TARGET 1-09-2002 TO 1-09-2003 TOTAL SHAREHOLDER RETURN Dividends paid + change in stock price...
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TARGET 1-09-2002 TO 1-09-2003TARGET 1-09-2002 TO 1-09-2003 TOTAL SHAREHOLDER RETURNTOTAL SHAREHOLDER RETURN
Dividends paid + change in stock priceDividends paid + change in stock price
TSR=TSR=Initial stock priceInitial stock price
= ( 0.26 + 37.05 – 31.42)/31.42) = 0.1792 = 17.92%= ( 0.26 + 37.05 – 31.42)/31.42) = 0.1792 = 17.92%
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ECONOMIC PROFIT(Impact of $ 1 MM Cost of R&D)
NOPAT = EBIT – TAXESNOPAT = EBIT – TAXES
= 2676 – 853 = = 2676 – 853 = 18231823 EP = NOPAT – Capital ChargersEP = NOPAT – Capital Chargers
= 1823 – 526 = = 1823 – 526 = 12971297
Assume Target treats R&D as corporate Assume Target treats R&D as corporate overhead (SG&A) and R&D has a 1 MM budget: overhead (SG&A) and R&D has a 1 MM budget: Then EP would beThen EP would be 1296 1296 or a change ofor a change of - 0.08% - 0.08% in the EP.in the EP.
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Make vs. Buy DecisionMake vs. Buy Decision R&D has researched production and R&D technologies for
eyewear and concludes:
1. We should not build our own production facilities, because:
– Large and efficient facilities already exist and can be employed under contract to manufacture our products at comparatively low cost. We could not match their low cost of plant and labor (Example: Foresight Optical 1)
– Construction of a manufacturing facility would delay the time to market of our product
2. We can produce enough units on sophisticated laboratory / small-scale production equipment to:
» Test the market with our innovative designs now and in the Test the market with our innovative designs now and in the futurefuture
» Generate an economic profit within 2 yearsGenerate an economic profit within 2 years
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R&D PROPOSED BUDGET
Direct MaterialsClass 1000 Clean Room 65,000
Eclipse LX Surface blocker 17,000
SGX turbo Surface Generator 12,500
Acuity Finer and Polisher 9000
Stratum Lens Coater 9000
Kappa SP Lens Finishing System 6500
Innovations Lab Software 1200
Consumables 11,000
131,200
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R&D PROPOSED BUDGETDirect Labor
Director R&D 110,000Associate Director 90,000Chief Design Engineer 85,000Design Engineer (6) 420,000Technician (6) 210,000
915,000
Overhead Rate *
Other Direct CostsTravel 55,000Consultants 60,000Special Testing ** 35,000
150,000 * Use Target pool / direct labor **XPS/SIMS Surface analysis (Columbia University)
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R&D PROPOSED BUDGET
Indirect Labor
Custodial staff 30,000
Security 35,000
65,000
Indirect Material
Office supplies 5500
Utilities (laboratory) 15,000
20,500
1,281,700
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Appendix: Capabilities-Foresight Optical
TAIWANManufacturing-Space: 2,367 square meters.-Injection Molding : 14 machines (mostly 250 ton)-Automatic central material supply incorporation humidity control dryer system-Standard Clean room fully automated Lens coating facility-Clean 1000 room for specialty coating systems.-Ultrasonic cleaning-Annealing & Curing-Hard coat system-Vacuum Deposit
Product development- R&D Department-In-house mold making-Fully Equipped Test lab
XIANAMENManufacturing- Employee: 200+- Space : 12,000 sq.mt- Building : A 6858 sq.mt. B 6,000 sq.mt.- Injection Molding Machines : 22 machines, mostly 250 tons- Clean room enclosed Lens coating facility- Ultrasonic cleaning- Annealing & Curing- Hard coat system- Vacuum Deposit …5 machines
Daily production capacity: 120,000+ pair