Valuation Exercise Instructions & Worksheet You are the CMO of the XYZ Corporation and you have been tasked to evaluate the four (4) existing marketing Strategic Business Units (SBUs) within the company and one proposed new SBU presented to you from your marketing management team for budget allocations. The budgetary information for each of the five (5) SBU marketing programs is provided in this document. Specifically, you will need to perform the following tasks: Use the information in this document and in the textbook chapter on market valuation to answer the questions in the separate Assignment document to be posted in Blackboard for a grade. Using the data provided in the Worksheets on pp. 2-4 of this document, calculate the following financial values of the five (5) SBU marketing programs: Net revenue values after factoring for Probability Analysis and Historical Accuracy. Contribution margins from the Net Revenue values. Net Present Value (NPV) using the Requested Funding values against the five annual revenue forecasts and the Internal Discount Rate of 12%. From your calculations in Item #2, rank the five (5) programs in a Profitability Matrix. Using the total allocated marketing budget for the next fiscal year ($20 billion), distribute the funding among the five marketing projects. How much funding did you leave in reserve for contingencies? Write a summary of your rationale for your budget allocation decisions. Describe the control system in general and the specific measurements that you plan to use for monitoring performance of the marketing programs during the coming budget fiscal year. Describe the potential scenarios that may cause you as the CMO to alter any of your current budget plans and what contingency actions you will take in those situations, to include an ultimate exit strategy (pp. 276-278). Submit your written report as a Word document attachment through the appropriate Assignment link Background Information: XYZ Corporation sells software programs for today’s Information Age consumers. It competes directly with Microsoft and other similar software development companies. The five SBU marketing programs within the company for the next budget fiscal year are as follows (use the alphabetical character to denote each product category in the calculations model): Office Productivity Solutions Computer Games Health Monitoring Solutions Point-of-Sales Solutions Social Media Customized Development WORKSHEET: NOTE: A common difficulty experienced by past MRKT 690 students is the calculations of Item #7 (Net Forecasted Revenues) for each SBU. You are given the forecasted revenues for Year 1 in Item #4 for each SBU and then asked to calculate for “Net Forecasted Revenues for Year 1” in Item #7 by factoring in “Combined Probability Analysis (Confidence)” cited in Item #5 and “Combined Historical Forecast Accuracy” cited in Item #6. The difficulty arises when students use the same Gross Projected Sales Revenues figure in Item #4 for both calculations in Items #5 and #6. What you should be doing is first calculating Item #5 from Item #4 and then calculating Item #6 from the net figure you get from calculating for Item #5 to achieve the net figure in Item #7. A: Office Productivity Solutions. This product category competes directly with the Microsoft Office suite of products and is #2 in market sales. Annual sales and profits remain steady but the growth of the market is slow and the product category is in the Maturity stage of the PLC. Sales Revenues last year: $30 billion Profits last year: $8.7 billion Estimated 5-year Market Growth: 11% Projected Sales Revenues for next 5 years: Year 1: $33 billion Year 2: $37 billion Year 3: $41 billion Year 4: $46 billion Year 5: $50 billion Combined Probability Analysis (Confidence) Factor: 95% Combined Historical Forecast Accuracy Factor: 95% Net Forecasted Revenues for Year 1: _____________ Projected Variable Costs for Year 1: $8 billion Contribution Margin: ________________ Requested Funding for Next Budget Fiscal Year: $9 billion Net Present Value: ________________ B: Computer Games. Sales remain robust for this product category especially among some of the games created by the company that lead the market in sales. Annual growth rates continue to be above average. This product category remains in the Growth stages of the PLC. Sales Revenues last year: $25 billion Profits last year: $5 billion Estimated 5-year Market Growth: 25% Projected Sales Revenues for next 5 years: Year 1: $31 billion Year 2: $39 billion Year 3: $49 billion Year 4: $61 billion Year 5: $76 billion Combined Probability Analysis (Confidence) Factor: 90% Combined Historical Forecast Accuracy Factor: 105% Net Forecasted Revenues for Year 1: _____________ Projected Variable Costs for Year 1: $9 billion Contribution Margin: ________________ Requested Funding for Next Budget Fiscal Year: $10 billion Net Present Value: ________________ C: Health Monitoring Solutions. This is a relatively new product category for the company. Currently, no clear market leader has been established but the company’s brand reputation suggests that this product category could become a market leader. Sales continue to grow and profits are good. This product category is in the late Introduction and early Growth stages of the PLC. Sales Revenues last year: $4 billion Profits last year: $1 billion Estimated 5-year Market Growth: 35% Projected Sales Revenues for next 5 years: Year 1: $5 billion Year 2: $7 billion Year 3: $10 billion Year 4: $13 billion Year 5: $18 billion Combined Probability Analysis (Confidence) Factor: 90% Combined Historical Forecast Accuracy Factor: 90% Net Forecasted Revenues for Year 1: _____________ Projected Variable Costs for Year 1: $1.5 billion Contribution Margin: ________________ Requested Funding for Next Budget Fiscal Year: $2 billion Net Present Value: ________________ D: Point-of-Sale Solutions. This product category has been in the company since its founding and was a major market leader in the early years of its existence but the market share has been declining to the new market leader and the growth rate of the market is slow because of the current economic conditions. This product category is in the Decline stage of the PLC. Sales Revenues last year: $7.4 billion Profits last year: $0.5 billion Estimated 5-year Market Growth: (-15%) Projected Sales Revenues for next 5 years: Year 1: $6 billion Year 2: $5 billion Year 3: $4 billion Year 4: $3 billion Year 5: $2 billion Combined Probability Analysis (Confidence) Factor: 85% Combined Historical Forecast Accuracy Factor: 110% Net Forecasted Revenues for Year 1: _____________ Projected Variable Costs for Year 1: $1.5 billion Contribution Margin: ________________ Requested Funding for Next Budget Fiscal Year: $2 billion Net Present Value: ________________ E: Social Media Customized Development. This product category is being introduced in the new budget fiscal year due to the increasing demand for customized social media solutions for small and medium enterprises. The company believes that its brand reputation will attract established business owners who have purchased the company’s office productivity software in the past. The growth of this new product category and the forecast for future growth is strong. The product category is in the early Growth stage of the PLC. Sales Revenues last year: N/A Profits last year: N/A Estimated 5-year Market Growth: 100+% Projected Sales Revenues for next 5 years: Year 1: $700 million Year 2: $2 billion Year 3: $5 billion Year 4: $9 billion Year 5: $12 billion Combined Probability Analysis (Confidence) Factor: 80% Combined Historical Forecast Accuracy Factor: N/A Net Forecasted Revenues for Year 1: _____________ Projected Variable Costs for Year 1: $250 million Contribution Margin: ________________ Requested Funding for Next Budget Fiscal Year: $500 million Net Present Value: ________________ After completing your calculations in this Worksheet, you should enter your numbers in the Assignment document located in the Module Assignments link. Once you have completed that Word document, submit it through the link provided. VALUATION DOCUMENT TO SUBMIT IN BLACKBOARD Financial Results Section (20 points) (pp. 241-251): Office Productivity Solutions: Net Forecasted Revenues for Year 1: ($ ) Contribution Margin: ($ ) Net Present Value: ($ ) Computer Games: Net Forecasted Revenues for Year 1: ($ ) Contribution Margin: ($ ) Net Present Value: ($ ) Health Monitoring Solutions: Net Forecasted Revenues for Year 1: ($ ) Contribution Margin: ($ ) Net Present Value: ($ ) Point-of-Sales Solutions: Net Forecasted Revenues for Year 1: ($ ) Contribution Margin: ($ ) Net Present Value: ($ ) Social Media Customized Development: Net Forecasted Revenues for Year 1: ($ ) Contribution Margin: ($ ) Net Present Value: ($ ) Budget Allocations Section Instructions (20 points) (pp. 252-255): Determine in which Growth/Share Matrix category each SBU (A-E) belongs based on NPV and other forecasted financial values and write the SBU ID (A-E) in Column A of the form below. (For additional help, refer to the Note on p. 4 of this document.) Write the Contribution Margin (millions) that you calculated for each SBU above in Column B. Write the Marketing Funding Requested from data provided in the Worksheet document in Column C. Write the amount of Funding you are allocating to each project (millions) in Column D. Divide Column D by Column C (D / C) and write the result as a percentage in Column E. Total Columns B, C, and D and write the totals in the “Portfolio Totals” row. Write the amount of Reserves you are allocating in the designated row under Column D. Add the “Portfolio Totals” and the “Reserves” numbers for Column D and write the amount in the “Grand Total” row under Column D. The amount from Item #9 above should equal the Total Allocated Marketing Budget for the next fiscal year given in the Worksheet document instructions. A B C D E Category (in millions) Contribution Margin $ Funds Requested Funding Allocated % of Funds Requested Star SBU _____ Cash Cow SBU _____ Question Marks SBU _____ SBU _____ Dog SBU _____ Portfolio Totals Reserves GRAND TOTAL Rationale for Allocations (20 points) (p. 255): Write a summary of your rationale for the budget allocations that you assigned in the previous table. Control Systems & Measurements (20 points) (pp. 259-275): Describe the control system in general and specific measurements that you plan to use for monitoring performance of the marketing programs during the coming budget fiscal year. Contingency Plans & Exit Strategies (20 points) (pp. 276-278): Describe the potential situations that may cause you as the CMO to alter any of your current budget plans. In addition, describe what contingency actions you will take in those situations to include an ultimate exit strategy. NOTE: Some confusion can occur when applying the Growth/Share Matrix to this Valuation Exercise. In the textbook model (p. 240), points on a graph are provided for visual assistance, but in this exercise, a narrative is provided for students to interpret which of the 4 quadrants is identified. The following are some hints to help you apply the model to the examples in this exercise. As with any model like the Growth/Share Matrix, one needs to first identify the two variables: Annual Growth Rate (of the market) and Market Share. Look at the model in the textbook and notice the mid-point lines on both the X and Y axis. The quadrant components (Stars, Question Marks, Cash Cows, and Dogs) are situated either above the value of the mid-point line and/or below it. The Y axis mid-point line represents the average annual growth rate (AGR) of the product category’s market. The bottom left corner represents 0% AGR, the top left corner represents the top AGR (usually in double digits – 10%+). The mid-point line usually is in single digits and represents average AGR. The X axis mid-point line represents 50% market share; the left vertical line represents 100% market share; the right side of the model represents 0% market share. Therefore, the four SBU categories should be interpreted as follows: Question Mark: less than 50% market share but in a greater than average AGR market growth. Stars: greater than 50% market share and greater than average AGR market growth. Cash Cows: greater than 50% market share but less than average AGR market growth. Dogs: less than 50% market share and less than average AGR market growth.

    Financial Superintendence

    Abstract

    This Strategic Profession Item anatomy is sunder of the five-year chaffering drawing intermissionraint the profession. The anatomy and evaluation mode achieve be used to teffectual a beg intermissionraint affixed funding on strategic profession items. It achieve so produce instruction to the superintendence and the employees environing strategic profession items that are performing courteous-behaved-behaved and those whose recompense is decreasing. Since course, the order has realized an up surge in the insist intermissionraint its emanations and inquiry shows that it has a secure nearness in the chaffer. This everyows the profession to furnish and utensil long-order profession strategies. Attributeffectual to the greater-than-anticipated insist that the profession has abided to relish, there are drawings to amplify and ameliorate some strategic profession areas. The drawings achieve be selected on the cause of the Net Present Value of advenient recompense and the ordinary trends in the chaffer. The chaffer has been extremely receptive to earlier strategies and hence it is expected that the utensilation mode achieve experiment rare hitches.

    A: Function Emanationivity Solutions.

    1.    Sales Proceedss orderinal year: $30 billion

    2.    Uses orderinal year: $8.7 billion

    3.    Estimated 5-year Chaffer Growth: 11%

    4.    Purposeed Sales Proceedss intermissionraint instant 5 years:

    a.    Year 1: $33 billion

    b.    Year 2: $37 billion

    c.    Year 3: $41 billion

    d.    Year 4: $46 billion

    e.    Year 5: $50 billion

    5.    Combined Probability Anatomy (Confidence) Factor: 95%

    6.    Combined Historical Intermissionraintecast Accuracy Factor: 95%

    7.    Net Intermissionraintecasted Proceedss intermissionraint Year 1: _$ 29.78 billion_________

    8.    Purposeed Varieffectual Absorbs intermissionraint Year 1: $8 billion

    9.    Contribution Extremity: _$ 22 billion______________

    10.    Beged Funding intermissionraint Instant Budget Fiscal Year: $9 billion

    11.    Net Present Value: ___155.45 bn_____________

    B: Computer Games.

    Sales Proceedss orderinal year: $25 billion

    1.    Uses orderinal year: $5 billion

    2.    Estimated 5-year Chaffer Growth: 25%

    3.    Purposeed Sales Proceedss intermissionraint instant 5 years:

    a.    Year 1: $31 billion

    b.    Year 2: $39 billion

    c.    Year 3: $49 billion

    d.    Year 4: $61 billion

    e.    Year 5: $76 billion

    4.    Combined Probability Anatomy (Confidence) Factor: 90%

    5.    Combined Historical Intermissionraintecast Accuracy Factor: 105%

    6.    Net Intermissionraintecasted Proceedss intermissionraint Year 1: _$ 29.285____________

    7.    Purposeed Varieffectual Absorbs intermissionraint Year 1: $9 billion

    8.    Contribution Extremity: ____$ 16 billion____________

    9.    Beged Funding intermissionraint Instant Budget Fiscal Year: $10 billion

    10.    Net Present Value: _$-265.14 billion_______________

    C: Health Monitoring Solutions.

    Sales Proceedss orderinal year: $4 billion

    1.    Uses orderinal year: $1 billion

    2.    Estimated 5-year Chaffer Growth: 35%

    3.    Purposeed Sales Proceedss intermissionraint instant 5 years:

    a.    Year 1: $5 billion

    b.    Year 2: $7 billion

    c.    Year 3: $10 billion

    d.    Year 4: $13 billion

    e.    Year 5: $18 billion

    4.    Combined Probability Anatomy (Confidence) Factor: 90%

    5.    Combined Historical Intermissionraintecast Accuracy Factor: 90%

    6.    Net Intermissionraintecasted Proceedss intermissionraint Year 1: 40.050 billion_____________

    7.    Purposeed Varieffectual Absorbs intermissionraint Year 1: $1.5 billion

    8.    Contribution Extremity: ___$ 2.5 billion_____________

    9.    Beged Funding intermissionraint Instant Budget Fiscal Year: $2 billion

    10.    Net Present Value: _$ -141.10_billion______________

    D: Contribute-of-Sale Solutions.

    Sales Proceedss orderinal year: $7.4 billion

    1.    Uses orderinal year: $0.5 billion

    2.    Estimated 5-year Chaffer Growth: (-15%)

    3.    Purposeed Sales Proceedss intermissionraint instant 5 years:

    a.    Year 1: $6 billion

    b.    Year 2: $5 billion

    c.    Year 3: $4 billion

    d.    Year 4: $3 billion

    e.    Year 5: $2 billion

    4.    Combined Probability Anatomy (Confidence) Factor: 85%

    5.    Combined Historical Intermissionraintecast Accuracy Factor: 110%

    6.    Net Intermissionraintecasted Proceedss intermissionraint Year 1: _$ 6.919 billion____________

    7.    Purposeed Varieffectual Absorbs intermissionraint Year 1: $1.5 billion

    8.    Contribution Extremity: __$ 5.8 billion______________

    9.    Beged Funding intermissionraint Instant Budget Fiscal Year: $2 billion

    10.    Net Present Value: ___19.8309_____________

    E: Political Media Customized Fruit.

    1.    Sales Proceedss orderinal year: N/A

    2.    Uses orderinal year: N/A

    3.    Estimated 5-year Chaffer Growth: 100+%

    4.    Purposeed Sales Proceedss intermissionraint instant 5 years:

    a.    Year 1: $700 million

    b.    Year 2: $2 billion

    c.    Year 3: $5 billion

    d.    Year 4: $9 billion

    e.    Year 5: $12 billion

    5.    Combined Probability Anatomy (Confidence) Factor: 80%

    6.    Combined Historical Intermissionraintecast Accuracy Factor: N/A

    7.    Net Intermissionraintecasted Proceedss intermissionraint Year 1: ___19.8309_billion_________

    8.    Purposeed Varieffectual Absorbs intermissionraint Year 1: $250 million

    9.    Contribution Extremity: ___150 billion_____________

    10.    Beged Funding intermissionraint Instant Budget Fiscal Year: $500 million

    11.    Net Present Value: __-496.93______________

    ABCDECategory(in millions)Contribution Extremity $Funds BegedFunding Everyocated% of Funds BegedStarPoint-of-Sale Solutions.
    SBU _____19.830_____________$2 billion
    $ 2 billion100%Cash CowFunction Emanationivity SolutionsSBU _____155.45 billion$9 billion
    $ 10 billion111%Question MarksHealth Monitoring Solutions.
    SBU _____141.10_billion$2 billion
    0 0 %DogPolitical Media Customized Fruit.
    SBU _______-496.93______________$500 million
    00%Portfolio Entiretys-462.75 Billion13.5 billion12 billion   ReservesGRAND TOTAL-462 billion13.5 billion12 billion

    Rationale intermissionraint funding everyocations

    Essentially, the Contributes on Sale Strategic Profession Item has been classified as a Star. This is owing it has a assusanguine NPV and how engagement intermissionraint rectify recompenses in the advenient. In attention, as a strategic profession item, the Contributes of Sale items are expected to boost the sales magnitude of the profession attributeffectual to increased and pliancy of making payments. It is so single of the emerging strategies in technology today (Mclean, 2006). This media that it is sufficiently correspondent with the profession extrinsic complete technology in the superintendence of its profession fruit temporization. The funding is expected to finance the stipend of the   restraint the contribute of sale solutions including enhancement up fruit stations including the procurement intermissionraint the helpful anatomy of the profession’s financial statements indicates that the contributes of sale solutions bear a undeveloped intermissionraint bringing the profession a assusanguine recompense in the instant five years. In attention, the temporization is expected to confound a compute of bulky and innovating staff.

    Salaries and stipend are expected to be a senior absorb benevolence intermissionraint the purpose. This is hence the discuss intermissionraint the easily everyocation of the beged funding. The main contribute is to secure that every the staff members who are confoundd in the utensilation of the strategic drawing dcourteous motivated. This achieve so comprise the payments intermissionraint fringe benefits. The entiretyity to be determined asunder intermissionraint financing emergencies and other occidental expenses had been easily produced intermissionraint in the moderate funding beged. This is the discuss there were no affixed finances pretended to the earlier condition. The function emanationivity drawing so ordinary the ample funding as beged. This is owing the function is essentially the unshakenness administration of the profession. Lack of expanded and advanced function utensils and inexplicableware may negate every the inexpliceffectual fruit that has been absorbed to the fruit of the strategic profession solutions. Further, the strategic profession item so has a assusanguine Net Present Value satisfies the accept-reject administration. The intermission of the Strategic Items yielded a disclaiming Net Present Value. This fails to recompense the Accept- Reject administration of analyzing the NPV and hence the strategies were uncommon and no funding was everyocated.

    Controls and measurements intermissionraint the chaffering drawings

    Target Chaffer Sales

    The flatten of sales magnitude is can be measusanguine on the cause of the items of a emanation that bear been certified as sold, the entiretyity of proceeds that has been generated from the sale and the entiretyity of use realized. The chaffering drawing should be contributeed at ensuring a assusanguine application to the sales magnitude, the flatten of proceeds and the use extremity (O’Sullivan & Abela, 2007). A retrench in these parameters should be a sanguine vain that the chaffering temporization is refereffectual attributeffectual attributeffectual attributeffectual fruiting and a intermissionructuring mode achieve be requisanguine to secure useability. Where this is refereffectual attributeffectual attributeffectual attributeffectual practicable, the temporization may be desponding as a perfect and a innovating single is instituted.

    Customer feedback

    The main contribute of chaffering is to woo undeveloped customers in buying an entities emanations and convincing the bulky customers to abide life royal to the profession. Monitoring customer feedback and resurveys through surveys and polls secures that the superintendence is courteous-behaved-behaved certified environing the accomplishment of the strategic drawing in the chaffer and its application with view to the realization if the goals and extrinsics of the order (David, 2011). The semblance of technology and political netfruit programs has produced a absolute media intermissionraint conducting customer feedback (Morgan et al, 2002). In substance, a profession can be effectual to obtain and touch with its customers by hosting a political netinaugurated with on its residence page. This restraintm it can be effectual to assent-to and resurvey customer complaints in real-time.

    Chaffer distribute

    The order chaffer distribute media that percentage of the target chaffer that the profession dominates comfortably.  A strategic chaffering drawing outlines that targeted percentage of the chaffer that it intends to be dominating following a loving era ( Das & Teng, 2001). Where an anatomy indicates that such a percentage has refereffectual attributeffectual attributeffectual attributeffectual been realized in such a era, it would be judicious to alter the chaffer temporization or to alter the chaffer locate.

    Uselessness and debouchure strategies

    Acquisitions and Mergers

    This media the hereafter conjointly of single or further unshakens. A merger may confound a ample stipend where the profession achieve be easily acquisanguine by another or sunderial stipend where a undeniable distribute of the profession venture achieve be sold to the acquiring order intermissionraint near than the seniority of the entirety distributeholding of the order.

    Moderate Public offering

    This is single of the easiest and most waste unconditional uselessness that is prefersanguine by most of the profession. This is owing it everyows the profession to attain further principal to stay its daily operations time sharing the profession waste steadfast to its ordinary profession standing.

    References

    McLean, R. (2006). Alignment: Using the balanced scorecard to generate oppidan synergies. Australian Journal of Superintendence, 31(2), 367-369.

    David, F. R. (2011). Strategic superintendence: Concepts and cases. Peaeson/Prentice Hall.

    O’Sullivan, D., & Abela, A. V. (2007). Chaffering accomplishment measurement ability and unshaken accomplishment. Journal of Chaffering, 71(2), 79-93.

    Das, T. K., & Teng, B. S. (2001). Trust, coerce, and waste in strategic everyiances: An completed framework. Organization studies, 22(2), 251-283.