four geographic regions of the world market. Each of the decision pages displays the projected outcomes of your decision entries. These projections appear instantaneously as soon as each decision is entered, allowing you to isolate the incremental impacts of each decision entry. Also, on each decision page are calculations showing projections of earnings per share (EPS), return on average equity investment (ROE), credit rating, image rating, revenues, net profit, and year-end cash balance. These, too, are instantly updated with new entry, allowing you to see the probable impacts of each new decision entry on company performance. You will find these built-in decision support calculations invaluable in evaluating alternative decisions and deciding what to do. You can easily try out any number of “what if we do this” decision alternatives, review the projected outcomes, and thereby search

Making Decisions

GLO-BUS: Developing Winning Competitive Strategies Participant’s Guide

for a combination of decision entries that appears to offer the best overall performance and meets with the consensus approval of your company’s management team.

The first time you visit a decision entry page, you will need to take time to explore the page and digest all the information. If you feel the need for additional information while you are working on a particular page, click the Help button at the top-right. The Help sections provide detailed entry-by- entry guidance, including important cause-effect relationships, explanations of all on-screen calculations, and decision-making tips. Totally ignoring the Help information is unwise. Most likely, you will find the information valuable in making wiser decision entries and avoiding the desperation of entering “some number” in hopes that the outcome will be “good” or “okay.”

Upon visiting a decision entry page, the numbers you see in the entry boxes represent either (1) the decisions made in the prior year or (2) the latest decision entries you and/or your co-managers saved while previously working on the current decision round. No decision entry for the upcoming year is considered final until the deadline (set by your instructor) for entering decisions arrives. GLO-BUS considers the last set of decision entries saved prior to the decision round deadline as “final”. It is critical that you and your co-managers save your entries for the decision round before the deadline passes.

Product Design Decisions

The product design page involves deciding on the components, enhancements, and extra performance features to incorporate in your cameras/drones, the number of models to have in each product line, and how much to spend on product R&D. Initially the numbers appearing in the decision entry fields (or beside the decision filed for product R&D) are the entries from the prior round (year). The Product Design entries are important because they determine the P/Q ratings assigned to your cameras/drones. The better the design-related specifications and the greater the number of extra performance features, the better the resulting performance and quality (but the higher the associated production costs). As decisions are entered, you can review the on-screen calculations of the expected P/Q ratings and the associated costs to determine which combination of design specifications is “best” for implementing the strategy you have chosen to pursue.

All parts, product enhancements, accessories, and components needed for extra performance features are purchased from outside suppliers; these suppliers sell essentially the same items at the same prices to all companies. The costs of extra performance features increase as the number incorporated into the designs of cameras/drones increases (the cost impacts are shown in the Production Costs section of the page).

Number of Models. Prior management elected to have a product line-up consisting of 3 action camera models and 2 drone models. While there is considerable merit in trying to expand sales by adding more models, the addition of more models introduces quality control difficulties that negatively impact P/Q ratings and warranty claims and that also reduces the number of cameras/drones that product assembly teams (PATs) can assemble annually. PATs cannot assemble 5 models of cameras/drones as proficiently and as problem-free as they can assemble 3 models. Model increases reduce camera/drone PAT productivity by some percentage that depends on whether the model increase is 1 model, 2 models, 3 models, or 4 models. The addition of more models also tends to increase warranty costs because of faulty assembly and/or components that prematurely become defective. Reducing the number of models has the reverse effects. It is easy enough to track the effects of increasing or decreasing the number of models by observing the changes in the on-screen calculations of the P/Q rating, warranty costs, and labor costs.

Product R&D Expenditures. In Year 5, prior management spent $20 million on product R&D for cameras and $15 million on product R&D for drones. Substantial R&D spending is required to improve product performance, discover and test easier-to-assemble camera/drone designs, develop new and improved models, and program more sophisticated software capabilities for both cameras and drones. The R&D challenges for improving drone performance are more formidable than for action cameras, partly because video camera technology is better understood and more mature, partly because drones are a relatively new product, and partly because the company just recently entered the drone

GLO-BUS: Developing Winning Competitive Strategies Participant’s Guide

marketplace and has yet to fully develop its drone designs. Drone buyers, of course, are highly interested in drones that can stay up in the air longer than the current maximums of 15-30 minutes, fly distances well beyond the view of the person operating the flight controller, and avoid crashing into obstacles in their flight path—such capabilities present formidable R&D challenges that will require sustained R&D efforts.

The combination of current year spending and cumulative spending over time for product R&D (1) provide a pipeline of tested ways to add more features, improve performance, and build the company’s proficiencies in designing new and improved camera/drone models, (2) improve a company’s camera/drone P/Q ratings—higher P/Q ratings are realized as soon as current and cumulative R&D spending reach levels sufficient to produce better camera/drone performance and quality, (3) reduce warranty claims and costs (these two benefits stem from the positive impact of R&D expenditures on P/Q ratings), (4) increase the productivity of PATs in assembling camera/drone models—productivity gains occur as soon as current and cumulative R&D spending reach levels sufficient to identify and develop easier to assemble product design, and (5) reduce the costs of components, accessories, and enhancement features used in assembling cameras/drones.

AC Camera Marketing Decisions

At the top of this second decision page is a section displaying the 7 marketing-related decisions your company will make for action cameras. Just below the entry fields for the 7 marketing decisions is a section labeled Market Segment Statistics. The first two lines show your company’s (1) actual sales of cameras in the prior year and projected sales in the current year and (2) camera market share in the prior year and projected market share in the current year. The last three lines of this section report the numbers of multi-store chains, online retailers, and local retail shops in each region stocking and merchandising your brand of action cameras in the prior-year and the current year—the current year numbers were updated at the end of the prior year to reflect the year-end appeal of your company’s camera models, and there’s nothing you can do in the current year to attract additional retailers (the updated numbers of retailers willing to stock each company’s camera brands are reported in the Competitive Intelligence Reports). The company’s regional sales offices (Milan, Singapore, Sao Paulo, and Dallas) are staffed with people who help recruit and service the accounts of retailers in the region.

Each time you enter a different value for any of the marketing decisions, you will see the effects on projected unit sales and projected market share. In addition, you will see on-screen calculations showing the projected price-cost-profit outcomes associated with the marketing decision entries.

The decision entries on the page are pretty much self-explanatory, but click on the Help button at the top-right if you have questions, want additional information, or need guidance.

There are several things you need to keep in mind as you make entries for the marketing decisions:

• All seven marketing decisions (along with your company’s P/Q rating and number of models offered, both of which are determined by your entries on the Product Design page) will largely determine the degree to which your company’s camera products are competitive with the camera products of rival companies and whether your company’s brand will be sufficiently appealing to buyers to generate net sales revenues big enough to cover operating costs and yield attractive operating profits and operating profit margins.

• The accuracy of the on-screen projections of your company’s unit sales and market shares is a function not just of your company’s competitive efforts but also the competitive efforts of rival companies (which will almost certainly include adjusting their P/Q ratings, number of models, wholesale prices, advertising, sales promotion efforts, and so forth). At the bottom of this page is a section labeled Competitive Assumptions containing entry fields for the competitive factors affecting sales and market share in each region. The first time you visit this page these entries represent the prior-year average competitive efforts of rival companies. Unless these are updated, the on-screen projections of your company’s unit sales/market shares will be based on how your company’s competitive effort for the current year compares against the competitive conditions your company faced last year.

GLO-BUS: Developing Winning Competitive Strategies Participant’s Guide

Note: The reason there are entry boxes for only 9 of the 11 competitive factors is that the two missing competitive factors—number of retailers and brand reputation—are already known for the current year because they are updated at the end of every decision round and are reported in the Competitive Intelligence Report.

Needless to say, the managers of rival companies can be counted upon to alter aspects of their competitive effort in all four regions as they prepare their current-year decisions and seek to boost the performance of their respective companies. This means that the on- screen projections of your company’s unit sales and market share in each region are of questionable validity because they are based on how your company’s competitive effort in the current year stack up against the prior-year competitive efforts of rival companies, not their forthcoming competitive efforts.

If you believe that rival companies are likely to alter their competitive efforts by raising or lowering prices, P/Q ratings, models offered, advertising, and so on, then you will definitely need to enter your anticipated changes in the some/all of the industry average marketing efforts in the Competitive Assumptions section. The whole purpose of updating the prior year industry-average levels of competitive effort is to obtain projections based on the forthcoming-year industry-average levels of competitive effort in each region. Make a point of consulting the historical data in the Regional Average Competitive Efforts selection in the Competitive Intelligence menu which shows the historical changes of the regional averages for all year completed to date—this information will prove highly valuable in making your updates.

Consequently, before you get very far along in making entries for the 7 marketing decisions, it makes sense to first enter your anticipated updates of the industry averages for the 9 competitive factors. Yes, especially for Year 6, these are likely to be “guesstimates” or “approximations”, but sales/market share projections based on reasonable assumptions of what rivals are likely to do may be more reliable than projections based on what rivals did a year ago. The updates will be easier to make in later years, as more historical information becomes available. It is reasonable for you to expect that the competitive efforts of rivals will, on average, be stronger than in the prior year, if only because poorly-performing companies that were outcompeted last year have strong incentive to initiate actions to boost their competitiveness and because all competitive have incentives to correct any competitive disadvantages and to try to improve their overall financial performance.

Even if you overestimate the strength of competition from rivals in the upcoming year (which, in turn, will lower the projected sales/market shares for a given level of marketing effort on the part of your company) and actually end up with bigger sales/market shares than were projected, your company will still assemble, ship, and sell the unexpected units demanded provided your company has sufficient idle workstation capacity to assemble the unexpected orders. It is far better to have the pleasant surprise of selling more than the projected sales volume (and enjoying the accompanying extra revenues and profits) than having the unpleasant surprise of selling less than the projected sales volume because you underestimated the strength of the competitive efforts from rivals.

Trying different decision entries and experimenting with different assumed changes in the industry average levels of competitive effort for the current year, enables you to evaluate the merits of different decision entries and arrive at a consensus of what strategic actions to take in striving to combat the anticipated strategies and competitive maneuvering of rivals.

Exchange Rate Adjustments. In the section labeled Price-Cost-Profit Breakdown, you will notice that in the Revenue Projection entries just under selling price is a line labeled “± Exchange Rate Adjustment.” Exchange rate adjustments result from the fact that (1) the exchange rate of one currency for another fluctuates on a daily basis and (2) the company assembles, ships, and sells action cameras in Taiwan (where the local currency is Taiwan dollars) to buyers in other parts of the world (where local currencies are different). Further, the orders tend to occur at some agreed price in a period when exchange rates are one value while buyer payments are not received until some later period (when exchange rates are very likely a different value). There’s a second reason for exchange rate

GLO-BUS: Developing Winning Competitive Strategies Participant’s Guide

adjustments: the local currency payments the company receives from buyers over the course of a year must be converted into Taiwan dollars and ultimately into U.S. dollars (since the company reports its financial statements in U.S. dollars and the company’s stock is traded on a U.S. stock exchange). Thus, the company’s business is one with potentially significant foreign exchange risks.

To help manage these risks, company officials have negotiated a long-term currency exchange agreement with the Global Community Bank through which the company does most of its business. The agreement calls for the bank’s foreign currency department to handle the company’s many foreign currency transactions. For simplicity, the agreement entails combining both of the reasons for currency adjustments (enumerated in the above paragraph) into a single adjustment whereby the net revenues the company actually receives on cameras assembled and shipped from its Taiwan assembly facility and sold to buyers in various parts of the world to be adjusted upward or downward is based on the real-world currency swings during the period from one decision round to the next as concerns the U.S. dollar against the Taiwan dollar, the euro against the Taiwan dollar, the Brazilian real against the Taiwan dollar, and the Singapore dollar against the Taiwan dollar. Specifically:

• The net revenue per camera the company actually receives from camera sales to retailers in North America is a result of adjusting the company’s average wholesale price up or down for exchange rate changes between the U.S. dollar and the Taiwan dollar.

• The net revenue per camera the company actually receives from camera sales to retailers in Europe-Africa is a result of adjusting the company’s average wholesale price up or down for exchange rate changes between the euro and the Taiwan dollar.

• The net revenue per camera the company actually receives from camera sales to retailers in the Asia-Pacific is a result of adjusting the company’s average wholesale price up or down for exchange rate changes between the Singapore dollar and the Taiwan dollar.

• The net revenue per camera the company actually receives from camera sales to retailers in Latin America is a result of adjusting the company’s average wholesale price adjusted up or down for exchange rate changes between the Brazilian real and the Taiwan dollar.

In making sales to buyers in Europe-Africa, the company provides price quotes in terms of both the buyer’s local currency and in euros. Buyers, while making payment in their local currency (which can be either euros or some other denomination), agree when the order is placed to tie the amount of their local currency payment per camera to the local currency equivalent of that number of euros per camera—the company’s global bank handles converting the local currency payments of Europe-Africa buyers into the equivalent of euros and then into Taiwan dollars at the appropriate exchange rates. Should the exchange rate of euros per Taiwan dollar fall from one decision period to the next, say from 0.0250 to 0.0249 euros per Taiwan dollar, then buyer payments of the agreed number of euros per camera at the time the order was placed equate to more Taiwan dollars at the time of payment and an upward adjustment in the company’s revenues. Conversely, when the exchange rate of euros per Taiwan dollar rises, say from 0.0250 to 0.0251 euros per Taiwan dollar (meaning that a specified number of euros equate to fewer Taiwan dollars), then the company does not receive as many Taiwan dollars in payment for the cameras sold and shipped to Europe-Africa buyers and net revenue is accordingly adjusted downward. The size of the Europe-Africa revenue adjustment is equal to 5 times the actual period-to-period percentage change in the exchange rates of euros to Taiwan dollars (multiplying the actual % change by 5 is done so as to translate the exchange rate change over a few days into a change that is more representative of what might realistically occur over a full year). Thus, if the exchange rate between euros and Taiwan dollars should change by −0.40% from one decision period to the next, the size of the exchange rate adjustment will be −2.0% (−0.40% x 5 = −2.0%). Because actual exchange rate fluctuations are occasionally quite volatile over a several day period, the maximum exchange rate adjustment during any one year is capped at 20%, thus limiting the size of gains and losses from exchange rate adjustments.

The procedures for adjusting revenues on sales to retailers in Latin America, Asia-Pacific, and North America are handled in like fashion. All the pertinent calculations are done automatically, thus relieving you from mastering the intricacies of the exchange rate adjustments. Since the sizes of the expected exchange rate adjustments in dollars per camera/drone are known during the course of making the

GLO-BUS: Developing Winning Competitive Strategies Participant’s Guide

current-year decisions, you can pursue actions to mitigate the adverse effects of unfavorable (those with a minus sign) exchange rate adjustments. One option is to adjust sales and marketing efforts in a manner that results in (1) added sales in those areas where the exchange rate adjustments are positive (favorable) and (2) somewhat smaller sales in the regions where the exchange rate adjustments are negative (unfavorable). Another option is to raise the selling prices in a particular region to help offset negative revenue adjustments and realize higher net revenue per camera sold. Because all competing companies have assembly facilities in Taiwan and are thus subject to comparable exchange rate impacts on net revenues per camera sold, you may be able to make offsetting price adjustments without much risk of putting your company at a price disadvantage. Consult the information in the Help section for more details on the mechanics of the exchange rate adjustments and their managerial relevance in making decisions.

There will be no exchange rate adjustments in Year 6. The prevailing real-world exchange rate values at the beginning of Year 6 and the real-world rates at the beginning of Year 7 will serve as the base for calculating the Year 7 exchange rate adjustments. The real-world changes in the exchange rates between the beginning of Year 7 and the beginning of Year 8 serve as the basis for exchange rate adjustments in Year 8. And so on throughout the exercise.

Since the company’s financial statements are reported in U.S. dollars, company accountants go through the necessary accounting procedures to accurately record and report the revenues collected in Taiwanese dollars in U.S. dollars and to otherwise accurately portray the company’s financials in U.S. dollars. The procedures are in full compliance with generally accepted accounting procedures and have been approved by the company’s auditors.

UAV Drone Marketing Decisions

At the top of this third decision page is a section displaying the 6 marketing-related decisions for UAV drones. Initially the numbers appearing in the decision entry fields (or beside the decision filed for product R&D) are the entries from the prior round (year). Just below the entry fields for marketing decisions is a section labeled Market Segment Statistics. The first two lines show your company’s (1) actual sales of drones in the prior year and projected sales in the current year and (2) drone market share in the prior year and projected market share in the current year. The last line of this section displays the number of third-party online retailers marketing your drone models at their websites in the prior-year and the current year—the current-year number was updated at the end of the previous year to reflect the year-end appeal of your company’s drone models and there’s nothing you can do in the current year to attract additional 3rd-party online retailers (the updated numbers of 3rd-party online retailers willing to stock and merchandise each company’s drone brands in the current year are reported in the Comparative Competitive Efforts report). Each time you enter a value for any of the marketing decisions, you will see the effects on projected unit sales and projected market share.

The third section of the UAV drone marketing page shows price-cost-profit breakdowns flowing from the marketing decision entries and the projected sales volumes in each region. At the bottom of the decision page is a section for entering your anticipated changes in the industry averages for 8 of the 10 competitive factors affecting each company’s sales/market shares in each region. The current-year industry averages for 2 of the 10 competitive factors—the number of third-party retailers merchandising each company’s drone models and company brand reputation—are already known (and can always be viewed in the Comparative Competitive Efforts report).

Just as was the case with the AC Camera Marketing Decision page, before you get very far along in making entries for the 6 drone marketing decisions, it makes sense to first enter your anticipated updates of the industry averages for the 8 competitive factors in the Competitive Assumptions section at the bottom of the page. Again, your will be entries are “guesstimates” (especially in Year 6), but starting in Year 7 and thereafter, the historical changes in the regional averages shown in the Regional Average Competitive Efforts report will prove very valuable in entering updates for the regional averages for the forthcoming year. Bear in mind that sales/market share projections based on your best judgment of the forthcoming-year industry-average levels of competitive effort in each region may be a less risky basis for evaluating the profit prospects of alternative marketing decision entries than relying

GLO-BUS: Developing Winning Competitive Strategies Participant’s Guide

on sales/market share/ profitability projections based on the prior-year regional average levels of competitive effort. Furthermore, it is wise to expect that the competitive efforts of rivals will, on average, be stronger in the current year than in the prior year, because of the incentives that all companies (and most especially poorly-performing companies) have to correct their competitive disadvantages, strengthen their overall competitiveness and thereby improve company performance.

Again, even if you overestimate the strength of competition from rivals in the current year (which, in turn, will lower the projected sales/market shares for a given level of marketing effort on the part of your company) and actually end up with bigger sales/market shares than projected, your company will still assemble, ship, and sell the unexpected units demanded provided your company has sufficient idle workstation capacity to fill the unexpected orders from buyers. You will quickly find it is better to have the pleasant surprise of selling more than the projected sales volume (and enjoying the accompanying extra revenues and profits) than having the unpleasant surprise of selling less than the projected sales volume because you underestimated the strength of the competitive efforts from rivals.

Note: In the first several decision rounds, updating the regional average levels of competitive efforts in the Competitive Assumptions section admittedly involves more guesswork than insightful judgement because there’s little hard evidence about what actions rivals will take. Thus, it is usually wise to be cautious and make relatively small adjustments in the averages. But making reasonably accurate guestimates become easier as the number of completed decision rounds increases; this is because with more data points in the Regional Average Competitive Efforts report, trends in one or more of the industry averages become more evident and because careful analysis of the data in the Time Series Competitive Efforts report for specific companies will help you judge what moves industry-leading companies and companies you consider as close competitors may make next.

Your task on this decision page is to try out a variety of combinations of the 6 market decisions in each region and search for a set of entries which, in conjunction with your company’s P/Q ratings for drones and number of drone models (as determined from your entries on the Product Design page), number of 3rd-party online retailers, and prior-year brand reputation, produces an overall competitive effort versus rival companies with appealing projected outcomes for unit sales, market shares, operating profits, and operating profit margins.

Exchange Rate Adjustments. Exchange rate adjustments in the company’s selling prices for drones have to be made for all the same reasons as for action cameras and the adjustment procedures are identical. The adjustments appear in the section labeled Price-Cost-Profit Breakdown on the line just under selling price labeled “± Exchange Rate Adjustment.” As explained earlier, a negative adjustment represents an unfavorable shift in exchange rates that results in the company receiving net revenue per drone sold that is below the company’s selling price in the region. A positive adjustment represents a favorable exchange rate shift that causes net revenue per drone sold to be higher than the posted selling price.

It is up to you to decide whether to just ignore favorable/unfavorable exchange rate shifts or whether to make proactive adjustments. One option is to adjust sales and marketing efforts in a manner that results in (1) added sales in regions where the exchange rate adjustments are positive (favorable) and (2) somewhat smaller sales where the exchange rate adjustments are negative (unfavorable). Another option is to raise the selling prices in regions with negative revenue adjustments by amounts sufficient to recover the lost revenue and preserve the company’s profit margins.

GLO-BUS: Developing Winning Competitive Strategies Participant’s Guide

Compensation, Training, and Facilities Decisions

This page contains 4 decision entry fields for compensating workers engaged in assembling action cameras and 4 decision entry fields for compensating workers engaged in assembling drones. The compensation decisions are the same for both types of workers: (1) how much to raise/lower the base pay of PAT members, (2) whether and by how much to change each PAT’s assembly quality incentive payment per unit assembled, (3) whether and by how much to alter the annual bonus for perfect attendance, (4) whether and by how much to raise/lower payments for fringe benefits. It is up to you whether to establish identical or different compensation packages for the two types of workers.

PAT Productivity. Just under the compensation-related decisions is a field for entering the amount management wishes to spend for training PAT members and improving PAT productivity. The productivity of each four-person PAT (how many units they can assemble in a given year) is influenced by 8 factors:

• Annual base wage increases—Annual increases in base pay of 2% or more lead to higher levels of productivity, chiefly because higher annual base wages help attract and retain workers with better skills and work habits and because higher base wages make workers feel better about their jobs and enable higher standards of living for them and their families. The maximum annual base pay increase is 10%. Cuts in base pay are allowed, up to a maximum of 15% in any one year; as might be expected, base pay reductions act to reduce PAT productivity. Small pay cuts do not entail a “big” drop in productivity but cuts of 5-15% will have a major negative impact.

Test Bank Physics Principles With Applications -7th Edition-Giancoli

January 2, 2023/in Uncategorized /by

Test Bank Physics Principles with Applications -7th Edition-Giancoli

Chapter 6 Sample

Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1)Substance A has a density of 3 g/cm3 and substance B has a density of 4 g/cm3. In order to obtain1) equal masses of these two substances, what must be the ratio of the volume of A to the volume of B? A)VA3B)VA 3C)VA 1D)VA 4E)VA 3 = = = = = VBVB VB VB VB 4 1 3 3 4 2)A hollow sphere of negligible mass and radius R is completely filled with a liquid so that its 2) density is ρ. You now enlarge the sphere so its radius is 2R and completely fill it with the same liquid. What is the density of the enlarged sphere? A) 8 ρ B) ρ C) ρ/2 D) ρ/8 E) 4 ρ 3)A styrofoam sphere of radius R has a density ρ. You now carefully compress the sphere so its3) radius is R/2. What is the density of the compressed sphere? A) 4 ρ B) ρ 8 C) 8 ρ D) ρ 2E) 2 ρ 4)When a box rests on a round sheet of wood on the ground, it exerts an average pressure p on the4) wood. If the wood is replaced by a sheet that has half the diameter of the original piece, what is the new average pressure? A) p 2 B) p/2 C) 2p D) 4p E) p/4 5)When a heavy metal block is supported by a cylindrical vertical post of radius R, it exerts a force F5) on the post. If the diameter of the post is increased to 2R, what force does the block now exert on the post? A) F/2 B) 2F C) F/4 D) F/2 E) F 6)As shown in the figure, fluid fills a container having several sections. At which of the indicated6) points is the pressure greatest?

AC
1. B
D
1. The pressure is the same at each of the labeled points.

7)Consider a brick that is totally immersed in water, with the long edge of the brick vertical. The7) pressure on the brick is A) greatest on the face with largest area. B) greatest on the top of the brick. C) greatest on the bottom of the brick. D) greatest on the sides of the brick. E) the same on all surfaces of the brick. 8)An air bubble underwater has the same pressure as that of the surrounding water. As the air8) bubble rises toward the surface (and its temperature remains constant), the volume of the air

bubble

A) increases.
B) remains constant.
C) decreases.
D) increases or decreases, depending on the rate it rises.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

9) A cubical block of stone is lowered at a steady rate into the ocean by a crane, always9)

keeping the top and bottom faces horizontal. Which one of the following graphs best describes the gauge pressure p on the bottom of this block as a function of time t if the block just enters the water at time t = 0 s?

10) A cubical block of stone is lowered at a steady rate into the ocean by a crane, always10)

keeping the top and bottom faces horizontal. Which one of the following graphs best describes the absolute (total) pressure p on the bottom of this block as a function of time t if the block just enters the water at time t = 0 s?

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

11) If atmospheric pressure increases by an amountp, which of the following statements about the11)pressure in a lake is true? (There could be more than one correct choice.) A) The absolute (total) pressure increases, but by an amount less than p. B) The gauge pressure does not change. C) The gauge pressure increases by p. D) The absolute (total) pressure increases byp. E) The absolute (total) pressure does not change. 12) A closed cubical chamber resting on the floor contains oil and a piston. If you push down on the12)piston hard enough to increase the pressure just below the piston by an amount p, which of the following statements is correct? (There could be more than one correct choice.)

A) The pressure everywhere in the oil will increase by p.
B) The pressure at the top of the oil will increase by less than p.
C) The increase in the force on the top of the chamber will be the same as the increase in the force on the bottom of the chamber.
D) The pressure at the bottom of the oil will increase by more than p.
E) The pressure on the sides of the chamber will not increase.

13)The water pressure to an apartment is increased by the water company. The water enters the13) apartment through an entrance valve at the front of the apartment. Where will the increase in the static water pressure be greatest when no water is flowing in the system? A) at a faucet close to the entrance valve B) at a faucet far from the entrance valve C) There will be no increase in the pressure at the faucets. D) It will be the same at all faucets. 14)A waiter fills your water glass with ice water (containing many ice cubes) such that the liquid14) water is perfectly level with the rim of the glass. As the ice melts, A) the liquid-water level remains flush with the rim of the glass. B) the liquid-water level decreases. C) the liquid water level rises, causing water to run down the outside of the glass. 15)A spherical ball of lead (density 11.3 g/cm3) is placed in a tub of mercury (density 13.6 g/cm3).15) Which answer best describes the result?

The lead will sink to the bottom of the mercury.
The lead ball will float with its top exactly even with the surface of the mercury.
The lead ball will float with about 83% of its volume above the surface of the mercury.
The lead ball will float with about 17% of its volume above the surface of the mercury.

16)A wooden block contains some nails so that its density is exactly equal to that of water. If it is16) placed in a tank of water and released from rest when it is completely submerged, it will A) rise to the surface. B) remain where it is released. C) sink to the bottom. 17)A boat loaded with rocks is floating in a swimming pool. If the rocks are thrown into the pool, the17) water level in the pool, after the rocks have settled to the bottom, A) stays the same.B) rises.C) falls. 18)Salt water has greater density than fresh water. A boat floats in both fresh water and in salt water.18) Where is the buoyant force greater on the boat?

in salt water
in fresh water
The buoyant force is the same in both cases.

19)Salt water is denser than fresh water. A ship floats in both fresh water and salt water. Compared19) to the fresh water, the volume of water displaced in the salt water is A) less. B) the same. C) more. D) Cannot be determined because we do not know the volume of the ship. 20)A steel ball sinks in water but floats in a pool of mercury, which is much denser than water.20) Where is the buoyant force on the ball greater? A) It is the same in both cases.

B) floating on the mercury
C) submerged in the water
D) It cannot be determined from the information given.

21) A 10-kg piece of aluminum sits at the bottom of a lake, right next to a 10-kg piece of lead, which is21)much denser than aluminum. Which one has the greater buoyant force on it? A) the lead B) Both have the same buoyant force. C) the aluminum D) It cannot be determined without knowing their volumes. 22) A piece of iron rests on top of a piece of wood floating in a bathtub. If the iron is removed from the22)wood, and kept out of the water, what happens to the water level in the tub? A) It goes up. B) It does not change. C) It goes down. D) It is impossible to determine from the information given. 23) A piece of wood is floating in a bathtub. A second piece of wood sits on top of the first piece, and23)does not touch the water. If the top piece is taken off and placed in the water, what happens to the water level in the tub?

It does not change.
It goes up.
It goes down.
It cannot be determined without knowing the volumes of the two pieces of wood.

24) As a rock sinks deeper and deeper into water of constant density, what happens to the buoyant24)

force on it if it started above the surface of the water?

A) The buoyant force remains constant.
B) The buoyant force first increases and then remains constant.
C) The buoyant force keeps increasing steadily.
D) The buoyant force steadily decreases.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

25) A cubical block of stone is lowered at a steady rate into the ocean by a crane, always25)

keeping the top and bottom faces horizontal. Which one of the following graphs best describes the buoyant force B on this block as a function of time t if the block just enters the water at time t = 0 s?

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

26) A 50-cm3 block of wood is floating on water, and a 50-cm3 chunk of iron is totally submerged in26)the water. Which one has the greater buoyant force on it? A) Both have the same buoyant force. B) the wood C) the iron D) It cannot be determined without knowing their densities. 27) When you blow some air above a paper strip, the paper rises. This happens because27)A) the air above the paper moves faster and the pressure is lower. B) the air above the paper moves slower and the pressure is higher. C) the air above the paper moves slower and the pressure is lower.

D) the air above the paper moves faster and the pressure remains constant.
E) the air above the paper moves faster and the pressure is higher.

28)Water flows through a pipe. The diameter of the pipe at point B is larger than at point A. Where is28) the water pressure greatest? A) at point A B) at point B C) It is the same at both A and B. 29)Two horizontal pipes are the same length, but pipe B has twice the diameter of pipe A. Water29) undergoes viscous flow in both pipes, subject to the same pressure difference across the lengths of the pipes. If the flow rate in pipe A is Q =V, what is the flow rate in pipe B? t A) 4QB) 2QC) 8QD) Q 2E) 16Q 30)Two horizontal pipes have the same diameter, but pipe B is twice as long as pipe A. Water30) undergoes viscous flow in both pipes, subject to the same pressure difference across the lengths of the pipes. If the flow rate in pipe B is Q = Vwhat is the flow rate in pipe A? t A) 8QB) Q 2C) 4QD) 2QE) 16Q 31)A plastic block of dimensions 2.00 cm × 3.00 cm × 4.00 cm has a mass of 30.0 g. What is its density?31) A) 1.60 g/cm3B) 0.80 g/cm3 C) 1.20 g/cm3D) 1.25 g/cm3 32)A compressed gas with a total mass of 107 kg is stored in a spherical container having a radius of32) 0.521 m. What is the density of the compressed gas? A) 161 kg/m3B) 134 kg/m3 C) 110 kg/m3D) 181 kg/m3 33)The density of material at the center of a neutron star is approximately 1.00 × 1018 kg/m3. What is33) the mass of a cube of this material that is 1.76 microns on each side. (One micron is equal to 1.00 × 10–6 m.) A) 5.45 kgB) 6.70 kg C) 6.16 kg D) 4.74 kg 34)Under standard conditions, the density of air is 1.29 kg/m3. What is the mass of the air inside a34) room measuring 4.0 m × 3.0 m × 2.0 m? A) 3.1 kgB) 1.9 kgC) 0.32 kgD) 19 kgE) 31 kg 35)A round coin has a diameter of 19.55 mm, a thickness of 1.55 mm, and a mass of 2.50 g. What is its35) density?

5 × 103 kg/m3
34 × 103 kg/m3
68 × 103 kg/m3
86 × 10–4 kg/m3
37 × 103 kg/m3

36)A 1938 nickel has a diameter of 21.21 mm, a thickness of 1.95 mm, and weighs 0.04905 N. What is36) its density? A) 1.37 × 10–4 kg/m3 B) 7.26 × 103 kg/m3 C) 3.63 × 103 kg/m3 D) 1.82 × 103 kg/m3 E) 19.3 × 103 kg/m3 37)How many grams of ethanol (density 0.80 g/cm3) should be added to 5.0 g of chloroform (density37) 1.5 g/cm3) if the resulting mixture is to have a density of 1.2 g/cm3? Assume that the fluids do not change their volumes when they are mixed. A) 1.6 gB) 2.4 gC) 4.4 gD) 2.0 gE) 1.8 g 38)A 100-kg person sits on a 5-kg bicycle. The total weight is borne equally by the two wheels of the38) bicycle. The tires are 2.0 cm wide and are inflated to a gauge pressure of 8.0 × 105 Pa. What length of each tire is in contact with the ground? A) 2.4 cmB) 1.6 cmC) 6.4 cmD) 1.8 cmE) 3.2 cm 39)The weight of a 1200-kg car is supported equally by the four tires, which are inflated to the same39) gauge pressure. What gauge pressure is required so the area of contact of each tire with the road is 100 cm2? A) 2.9 × 105 PaB) 12 × 105 Pa C) 2.9 × 104 PaD) 12 × 104 Pa 40)One of the dangers of tornados and hurricanes is the rapid drop in air pressure that is associated40) with such storms. Assume that the air pressure inside of a sealed house is 1.02 atm when a hurricane hits. The hurricane rapidly decreases the external air pressure to 0.910 atm. What net outward force is exerted on a square window of the house that is 2.03 m on each side? (1.00 atm = 1.01 × 105 Pa) A) 4.59 × 104 NB) 5.42 × 105 N C) 4.82 × 105 ND) 5.19 × 104 N 41)Calculate the pressure exerted on the ground due to the weight of a 79-kg person standing on one41) foot. if the bottom of the person’s foot is 13 cm wide and 28 cm long. A) 2.2 × 103 PaB) 5.3 × 104 Pa C) 2.1 × 104 PaD) 4.8 × 104 Pa 42)A brick weighs 50.0 N, and measures 30.0 cm × 10.0 cm × 4.00 cm. What is the maximumpressure42) it can exert on a horizontal surface due to its weight? A) 1.25 kPaB) 12.5 Pa C) 12.5 kPaD) 1.25 Pa 43)A person weighing 900 N is standing on snowshoes. Each snowshoe has area 2500 cm 2 and has43) negligible weight. What pressure does this person’s weight exert on the snow? A) 1800 N/m2B) 0.36 N/m2 C) 0.18 N/m2D) 3600 N/m2

44) A water tank is filled to a depth of 10 m, and the bottom of the tank is 20 m above ground. A44)

water-filled hose that is 2.0 cm in diameter extends from the bottom of the tank to the ground, but no water is flowing in this hose. The water pressure at ground level in the hose is closest to which of the following values? The density of water is 1000 kg/m3.

9 × 105 N/m2
2 N/m2
0 × 104 N/m2
The question cannot be answered because the cross sectional area of the tank is needed.

45) The Aswan High Dam on the Nile River in Egypt is 111 m high. What is the gauge pressure in the45)water at the foot of the dam? The density of water is 1000 kg/m3. A) 1.09× 106 Pa B) 1.16× 106 Pa C) 1.11× 105 Pa D) 1.11× 102 Pa E) 1.09× 103 Pa 46) The deepest point of the Pacific Ocean is 11,033 m, in the Mariana Trench. What is the gauge46)pressure in the water at that point? The density of seawater is 1025 kg/m3. A) 1.11× 108 Pa B) 3.33× 108 Pa C) 8.88× 107 Pa D) 2.22× 108 Pa E) 5.55× 107 Pa 47) The Tonga Trench in the Pacific Ocean is 36,000 feet deep. Assuming that sea water has an47)average density of 1.04 g/cm3, calculate the absolute (total) pressure at the bottom of the trench in atmospheres. (1.00 in = 2.54 cm, 1.00 atm = 1.01 × 105 Pa) A) 1.1 × 108 atm B) 1.1 × 103 atm C) 1.1 × 105 atm D) 1.1 × 106 atm E) 2.1 atm 48) What force does the water exert (in addition to that due to atmospheric pressure) on a submarine48)window of radius 44.0 cm at a depth of 9400 m in sea water? The density of sea water is 1025 kg/m3. A) 5.74× 1011 N B) 5.74× 107 N C) 2.87× 107 N D) 1.83× 107 N E) 2.87× 1011 N

49)A cubical box 25.0 cm on each side is immersed in a fluid. The pressure at the top surface of the49) box is 109.40 kPa and the pressure on the bottom surface is 112.00 kPa. What is the density of the fluid?1000 kg/m3 A) B) 1060 kg/m3 C)1030 kg/m3 D)1120 kg/m3 E) 1090 kg/m3 50)A circular window 30 cm in diameter in a submarine can withstand a net maximum force of 5.20 ×50) 105 N without damage. What is the maximum depth in a fresh-water lake to which the submarine can go without damaging the window? The density of fresh water is 1000 kg/m 3. A)680 mB) 1200 mC) 740 mD) 750 m 51)A container has a vertical tube, whose inner radius is 24.00 mm, connected to it at its side, as51) shown in the figure. An unknown liquid reaches level A in the container and level B in the tube

–level A being 5.0 cm higher than level B. The liquid supports a 20-cm high column of oil, between levels B and C, whose density is 570 kg/m3. The mass of the oil is closest to

A) 1000B) 410C) 210D) 620E) 820 52) A container has a vertical tube, whose inner radius is 12.00 mm, connected to it at its side, as52)

shown in the figure. An unknown liquid reaches level A in the container and level B in the tube –level A being 5.0 cm higher than level B. The liquid supports a 20-cm high column of oil, between levels B and C, whose density is 320 kg/m3. The gauge pressure at level B is closest to

A) 790 Pa B) 940 Pa C) 630 Pa D) 310 Pa E) 470 Pa

53) A container has a vertical tube, whose inner radius is 20.00 mm, connected to it at its side, as53)

shown in the figure. An unknown liquid reaches level A in the container and level B in the tube –level A being 5.0 cm higher than level B. The liquid supports a 20-cm high column of oil, between levels B and C, whose density is 900 kg/m3. The density of the unknown liquid is closest to

3300 kg/m3
3100 kg/m3
2800 kg/m3
3900 kg/m3
3600 kg/m3

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

54) As shown in the figure, a large open tank contains a layer of oil ( density 450 kg/m 3)54)

floating on top of a layer of water (density 1000 kg/m3) that is 3.0 m thick, as shown in the sketch. What must be the thickness of the oil layer if the gauge pressure at the bottom of the tank is to be 8.5 x 104 Pa?

55) A container consists of two vertical cylindrical columns of different diameter connected by 55) a narrow horizontal section, as shown in the figure. The open faces of the two columns are closed by very light plates that can move up and down without friction. The tube diameter

at A is 35.0 cm and at B it is 10.2 cm. This container is filled with oil of density 0.820 g/cm3. If a 125-kg object is placed on the larger plate at A, how much mass should be placed on the smaller plate at B to balance it?

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

56) A 12,000-N car is raised using a hydraulic lift, which consists of a U-tube with arms of unequal56)areas, filled with oil and capped at both ends with tight-fitting pistons. The wider arm of the U-tube has a radius of 18.0 cm and the narrower arm has a radius of 5.00 cm. The car rests on the piston on the wider arm of the U-tube. The pistons are initially at the same level. What is the initial force that must be applied to the smaller piston in order to start lifting the car? For purposes of this problem, neglect the weight of the pistons. A) 2.90 kNB) 727 NC) 926 ND) 3.33 kNE) 1.20 kN 57) A 12,000-N car is raised using a hydraulic lift, which consists of a U-tube with arms of unequal57)areas, filled with oil with a density of 800 kg/m3 and capped at both ends with tight-fitting pistons. The wider arm of the U-tube has a radius of 18.0 cm and the narrower arm has a radius of 5.00 cm. The car rests on the piston on the wider arm of the U-tube. The pistons are initially at the same level. What is the force that must be applied to the smaller piston in order to lift the car after it has been raised 1.20 m? For purposes of this problem, neglect the weight of the pistons. A) 1.20 kNB) 1.88 kNC) 1.96 kND) 3.67 kNE) 0.954 kN 58) A 500-N weight sits on the small piston of a hydraulic machine. The small piston has an area of58)2.0 cm2. If the large piston has an area of 40 cm2, how much weight can the large piston support? Assume the pistons each have negligible weight. A) 40000 NB) 25 NC) 10000 ND) 500 N 59) In a hydraulic garage lift, the small piston has a radius of 5.0 cm and the large piston has a radius59)of 15 cm. What force must be applied on the small piston in order to lift a car weighing 20,000 N on the large piston? Assume the pistons each have negligible weight. A) 6.7 × 103 NB) 2.9 × 103 NC) 5.0 × 103 ND) 2.2 × 103 N 60) A 13,000-N vehicle is to be lifted by a 25-cm diameter hydraulic piston. What force needs to be60)applied to a 5.0 cm diameter piston to accomplish this? Assume the pistons each have negligible weight. A) 520 NB) 5200 NC) 2600 N D) 260 N

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

61) The small piston of a hydraulic lift has a diameter of 8.0 cm, and its large piston has a61)

diameter of 40 cm. The lift raises a load of 15,000 N. Assume the pistons each have negligible weight.

(a) Determine the force that must be applied to the small piston.

(b) Determine the pressure applied to the fluid in the lift.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

62)A block of metal weighs 40 N in air and 30 N in water. What is the buoyant force on the block due62) to the water? The density of water is 1000 kg/m 3. A) 40 NB) 70 NC) 10 N D) 30 N 63)If a ship has a mass of 10 million kilograms, what volume of fresh water must it displace in order63) to float? The density of water is 1000 kg/m3. A) 1012 m3B) 1010 m3C) 107 m3D) 104 m3E) 108 m3

64)An object has a volume of 4.0 m3 and weighs 40,000 N. What will its apparent weight be in water64) of density 1000 kg/m3? A) 800 NB) 40,000 N C) 9,800 ND) 39,200 N 65)A 4.0-kg cylinder of solid iron is supported by a string while submerged in water. What is the65) tension in the string? The density of iron is 7860 kg/m3 and that of water is 1000 kg/m3. A) 2.5 NB) 24 NC) 20 ND) 40 NE) 34 N 66)What buoyant force does a 0.60-kg solid gold crown experience when it is immersed in water? The66) density of gold is 19.3 × 103 kg/m3 and that of water is 1000 kg/m3. A) 3.0 × 10–2 NB) 3.0 × 10–4 N C) 0.30 ND) 3.0 × 10–5 N 67)A crane lifts a steel submarine of density 7800 kg/m3 and mass 20,000 kg. What is the tension in67) the lifting cable (a) when the submarine is submerged in water of density 1000 kg/m 3, and (b) when it is entirely out of the water? A) (a) 2.6 × 103 N (b) 2.0 × 105 N B) (a) 2.0 × 105 N (b) 2.6 × 103 N C) (a) 1.7 × 105 N (b) 2.0 × 105 N D) (a) 2.0 × 105 N (b) 1.7 × 105 N 68)An object weighs 7.84 N when it is in air and 6.86 N when it is immersed in water of density 100068) kg/m3. What is the density of the object? A) 8000 kg/m3B) 9000 kg/m3 C) 6000 kg/m3D) 7000 kg/m3 69)When a container of water is placed on a laboratory scale, the scale reads 120 g. Now a 20-g piece69) of copper (of density 8.9 g/cm3) is suspended from a thread and lowered into the water, not touching the bottom of the container. What will the scale now read? The density of water is 1.0 g/cm3. A) 140 gB) 138 g C) 120 gD) 122 g

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

70) A piece of aluminum with a mass of 1.0 kg and density of 2700 kg/m3 is suspended from a 70) light cord and then completely immersed in a container of water having density 1000

kg/m3.

Determine the volume of the piece of aluminum.
Determine the tension in the cord when the aluminum is immersed in the container of water.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

71) A cylindrical rod of length 12 cm and diameter 2.0 cm will just barely float in water of density 1000 71)

kg/m3. What is its mass? A) 38 gB) 150 gC) 75 gD) 300 g

72)A rectangular box of negligible mass measures 5.0 m long, 1.0 m wide, and 0.50 m high. How72) many kilograms of mass can be loaded onto the box before it sinks in a lake having water of density 1000 kg/m3? A) 3.5 × 103 kgB) 0.50 × 103 kgC) 2.5 × 103 kgD) 1.5 × 103 kg 73)A 1.00-m3 object floats in water with 20.0% of its volume above the waterline. What does the73) object weigh out of the water? The density of water is 1000 kg/m3. A) 9,800 NB) 1,960 NC) 11,800 ND) 7,840 N 74)An object floats with half its volume beneath the surface of the water. The weight of the displaced74) water is 2000 N. What is the weight of the object? The density of water is 1000 kg/m3.

2000 N
4000 N
1000 N
It cannot be determined because we do not know the volume of the object.

75)A solid object floats in water with three-fourths of its volume beneath the surface. What is the75) object’s density? The density of water is 1000 kg/m 3. A) 1333 kg/m3B) 1000 kg/m3C) 250 kg/m3D) 750 kg/m3 76)A 200-N object floats with three-fourths of its volume beneath the surface of the water. What is76) the buoyant force on the object? The density of water is 1000 kg/m3.

150 N
267 N
200 N
50 N
It cannot be determined because we do not know the volume of the object.

77) A polar bear of mass 200 kg stands on an ice floe that is a uniform 1.0 m thick. What is the77)minimum area of the floe that will just support the bear in saltwater of density 1030 kg/m 3? The density of ice is 980 kg/m3. A) 4.0 m2B) 3.0 m2C) 1.0 m2D) 2.0 m2

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

78) A wooden raft has a mass of 55 kg. When empty it floats in water (density 1000 kg/m 3)78)

with 64% of its volume submerged. What maximum mass of sand can be put on the raft without sinking it?

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

79) A hollow steel ball of diameter 3.0 m just barely floats in water. What is the wall thickness of the79)ball? (ρ = 7.87 g/cm3,ρ = 1.00 g/cm3) Fewater A) 6.6 cm B) 79 cmC) 131 cmD) 37 cm

80)A 200-kg flat-bottomed boat floats in fresh water, which has a density of 1000 kg/m3. If the base80) of the boat is 1.42 m wide and 4.53 m long, to what depth is the bottom of the boat submerged when it carries three passengers whose total mass is 257 kg? A) 7.95 cmB) 7.10 cmC) 7.53 cmD) 8.52 cm 81)A 4.7-kg solid sphere, made of metal whose density is 4000 kg/m3, hangs by a light cord. When81) the sphere is immersed in water, what is the tension in the cord? The density of water is 1000 kg/m3. A) 46 NB) 35 NC) 52 ND) 40 NE) 58 N 82)A solid sphere of mass 8.6 kg, made of metal whose density is 3400 kg/m 3, hangs by a cord. When82) the sphere is immersed in a liquid of unknown density, the tension in the cord is 38 N. The density of the liquid is closest to which one of the following values?

1500 kg/m3
1700 kg/m3
1400 kg/m3
1600 kg/m3
1900 kg/m3

83)A barge is 10 m wide and 60 m long and has vertical sides. The bottom of the boat is 1.2 m below83) the water surface. What is the weight of the barge and its cargo, if it is floating in fresh water of density 1000 kg/m3? A) 3.5 MNB) 6.8 MNC) 6.4 MND) 9.5 MNE) 7.1 MN 84)A barge with vertical sides is 10 m wide and 60 m long and is floating in fresh water of density84) 1000 kg/m3. How much deeper into the water does the barge sink when 3.0 x 105 kg of coal are loaded on the barge? A) 75 cmB) 50 cmC) 1.5 mD) 1.0 mE) 25 cm 85)A hot air balloon along with its cargo has a mass of 4.0 x 105 kg, and it holds 7.0 x 105 m3 of hot85) air. It is floating at a constant height in air with a density of 1.29 kg/m3. What is the density of the hot air in the balloon?

86 kg/m3
4 kg/m3
57 kg/m3
43 kg/m3
72 kg/m3

86) A person who weighs 550 N empties her lungs as much as possible and is then completely86)

immersed in water of density 1000 kg/m3 while suspended from a harness. Her apparent weight is now 21.2 N. What is her density?

A) 960 kg/m3
B) 1030 kg/m3
C) 1040 kg/m3
D) 1050 kg/m3
E) 56.1 kg/m3

87)The bathyscaphe Trieste consists of a thin-walled but very strong cylindrical hull, 15.2 m long and87) 3.66 m in diameter, filled with gasoline with a density of 880 kg/m3 to make it buoyant. If it is totally submerged in seawater with a density of 1025 kg/m 3 and neither rising nor sinking, what is the weight of the Trieste craft? A) 227 kNB) 527 kNC) 427 kND) 127 kNE) 327 kN 88)A cylinder, semicircular in cross-section, is 10 m long and 5.0 m in radius. It is completely88) submerged, with its flat bottom side horizontal and 8.0 m below the water surface, as shown in the

figure. What is the magnitude of the net force on the curved upper surface of the half-cylinder? Neglect atmospheric pressure.

0 × 106 N
0 × 106 N
5 × 106 N
5 × 106 N
0 × 106 N

89) A rectangular wooden block measures 10.0 cm × 4.00 cm × 2.00 cm. When the block is placed in89)water, it floats horizontally, with its bottom face 1.65 cm below the surface. What is the density of the wood? The density of water is 1.00 g/cm3. A)0.606 g/cm3 B) 1.21 g/cm3 C)0.350 g/cm3 D)0.825 g/cm3 E) 1.65 g/cm3 90) Consider a very small hole in the bottom of a tank that is 17.0 cm in diameter and filled with water90)to a height of 90.0 cm. Find the speed at which the water exits the tank through the hole. A)17.64 m/sB) 48.3 m/sC) 44.1 m/sD) 4.20 m/s 91) Water flowing through a cylindrical pipe suddenly comes to a section of pipe where the diameter91)decreases to 86% of its previous value. If the speed of the water in the larger section of the pipe was 32 m/s, what is its speed in this smaller section if the water behaves like an ideal incompressible fluid? A)37 m/sB) 28 m/sC) 43 m/sD) 24 m/s 92) A pump uses a piston of 15 cm diameter that moves at 2.0 cm/s as it pushes a fluid through a pipe.92)What is the speed of the fluid when it enters a portion of the pipe that is 3.0 mm in diameter? Treat the fluid as ideal and incompressible. A)50 cm/sB) 22 cm/sC) 6.0 cm/sD) 50 m/s

93)An incompressible ideal fluid flows steadily through a pipe that has a change in diameter. The93) fluid speed at a location where the pipe diameter is 8.0 cm is 1.28 m/s. What is the fluid speed at a location where the diameter has narrowed to 4.0 cm? A) 1.3 m/sB) 0.32 m/sC) 2.6 m/sD) 0.64 m/sE) 5.1 m/s 94)Fluid flows at 2.0 m/s through a pipe of diameter 3.0 cm. What is the volume flow rate of the fluid?94) A) 14 m3/s B) 57 m3/s C) 1.4 × 10-3 m3/s D) 5.7 × 10-3 m3/s 95)Ideal incompressible fluid flows through a 4.0-cm-diameter pipe at 1.0 m/s. There is a 2.0 cm95) diameter constriction in the line. What is the speed of the fluid in this constriction? A) 2.0 m/sB) 0.50 m/sC) 4.0 m/sD) 0.25 m/s 96)Water, which we can treat as ideal and incompressible, flows at 12 m/s in a horizontal pipe with a96) pressure of 3.0 × 104 Pa. If the pipe widens to twice its original radius, what is the pressure in the wider section? A) 9.8 × 104 PaB) 4.9 × 104 PaC) 3.0 × 104 PaD) 7.4 × 104 Pa 97)A hole of radius 1.0 mm forms in the bottom of a very large water storage tank that holds water to97) a depth of 15 m. At what volume rate will water flow out of the hole? A) 5.4 × 10–6 m3/s B) 5.4 × 10–5 m3/s C) 5.4 × 10–4 m3/s D) 5.4 × 10–7 m3/s 98)Ideal incompressible water flows through a horizontal pipe of cross-sectional area 10.0 cm2 at a98) pressure of 0.250 atm with a volume flow rate of 1.00 × 10–3 m3/s. At a valve, the effective cross-sectional area of the pipe is reduced to 5.00 cm 2. What is the pressure at the valve? A) 0.112 atmB) 0.157 atmC) 0.235 atmD) 0.200 atm 99)For a certain patient, the build-up of fatty tissue on the wall of an artery has decreased the arterial99) radius by 10%. By how much would the pressure provided by the heart have to be increased to maintain a constant volume of blood flow? Model the blood as an ideal incompressible fluid. A) 46%B) 52%C) 48%D) 54%

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

100) An ideal incompressible fluid flows at 0.252 m/s through a 44-mm diameter cylindrical100)

pipe. The pipe widens to a square cross sectional area that is 5.5 cm on a side. Assume steady flow throughout the system.

(a) What is the speed of the fluid through the square section of pipe?

(b) What is the flow rate in liters per minute?

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

101) Ideal incompressible water is flowing in a drainage channel of rectangular cross-section. At one101)point, the width of the channel is 12 m, the depth of water is 6.0 m, and the speed of the flow is 2.5 m/s. At a point downstream, the width has narrowed to 9.0 m, and the depth of water is 8.0 m. What is the speed of the flow at the second point? A) 4.0 m/sB) 3.5 m/sC) 3.0 m/sD) 2.0 m/sE) 2.5 m/s

102)Water is flowing in a drainage channel of rectangular cross-section. The width of the channel is 15102) m, the depth of water is 8.0 m, and the speed of the flow is 2.5 m/s. What is the mass flow rate of the water? The density of water is 1000 kg/m3. A) 3.0 × 105 kg/s B) 3.0 × 103 kg/s C) 2.0 × 103 kg/s D) 3.0 × 102 kg/s E) 2.0 × 105 kg/s 103)In a section of horizontal pipe with a diameter of 3.0 cm, the pressure is 100 kPa and water is103) flowing with a speed of 1.5 m/s. The pipe narrows to 2.0 cm. What is the pressure in the narrower region? Treat the water as an ideal incompressible fluid. A) 95 kPaB) 230 kPaC) 48 kPaD) 44 kPaE) 67 kPa 104)Water flows through a horizontal pipe of cross-sectional area 10.0 cm2 at a pressure of 0.250 atm104) with a flow rate is 1.00 L/s. At a valve, the effective cross-sectional area of the pipe is reduced to 5.00 cm2. What is the pressure at the valve? The density of water is 1000 kg/m 3, and treat it as an ideal incompressible fluid. A) 0.200 atmB) 7700 PaC) 0.157 atmD) 0.235 atmE) 0.110 atm 105)An ideal incompressible fluid flows at 12 m/s in a horizontal pipe. If the pipe widens to twice its105) original radius, what is the flow speed in the wider section? A) 6.0 m/sB) 12 m/sC) 3.0 m/s D) 4.0 m/s 106)Water flows out of a large reservoir through an open pipe, as shown in the figure. What is the speed106) of the water as it comes out of the pipe?

A) 16 m/sB) 13 m/sC) 14 m/sD) 9.9 m/sE) 8.9 m/s 107) Water flows out of a large reservoir through 5.0-cm diameter pipe. The pipe connects to a 3.0-cm107)diameter pipe that is open to the atmosphere, as shown in the figure. What is the speed of the water in the 5.0-cm pipe? Treat the water as an ideal incompressible fluid.

A) 2.3 m/s B) 8.9 m/s C) 3.2 m/s D) 10 m/s E) 3.9 m/s

108) A pressurized cylindrical tank, 5.0 m in diameter, contains water that emerges from the pipe at108)

point C with a speed of 13 m/s as shown in the figure. Point A is 10 m above point B and point C is 3.0 m above point B. The area of the pipe at point B is 0.080 m 2 and the pipe narrows to an area of

0.040 m2 at point C. Assume that the water is an ideal fluid in laminar flow. The density of water is

1000 kg/m3 The mass flow rate in the pipe is closest to

A) 310 Kg/s.B) 520 Kg/s.C) 470 Kg/s.D) 420 Kg/s.E) 360 Kg/s. 109) A pressurized cylindrical tank, 5.0 m in diameter, contains water that emerges from the pipe at109)

point C with a speed of 84 m/s, as shown in the figure. Point A is 10 m above point B and point C is 3.0 m above point B. The area of the pipe at point B is 0.080 m 2 and the pipe narrows to an area of

0.070 m2 at point C. Assume that the water is an ideal fluid in laminar flow. The density of water is

A) 210 mm/s. B) 250 mm/s. C) 340 mm/s. D) 160 mm/s. E) 300 mm/s.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

110) As shown in the figure, water (density 1000 kg/m3) is flowing in a pipeline. At point 1 the110)

water speed is 5.90 m/s. Point 2 is 5.20 m above point 1. The cross -sectional area of the pipe is 0.0800 m2 at point 1 and 0.0200 m2 at point 2. What is the pressure difference p1 – p2 between points 1 and 2? Treat the water as an ideal incompressible fluid.

5.20 m

111) A large cylindrical water tank 11.5 m in diameter and 13.5 m tall is supported with its base 111)

8.75 m above the ground by a stand as shown in the figure. The water level in the tank is

10.6 m deep, and the density of the water in the tank is 1.00 g/cm3. A very small hole is formed at the base of the vertical wall of the tank, and water is squirting out of this hole horizontally. When this water hits the ground, how far has it traveled horizontally from the hole, assuming no air resistance?

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

112)Glycerin, with a viscosity of 1.5 N · s/m2, is flowing with an average speed of 1.2 m/s through a112) tube that has a radius of 5.0 mm and is 25 cm long. What is the drop in pressure over the length of this pipe? A) 72 kPaB) 46 kPaC) 130 kPaD) 76 kPaE) 140 kPa 113)Motor oil, with a viscosity of 0.25 N · s/m2, is flowing through a tube that has a radius of 3.0 mm113) and is 1.0 m long. The drop in pressure over the length of the tube is 200 kPa. What is the average speed of the oil? A) 1.2 m/sB) 0.90 m/sC) 1.1 m/sD) 0.80 m/sE) 1.0 m/s 114)Motor oil, with a viscosity of 0.25 N · s/m2, is flowing through a tube that has a radius of 5.0 mm114) and is 25 cm long. The drop in pressure is 300 kPa. What is the volume of oil flowing through the tube per second?

025 m3/s
0012 m3/s
7 m3/s
00038 m3/s
5 m3/s

115) A fluid is flowing with an average speed of 1.5 m/s through a tube that has a radius of 2.0 mm and 115) is 18 cm long. The drop in pressure is 967 Pa. What is the viscosity of the fluid?

0018 N · s/m2
028 N · s/m2
0056 N · s/m2
0034 N · s/m2
013 N · s/m2

Answer Key

Testname: UNTITLED1

D
B
C
D
E
E
C
A
A
C
B, D
A, C
D
A
D
B
C
C
A
B
C
C
A
B
B
C
A
B
E
D
D
D
A
E
E
B
D
E
A
A
C
C
A
A
A
A
B
B
B
D

Answer Key

Testname: UNTITLED1

C
C
E
13 m
6 kg
C
C
C
D
A
(a) 600 N (b) 1.2 × 105 Pa
C
D
A
E
C
C
A
D

70) (a) 3.7 × 10–4 m3 (b) 6.2 N

A
C
D
A
D
C
A
31 kg
A
B
B
E
E
B
E
C
A
A
D
D
C
D
E
C
C
A
B
C
B

Answer Key

Testname: UNTITLED1

100) (a) 0.13 m/s (b) 23 L/min

E
A
A
D
C
B
C
B
E
12 × 105 Pa
3 m
E
B
B
A

Understanding DCF Analysis And Applications Of Bond And Stock Valuation

January 2, 2023/in Uncategorized /by

11/18/2013

CASE 12 QUESTIONS

GULF SHORES SURGERY CENTERS

Time Value Analysis 1. Which bank should Gary choose for a saving account, which bank for a certificate of deposit, and which

bank for a term loan? 2. Gary will invest the donations from a wealthy investor in CDs. How much will the Center have

accumulated on the day of the last donation? (Use the CD interest rate offered by the bank you selected for a CD in question 1.)

3. If the Center takes out a 5-year term loan that would be repaid in equal annual installments, how much

will it owe to BankSouth if Gary decides to pay off the loan early, at the end of the third year? (Use the term loan interest rate offered by the bank you selected for a term loan in question 1.)

4. If the Center takes out a 7-year term loan that would be repaid in different annual installments (with the

first payment due at the end of year one), how much would the fixed annual installment be at the end of each year from Year 4 through Year 7? (Use the term loan interest rate offered by the bank you selected for a term loan in question 1.)

5. Gary will invest the contributions to the board-designated building fund in CDs. How much will the equal

annual contributions in years 5, 6, and 7 have to be to ensure the Center will have sufficient funds to pay for projected facility renovations? (Use the CD interest rate offered by the bank you selected for a CD in question 1.) (Hint: Use a time line to lay out the year 0-4 and 8-11 annual cash flows and then use Goal Seek in Excel to solve for the year 5-7 cash flows.)

6. In your opinion, what are three key learning points from this case?

Short Paper: CEMEX And The Rinker Acquisition

January 2, 2023/in Uncategorized /by

In order to complete this assignment you will be required to read part A and B (attached) of the CEMEX and the Rinker Acquisition.

The “CEMEX and the Rinker Acquisition” case study illustrates the financial restructuring of a nonfinancial corporation and focuses on t

Copyright © 2017 Thunderbird School of Global Management, a unit of the Arizona State University Knowledge Enterprise. This case was written by Professor Michael H. Moffett for the sole purpose of providing material for class discussion. It is not intended to illustrate either effective or ineffective handling of a managerial situation. Any reproduction, in any form, of the material in this case is prohibited unless permission is obtained from the copyright holder.

Michael H. Moffett

Cemex and the Rinker Acquisition (A) CEMEX’s transformation is about much more than improving our company’s cost structure. Our underlying goal is to reengineer our corporate DNA.

Lorenzo Zambrano, Chairman and CEO, CEMEX, Letter to Shareholders, Annual Report 2012, p. 6.

CEMEX S.A.B. de C.V. (NYSE: CX)—CEMEX—had made a name for itself in the global marketplace for two things—excellence in execution and rapid growth through acquisition. In an era in which globalization was a practice for multinational firms calling highly industrialized countries home, CEMEX broke the mold. It was a multinational player calling a lower-income country home—Mexico. By 2006, after a six-year growth run in its major construction markets of Mexico, the United States, and Spain, CEMEX was once again on the prowl. Its newest prey was an Australian multinational with significant operations in the United States, the Rinker Group. But Rinker was not for sale.

CEMEX—A Brief History Founded in 1906, CEMEX had grown over the past century, through a series of mergers and acquisitions, to being one of the largest cement manufacturers in the world. The company had closed 2006 with more than US$18.3 billion in sales across 50 countries.

CEMEX was one of the largest cement producers in the world. It offered a variety of different types of cement for various uses, including Gray Ordinary Portland Cement, White Portland Cement, Mortar, Oil-well Cement, and Blended Cement. Cement is produced by combining crushed limestone and clay. This mix is then heated to extremely high temperatures to form clinker, small dark gray modules approximately two inches in diameter. Clinker is then ground into different sizes and combined with gypsum. The resulting product is bagged and sold as cement. Cement is typically combined with water and other products to form hardened construction materials such as concrete (the world’s most widely used construction material). CEMEX sold its cement products to wholesalers, readymix concrete producers, industrial customers, and contractors. It also sold bagged cement to individual retail customers, particularly in emerging markets. Other major competitors included Heidelberg Cement (Germany), Holcim (Switzerland), and Lafarge (France).

Leadership and Competencies CEMEX’s period of dramatic growth had come under the leadership of Lorenzo Zambrano, the grandson of the founder. Lorenzo had joined the company in 1968 upon the completion of his MBA at Stanford, working his way up to the chief executive officer (CEO) position in 1985.

In 1992, Lorenzo and CEMEX acquired the two largest cement producers in Spain, the Mexican company jumping the Atlantic in a major expansion into global operations. In the years that followed, the company made acquisitions in Venezuela, the United States, Panama, the Dominican Republic, Colombia, the Phillippines, Indonesia, Thailand, Puerto Rico, and the United Kingdom. The string of international acquisitions culminated in the single largest in 2007 with the purchase of Rinker, a large Australian cement producer with large holdings and operations in the United States. Given the massive acquisition and rapid expansion of the company, integration of acquisitions with speed and efficiency had become an area of excellence for CEMEX.

The company had three major lines of product—cement, concrete, and aggregate—central to construction and building of all kinds. A highly cyclical and commoditized industry, CEMEX had pursued operational excellence

TB0487

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2 A02-17-0006

and customer service as an attempt to differentiate itself in a highly competitive market. One specific area of Lorenzo Zambrano’s personal focus was information technology, and, as a result, the company was considered one of the world’s leaders in the integration of information technology systems in all dimensions of operations, including the GPS tracking and dispatching of concrete trucks.

CEMEX was now one of the three true global players in its industry, a striking achievement for a firm originating from what many considered an emerging market. The other two global players in this industry, Holcim (Switzerland) and Lafarge (France), had long held major market shares in most regions of the world. The two now saw CEMEX as a growing threat. That was, in fact, what Zambrano had always envisioned.

Growth Through Acquisition CEMEX had successfully completed more than 15 acquisitions between 1992 and 2006. Zambrano had been aggressive, moving into a multitude of markets rapidly. They had also been expensive. Zambrano was often criticized for overpaying and then financing the purchases with debt, often short-term debt. But CEMEX had repeatedly accomplished what many of its rivals had not—it had repeatedly achieved operating cost synergies in new acquisitions. Many companies promised cost savings after acquisition, but CEMEX had consistently delivered. Zambrano’s record spoke for itself—and CEMEX had rapidly become one of the top concrete and cement companies in the world.

In September 2004, the company had acquired RMC Group, a British building materials firm, and the world’s largest supplier of ready-mixed concrete. The price tag was large: US$4.15 billion cash, plus CEMEX would assume US$1.6 billion in RMC debt, for a total of US$5.75 billion. The acquisition doubled CEMEX’s total revenues. With substantial operations across Europe and the United States, it would expand CEMEX’s global footprint dramatically. This was considered a predatory acquisition, as RMC had been operating at a loss and was underperforming compared to major competitors.

The RMC acquisition allowed CEMEX to enter markets difficult to enter on its own. With operations in France, Germany, Poland, Hungary, and the Czech Republic, CEMEX—in a single acquisition—gained access to a number of relatively middle-income markets that would be costly to enter via greenfield investment. These were markets where CEMEX’s primary rivals, Lafarge and Holcim, already held significant shares.

Indeed, the company prides itself on improving the management of the companies it takes over. The large cement plant at Rugby, in England, that is now part of the CEMEX empire, was notoriously bug-ridden under its old owners—often running at only 70% of capacity. Within two months of the CEMEX takeover, it was up to 93%. Mr Zambrano attributes the change to the implementation of the “CEMEX way.”

“The Master Builder—How Lorenzo Zambrano Built a Global Leader from Modest Origins in Mexico,” The Economist, October 13, 2005.

Exhibit 1. The RMC Acquisition at a Glance Offer: 855 pence per share (US$145.43), a 39% premium over the RMC share price

(30-days prior) Cost: US$5.75 billion, including assumption of debt Financing: Short-term debt RMC Revenue: US$7.9 billion RMC Employees: 27,000 Regulatory Approval: CEMEX needed to gain majority approval of at least 75% in value of RMC’s

shareholders Expected Cost Synergies: US$200 million (centralized purchasing, management, back-office operations) Market Reaction: CEMEX share price fell 10% in one day; Fitch, Moody’s and S&P all placed CEMEX

on credit watch for a possible downgrade of CEMEX for debt.

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A02-17-0006 3

In his letter to shareholders for 2006, Zambrano noted that CEMEX’s geographic and product strategy of diversification continued to perform, and that the RMC acquisition had already delivered the required return on capital employed (ROCE) of 10%, and operating cost synergies of more than US$360 million.

The Rinker Acquisition First, we need to continue to build an integrated platform across our industry’s value chain in key markets around the world. This is the logic that underpinned our acquisition of RMC, and it is the logic that will define our acquisition strategy going forward. In that context, last October we made an offer to acquire Rinker Group Limited, an Australian-based building-materials company whose business is largely concentrated in the United States. Our offer reflects CEMEX’s strategic commitment to grow through disciplined allocation of capital. All of our investments—whether new acquisitions or growth capital expenditures—will remain subject to our strict, disciplined capital allocation criteria. We are in the business of profitable growth, not growth for the sake of size alone. In the absence of investments that meet our strict criteria, we will continue to use our free cash flow to strengthen our capital structure.

Lorenzo H. Zambrano, Letter to Shareholders, CEMEX Annual Report, 2006, p. 6.

The Business Opportunity Fresh off the successful acquisition and integration of RMC, Zambrano now focused on The Rinker Group, Ltd., an Australian-based but U.S.-focused building materials company. Although Rinker was an Australian company by incorporation, 80% of its operations— sales and profits—were generated in the United States. Within the U.S., roughly 75% of Rinker’s revenues were generated in Florida (56%) and Arizona (17%). On a worldwide basis, the two U.S. states made up 57% of Rinker’s revenues. Rinker’s U.S. operations would greatly strengthen CEMEX’s position in several U.S. states that had seen rapid construction growth in recent years, while Rinker’s Australian operations would expand CEMEX’s global reach.

Rinker was a large company and would increase CEMEX sales by 28%, as seen in Exhibit 2. Rinker’s U.S. and Australian operations are detailed in Exhibit 3. But greater profits did not translate directly into free cash flow (FCF), as Rinker’s FCF as a percent of EBITDA was smaller than CEMEX’s. (Free cash flow (FCF) is defined as operating cash flow less capital expenditures, and represents the cash flows generated by the business that are available for discretionary use after reinvesting in the business—capex.) CEMEX calculated FCF with maintenance capex, not including what it termed strategy/growth capex.

A Long Weekend The unsolicited bid was unexpected. Rumors began swirling in New York on Friday October 27, 2006, that CEMEX was about to make an offer for Rinker. Rinker’s executive team immediately filed a statement with the U.S. Securities and Exchange Commission (SEC) that they were unaware of any such offer. Then, on Friday evening, the Chairman of Rinker, John Morschel, received a phone call from a senior vice president of CEMEX notifying him that CEMEX intended to make an unsolicited and hostile takeover bid for Rinker.

Exhibit 2. Cemex and Rinker Combined, 2006

(Millions of US dollars) Cemex Rinker Combined Change Sales 18,249 5,108 23,357 28% EBITDA 4,138 2,232 6,370 54% EBITDA margin 22.68% 43.70% 27.27% Net profit 2,378 744 3,122 31% Net profit margin 13.03% 14.56% 13.36% Free Cash Flow (FCF) 2,689 611 3,300 23% FCF/EBITDA 64.98% 27.36% 51.80%

Source: Constructed from published financial results. Note: Cemex’s fiscal year ends Dec. 31, whereas Rinker’s fiscal year for 2006 closed on March 31, 2006.

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4 A02-17-0006

Lorenzo Zambrano, in an interview the following day, explained that CEMEX had intended to first talk directly with Rinker’s leadership before advancing with the offer publicly, but as rumors of the potential deal leaked into the market, CEMEX feared that Rinker’s share price would begin to rise increasing the potential cost. (This did indeed prove true.) They had therefore been forced to go public with the offer sooner than they had planned. CEMEX had never made a hostile acquisition attempt before, despite having made 15 acquisitions under Zambrano’s leadership. Hostile acquisitions were notoriously more difficult. They often attracted competing offers, resulting in extended time delays and increasing the costs of closing the deals—if successful.

CEMEX was offering US$13.00 per share (A$17.00/share), a 27% acquisition premium over Rinker’s closing share price the previous day on the New York Stock Exchange. The acquisition premium is the amount by which the takeover price exceeds the current market price of shares just prior to the offer in order to entice shareholders to relinquish control of the company. At 27%, this was roughly average for recent acquisitions. The total offer was worth US$12 billion. After an emergency board meeting over the weekend, Rinker’s board publicly opposed the offer on Monday morning.

Shareholders should not surrender their stake in a company that is generating excellent returns now and has excellent prospects. This bid is opportunistic and far too low.

Rinker Chairman John Morschel

Rinker in the weeks and months that followed argued that the firm was worth much more, and that CEMEX could afford to pay much more. Rinker engaged the consulting firm Grant Samuel, a corporate advisory group focused on the Asian Pacific marketplace, to conduct a detailed valuation of Rinker to aid in determining what might be considered a fair value for the firm. Rinker’s board believed the CEMEX offer undervalued the company and was opportunistic, implying a predatory approach to a market share price that was only down in the short term.

Grant Samuel’s report, published one month later, provided a comprehensive series of analyses and arguments that Rinker was indeed worth much more, and that the current equity markets were undervaluing the firm as a result of the recent decline of the construction industry in the United States. Exhibit 3 presents a portion of that report.

The argument that Rinker’s share price was down—for the moment—highlighted an issue a number of the analysts critical to the acquisition had also noted—that the U.S. housing market was already sliding into recession. As illustrated in Exhibit 4, the fall in U.S. housing starts had been sudden and dramatic, but had started in February of 2006, some eight months previous.

Given that most of Rinker’s sales and profits were generated in the United States, specifically in Florida and Arizona, a slowdown in home construction was an early sign of falling returns for Rinker’s business. This decline in construction activity, starting only eight or nine months prior to the tender offer, was a definitive indication that future construction material demand might fall.

Grant Samuel conducted a valuation of Rinker using the two most widely used methodologies: discounted cash flow (DCF), and multiples. Although DCF valuation is considered theoretically more sound, its use often leads to exceedingly extreme values, high and low, compared to market prices.

Discounted Cash Flow Valuation The DCF analysis presented in Exhibit 5 is a baseline analysis from CEMEX’s viewpoint. The value of the prospective acquisition must include all incremental impacts on the business from the purchase and assimilation with CEMEX’s current operations. In this case, if CEMEX were to acquire Rinker, CEMEX believes it can reduce operating expenses of Rinker—so-called cost synergies—by US$130 million per year once integrated with CEMEX’s existing operations.

The DCF analysis in Exhibit 5 uses the same baseline assumptions as Grant Samuel’s analysis. Rinker’s hypothetical 2007 year-ending EBIT (Rinker’s 2007 fiscal year would close March 31, 2007, roughly four months from the time of the analysis), established the starting point for the DCF. Earnings were projected a full 10 years

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Exhibit 3. Rinker’s Opposition to the Takeover: CEMEX’s Offer is Opportunistic CEMEX’s Offer was announced after the Rinker Share price fell significantly due to a weaker short-term outlook for residential construction. Rinker’s earnings are partly dependent on the level of activity in the construction industry in its various regional geographic markets. Construction activity has historically been cyclical. The timing, magnitude and duration of each cycle varies. Rinker’s residential construction markets are currently experiencing a slowdown in the US and in some Australian regions. Between April and October 2006, the Rinker Share price declined by more than 40%. Your Directors believe that the Rinker Share price performance during that period was the result of the market focusing on a weaker short-term outlook for residential construction in some of Rinker’s key markets, rather than changes in Rinker’s long-term outlook.

On 9 November 2006, in conjunction with Rinker’s release of its results for the half year ended 30 September 2006, Rinker provided the market with an update of its earnings guidance. In this guidance your Directors advised that the results for the year ending 31 March 2007 are likely to be around the bottom end of the earnings guidance range of US $0.84 to US $0.90 per Rinker Share. Although the short-term outlook for residential construction is subdued, Rinker has put in place a number of strategies to reduce the impact on earnings. These strategies include rationalising the workforce, managing working capital, deferring capital expenditure, shifting to commercial and civil projects and increasing prices to recover increased costs.

1 From 20 November 2006, Rinker Shares have traded ex the interim dividend for the half year ended 30 September 2006. CEMEX’s Offer price is based on the average Reserve Bank Mid-Point Rate from 20 November 2006 to 24 November 2006 and subtracts the A$0.16 per Rinker Share interim dividend to be paid on 11 December 2006. CEMEX’s Offer gives it the right to reduce the Offer price by an amount equal to any dividends paid to you by Rinker during the Offer Period. If CEMEX does not exercise this right, the A$0.16 per Rinker Share interim dividend to be paid on 11 December 2006 would be added back. The rate used by CEMEX to convert the US$ Offer price to A$ is not certain and may differ significantly from the Reserve Bank Mid-Point Rate. This rate is used for illustrative purposes only. 2 Based on the Rinker Share price at the close of trading on the ASX on 26 October 2006, which was the day prior to the announcement of CEMEX’s Offer.

Source: “Reject CEMEX’s Takeover Offer,” Target Statement, Rinker, November 29, 2006, p. 21.

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into the future, with a terminal value capturing earnings and cash flows past that point. The baseline analysis assumes 3.5% per annum EBIT growth, and corporate income taxes based on the U.S. corporate income tax rate of 35%. Cash flows for capital expenditures were assumed to grow 2.5% per year, with depreciation charges growing 2% per annum. The terminal value assumed net operating cash flow (NOCF)—the sum of net operating profit after-tax plus depreciation and capex—would grow at 1% per annum for all years past year 10 and used the baseline discount rate of 8%.

Grant Samuel noted that capex for a heavy manufacturing firm like Rinker is typically lumpy, meaning that it has a tendency to occur in large pieces periodically over the life of the business. Grant Samuel believed that capex would total roughly US$800 million (present value) over time. The baseline analysis had not included any form of lumpy, but was relatively close in total to the US$800 million figure.

Exhibit 4. U.S. Housing Starts: January 2000–October 2006

Source: Data drawn from “New Privately Owned Housing Units Authorized by Building Permits in Permit-Issuing Places,” U.S. Census Bureau, seasonally adjusted annual rate.

Exhibit 5. Discounted Cash Flow Valuation of Rinker (millions of US dollars) Valuation year 0 1 2 3 4 5 6 7 8 9 10 Calendar year Assume 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 EBIT—baseline 1,053.9 Cost synergies 130.0 EBIT 3.5% 1,183.9 1,225.3 1,268.2 1,312.6 1,358.6 1,406.1 1,455.3 1,506.3 1,559.0 1,613.5 1,670.0 Less recalculated taxes 35.0% (414.4) (428.9) (443.9) (459.4) (475.5) (492.1) (509.4) (527.2) (545.6) (564.7) (584.5) Net operating profit after tax 769.5 796.5 824.3 853.2 883.1 914.0 946.0 979.1 1,013.3 1,048.8 1,085.5 Add back depreciation 1.0% 200.0 202.0 204.0 206.1 208.1 210.2 212.3 214.4 216.6 218.7 220.9 Capex 2.5% (100.0) (102.5) (105.1) (107.7) (110.4) (113.1) (116.0) (118.9) (121.8) (124.9) (128.0) Terminal value 1.0% 17,002.9 Net cash flow for discounting 869.5 896.0 923.3 951.6 980.8 1,011.0 1,042.3 1,074.6 1,108.1 1,142.6 18,181.4

WACC (discount rate) 8.0% Present value of cash flows 15,530.7 Present value of terminal value 7,875.6 Less market value of debt (1,082.2) TV as percent of total PV 51% Equity value of Rinker 14,448.5 Present value of capex 658.6 Shares outstanding (millions) 965 Value per share (US$) $14.97

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A02-17-0006 7

The discount rate utilized in the DCF analysis proved to be an item of some debate. In principle, CEMEX’s cost of capital was lower than Rinker’s. Given the primary objective of the valuation analysis of Grant Samuel was to value Rinker both independently—and in the eyes of CEMEX—a number of different discount rates were used in the scenario analysis with a baseline rate of 8%. The resulting DCF of Rinker’s cash flows was then reduced by the current market value of outstanding debt obligations, US$1,082.2 million, and a value per share calculated assuming 965 million shares outstanding. Exhibit 6 is only one of a multitude of scenarios possible, but does serve as a baseline DCF value. At US$14.97 per share, this was 15% above CEMEX’s current offer of US$13.00.

Financial Multiples Valuation Grant Samuel’s multiples valuation focused on multiples of EBITDA and EBIT seen in other recent acquisitions in the industry. After evaluating a number of recent deals, high and low multiple ranges were defined (see Appendix 5). Based on expected EBITDA and EBIT values for Rinker, a range of values for the company and share value were calculated. The results are presented in Exhibit 6. The lowest share value was US$13.50/share. On the upper end, multiples indicated the share value could be as high as US$15.07/share.

Grant Samuel’s approach was to blend the two methodologies, although it noted in its final report that the multiples analysis was seen more as a maximum, a ceiling on possible values (… the implied earnings multiples served as a constraint on value).1 The consultant’s conclusion was that Rinker’s value lay within a range between US$14.2 and15.9 billion, or US$15.85–US$17.74 on a per-share basis. Curiously, this range was higher than that indicated by either the DCF or multiples analysis.

Time and Value Although CEMEX had extended its offer to April 7, 2007, in the hope of obtaining the needed 90% approval of shareholders under Australian law, Rinker’s shareholders had not warmed to the offer. CEMEX, still wanting to close the deal, considered revising their offer.

1 “Reject CEMEX’s Takeover Offer,” Target Statement, Rinker, p. 60.

Exhibit 6. Valuation of Rinker with Multiples (millions of US dollars)

High End or Range Low End or Range Multiples Value Multiple Value US$/share Multiple Value US$/share EBITDA 12 months ending Sept 2006 $1,235.3 11.7 $14,453 $14.98 10.5 $12,971 $13.44 End of year, March 2007 $1,218.7 11.9 $14,503 $15.03 10.7 $13,040 $13.51 End of year, March 2008 $1,206.1 12.0 $14,473 $15.00 10.8 $13,026 $13.50 EBIT 12 months ending Sept 2006 $1,068.0 13.6 $14,525 $15.05 12.2 $13,030 $13.50 End of year, March 2007 $1,053.9 13.8 $14,544 $15.07 12.3 $12,963 $13.43 End of year, March 2008 $1,010.2 14.4 $14,547 $15.07 12.9 $13,032 $13.50

Source; Grant Samuel. EBITDA and EBIT values for 2007 and 2008 are based on Grant Samuels forecast of Rinker returns.

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Appendix 1. Rinker Group Consolidated Income Statement

Year ended 31 March (US$ million) 2005 2006 2007 Trading revenue 4,309.7 5,108.4 5,337.3 Cost of sales (2,399.2) (2,666.3) (2,744.0) Warehouse and distribution costs (824.6) (1,015.2) (1,058.6) Selling, general and administrative costs (343.1) (373.8) (366.3) Takeover defence costs – – (14.5) Share of profits from investments using equity method 35.1 32.6 25.3 Other income 21.1 68.4 44.5 Other expense (23.9) (8.5) (5.8) Profit before finance and income tax expense 775.1 1,145.6 1,217.9 Interest income 22.2 21.7 15.9 Finance costs (54.2) (41.8) (57.3) Profit before income tax expense 743.1 1,125.5 1,176.5 Income tax expense (244.9) (381.9) (390.1) Net profit 498.2 743.6 786.4

Net profit attributable to minority interests 5.0 3.4 4.0 Net profit attributable to members of Rinker Group Ltd 493.2 740.2 782.4

Source: Rinker Group Ltd, Full Financial Report 2006, p. 1, and Full Financial Report 2007, p. 1.

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Appendix 2. Rinker Group Consolidated Statement of Cash Flow

Year ended 31 March (US$ million) 2005 2006 2007 Cash flows from operating activities Receipts from customers 4,489.2 5,320.3 5,717.2 Payments to suppliers and employees (3,615.8) (4,070.0) (4,375.1) Dividends and distributions received 15.7 30.5 28.5 Interest received 20.8 22.4 16.1 Income taxes paid (231.1) (360.8) (396.0) Net cash from operating activities 678.8 942.4 990.7 Cash flows from investing activities Purchase of property, plant and equipment (281.1) (383.7) (382.9) Proceeds from sale of PP&E 13.2 63.4 47.2 Purchase of subsidiaries and businesses (33.2) (160.8) (97.2) Proceeds from sale of interests in subsidiaries 104.8 53.7 9.2 Loans and receivables advanced (22.1) (19.9) (7.9) Loans and receivables repaid 40.8 37.0 3.1 Net cash (used in) investing activities (177.6) (410.3) (428.5) Cash flows from financing activities Proceeds from borrowings 1,418.3 1,222.7 4,381.5 Repayments of borrowings (1,478.8) (1,438.7) (3,931.4) Dividends paid (104.1) (193.5) (559.2) Capital return – – (347.3) Minority interest distributions (2.6) (1.7) (3.0) Payments for Rinker Group share buyback (21.9) (337.2) (155.4) Proceeds from issuance of shares 0.7 – – Interest and other finance costs paid (49.2) (43.2) (54.1) Payments for shares held in trust (19.4) (22.7) (26.7) Net cash (used in) financing activities (257.0) (814.3) (695.6) Net (decrease) increase in cash held 244.2 (282.2) (133.4) Cash and cash equivalents at the beginning of the year 328.5 588.2 289.1 Effect of exchange rate changes 15.5 (16.9) 30.2 Cash and cash equivalents at the end of the year 588.2 289.1 185.9 Reconciliation of net profit to net cash from operating activities Net profit 498.2 743.6 786.4 Depreciation, depletion and amortization 195.0 208.9 223.1 Transfer to provisions 18.6 1.9 (1.4) Interest expense 46.0 36.5 52.3 (Profit) loss on asset sales 3.2 (58.9) (36.2) (Increase) decrease in trade receivables (71.2) (86.5) 56.4 (Increase) decrease in inventories (58.5) (34.2) (32.1) (Increase) decrease in other assets 6.8 2.1 (5.1) (Decrease) increase in trade payables 33.0 95.9 (66.6) Net change in tax balances 15.3 21.1 (5.9) Other (7.6) 12.0 19.8 Net cash from operating activities 678.8 942.4 990.7 Exchange rate (A$ = US$) 0.7357 0.7471 0.7757

Source: Rinker Group Ltd, Full Financial Report 2006, p. 3, and Full Financial Report 2007, p. 3.

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Appendix 3. Rinker Group Consolidated Balance Sheet

Year ended 31 March (US$ million) 2005 2006 2007 Current Assets Cash and cash equivalents 588.2 289.1 185.9 Receivables 590.3 672.3 671.4 Inventories 300.9 330.9 373.7 Other current assets 25.7 20.7 23.1 Total current assets 1,505.1 1,313.0 1,254.1 Non-Current Assets Receivables 58.0 45.2 22.3 Inventories 10.0 8.6 9.8 Investments accounted for using equity method 159.6 132.9 148.0 Other financial assets 22.5 32.6 40.3 Property, plant and equipment 1,811.0 1,963.4 2,233.1 Intangibles, including goodwill 816.1 901.7 937.1 Other non-current assets 36.8 59.8 59.6 Total non-current assets 2,914.0 3,144.2 3,450.2 Total Assets 4,419.1 4,457.2 4,704.3 Current Liabilities Payables 494.3 542.2 511.8 Borrowings 257.1 5.4 9.4 Income tax liabilities 26.6 62.4 49.1 Provisions 72.6 76.2 77.4 Total current liabilities 850.6 686.2 647.7 Non-Current Liabilities Payables 46.7 94.1 88.8 Borrowings 610.9 645.2 1,092.3 Net deferred income tax liabilities 230.0 205.8 218.0 Provisions 129.8 138.6 144.5 Total non-current liabilities 1,017.4 1,083.7 1,543.6 Total liabilities 1,868.0 1,769.9 2,191.3 Net assets 2,551.1 2,687.3 2,513.0 Equity Contributed equity 1,475.9 1,138.7 636.0 Shares held in trust (21.1) (44.2) (52.3) Reserves 230.9 182.4 286.5 Retained profits 858.1 1,401.3 1,632.7 Equity attributable to members of Rinker Group 2,543.8 2,678.2 2,502.9 Minority interests 7.3 9.1 10.1 Total equity 2,551.1 2,687.3 2,513.0

Source: Rinker Group Ltd, Full Financial Report 2006, p. 2; Full Financial Report 2007, p. 2.

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Appendix 4. Rinker’s U.S. and Australian Operations

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Appendix 5. Transactions in the Global Construction Materials Industry, 2000-2006

EBITDA EBIT Date Target Transaction Major Segments Consideration Multiple Multiple

Aug 2006 Ashland Paving & Construction Acquisition by CRH Ag As $1,300.0 5.9 11.4 March 2006 Civil and Marine Acquisition by Hanson Ce £245.00 9.4 na March 2006 Material Service Acquisition by Hanson Ag As $300.0 7.5 na February 2006 Lafarge North America Acquisiton of remaining 46.8% by Lafarge Ag As Ce Co $7,369.8 9.0 12.9 June 2005 Heidelberg Cement Acquisiiton of 48% by Spohn Cement Ag As Ce Co € 7,013.30 8.3 13.8 January 2005 Aggregate Industries Acquisition of remaining 85.3% by Holcim Ag As Ce Co £1,868.70 9.3 13.7 September 2004 RMC Takeover offer by Cemex Ag As Ce Co £2,408.70 7.2 16.8 May 2004 Frehner Construction Co Acquisition by Aggregate Industries Ag As $95.8 9.6 10.8 May 2003 S.E. Johnson Acquisiton by CRH Ag As $217.0 7.8 12.1 April 2003 Better Materials Acquisition by Hanson Ag As $152.0 7.3 11.9 July 2002 Kiewit Materials Takeover offer by CSR Ag As Ce $612.3 7.0 10.3 January 2001 Blue Circle Acquisition of remaining 77.4% by Lafarge Ag Ce Co £3,143.40 9.2 13.2 September 2000 Southdown Takeover offer by Cemex Ag Ce $2,675.4 6.9 8.4 August 2000 Tarmac United States assets Acquisition by Titan Cement Ag Ce Co $636.0 6.5 na June 2000 Florida Crushed Stone Acquisition by CSR Ag As Ce $266.0 8.7 na

Source: Grant Samuel analysis. Ag = Aggregates, As = Asphalt, Ce = Cement, Co = Concrete

Appendix 6. Rinker’s Cost of Capital

Risk-Free Market Risk Cost of Cost of Corporate After-Tax Percent Percent Market Weight Rate Beta Premium Equity Debt Tax Rate Cost of Debt Debt Equity WACC

United States 80% 4.60% 1.00 5.50% 10.10% 5.60% 35% 3.64% 25% 75% 8.485% Australia 20% 5.60% 1.00 6.00% 11.60% 6.60% 30% 4.62% 25% 75% 9.855% 100% 10.40% 8.759%

Notes: Based on Grant Samuel analysis provided to The Rinker Group under contract. Weights: Based on approximate sales and earnings for Rinker Group. Risk-Free Rates: Based on 10-year government bond yields for the United States and Australia. Beta: Grant Samuel assumption, although it was noted a number of other Australian institutions believe Rinker’s beta to be much higher, e.g., 1.59. Market Risk Premium: Grant Samuel. Percent Debt/Equity: Based on Rinker’s observed capital structure over recent 3-year period.

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raditional financial metrics of corporate performance and indebtedness.

For this assignment, you will review the company’s performance, explain the company’s performance based on the information presented, and apply market knowledge. This assignment supports the final project through application of market knowledge, analysis of financial reports, and analysis of the company’s response to the 2007–2008 financial crisis.

Prompt: To complete this assignment, read parts A and B of the “CEMEX and the Rinker Acquisition” case study.

Apply market knowledge and address the company’s response to the 2007–2008 financial crisis.

Provide examples from the case study and previous learning.

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