Tri Par Critical Equation
11-3 Marvin Enterprises Decides to Exploit a New Technology—an E...
https://connect.mcgraw-hill.com/sites/007131430x/student_view0/ebo...
Principles of Corporate Finance Global Edition Ebook
10/e Content
Chapter11: Investment, Strategy, and Economic Rents
p. 307 309 308 311
To illustrate some of the problems involved in predicting economic rents, let us leap forward several years and look at the decision by Marvin Enterprises to exploit a new technology.
18
One of the most unexpected developments of these years was the remarkable growth of a completely new industry. By 2032 annual sales of gargle blasters totaled $1.68 billion, or 240 million units. Although it controlled only 10% of the market, Marvin Enterprises was among the most exciting growth companies of the decade. Marvin had come late into the business, but it had pioneered the use of integrated microcircuits to control the genetic engineering processes used to manufacture gargle blasters. This development had enabled producers to cut the price of gargle blasters from $9 to $7 and had thereby contributed to the dramatic growth in the size of the market. The estimated demand curve in Figure 11.2 shows just how responsive demand is to such price reductions.
p. 305
Table 11.4 summarizes the cost structure of the old and new technologies. While companies with the new technology were earning 20% on their initial investment, those with first-generation equipment had been hit by the successive price cuts. Since all Marvin's investment was in the 2028 technology, it had been particularly well placed during this period. Rumors of new developments at Marvin had been circulating for some time, and the total market value of Marvin's stock had risen to $460 million by January 2033. At that point Marvin called a press conference to announce another technological breakthrough. Management claimed that its new thirdgeneration process involving mutant neurons enabled the firm to reduce capital costs
https://connect.mcgraw-hill.com/sites/007131430x/student_view0/ebo...
Principles of Corporate Finance Global Edition Ebook
10/e Content
Chapter11: Investment, Strategy, and Economic Rents
p. 307 309 308 311
To illustrate some of the problems involved in predicting economic rents, let us leap forward several years and look at the decision by Marvin Enterprises to exploit a new technology.
18
One of the most unexpected developments of these years was the remarkable growth of a completely new industry. By 2032 annual sales of gargle blasters totaled $1.68 billion, or 240 million units. Although it controlled only 10% of the market, Marvin Enterprises was among the most exciting growth companies of the decade. Marvin had come late into the business, but it had pioneered the use of integrated microcircuits to control the genetic engineering processes used to manufacture gargle blasters. This development had enabled producers to cut the price of gargle blasters from $9 to $7 and had thereby contributed to the dramatic growth in the size of the market. The estimated demand curve in Figure 11.2 shows just how responsive demand is to such price reductions.
p. 305
Table 11.4 summarizes the cost structure of the old and new technologies. While companies with the new technology were earning 20% on their initial investment, those with first-generation equipment had been hit by the successive price cuts. Since all Marvin's investment was in the 2028 technology, it had been particularly well placed during this period. Rumors of new developments at Marvin had been circulating for some time, and the total market value of Marvin's stock had risen to $460 million by January 2033. At that point Marvin called a press conference to announce another technological breakthrough. Management claimed that its new thirdgeneration process involving mutant neurons enabled the firm to reduce capital costs