We described a manager who has just learned about DCF as like a baby with a hammer. What is the point of our analogy? (page 275 of the book)
Michael Porter observes that firms can generate economic rents both by their choice of industry and by the way they position themselves within that industry. What are the three ways they can usefully position themselves within their industry? (page 281 of the book)
A new leaching process allows your company to recover some gold as a by-product of its aluminum mining operations. How would you calculate the PV of the future cash flows from gold sales? (page 278 of the book)
You have inherited 250 acres of prime Iowa farmland. There is an active market for land of this type and similar properties are selling for $1,000 per acre. Net cash returns per acre are $75 per year. These cash returns are expected to remain constant in real terms. How much is the land worth? A local banker has advised you to use a 12% discount rate. (pages 276-278 of the book)
Look back to the polyzone example at the end of section 11.2. Why was it necessary to calculate the NPV of investment in polyzone capacity from the point of view of a potential European competitor? (pages 281-284 of the book)
What are the lessons of Marvin Enterprises? Select from the following list. Note: Some of the following statements may be partly true, or true in only some circumstances. Explain your choices. (page 289 of the book)
Companies should try to concentrate their investments in high-tech, high-growth sectors of the economy.
Think when your competition is likely to catch up, and what that will mean for product pricing and project cash flows.
Introduction of a new product may reduce the profits from an existing product, but this interaction should be ignored when calculating the new project's NPV.
In the long run, economic rents flow from some asset (usually intangible) or some advantage your competitors do not have.
Do not attempt to enter a new market when your competitors can produce with fully depreciated plant.
In Section 11.3 we stated "It is fun in a growth industry when you are at the forefront of a new technology, but a growth industry has no mercy on technological laggards." Why is this particularly true of a growth industry? (page 289 of the book)
