Past paper theory

Question 1

Key risks of developing a new product

Answer 1

1. Credibility of supplier
2. Capacity to support an additional product
3. Storage/location availiability/ space
4. Lack of experience in developing this product, thus need to consider additional risks - NOCLAR
5. Additional costs
6. Have the necessary equipment

Question 2

Key risks in acquiring a new product

Answer 2

1. Knowledge and expertise in the field
2. Distraction of MM focus from other products that could have been used to improve company performance
3. Employee morale affected
   4.

Question 3

Key risks and factors relating to the financing decision: Leasing

Answer 3

1. Operating flexibility provided by leasing = company able to respond to demand/changes in the operating environment
2. If leased then maintenance is covered by the lessor
3. Leasing allows for the possibility of having the most up to date equipment
4. Financing should be evaluated based on the company’s target capital structure.

Question 4

Key risks and factors relating to the investment decision

Answer 4

1. Consider whether aligned with company’s strategic direction
2. Consider alternative diversification through other possible strategies
3. Accuracy and reliability of forecasts: additional costs not yet accounted for
4. Consider legal landcape (eg. legislation banning anything)
5. Reputation of the supplier
6. Possibility of creating other new products/other open markets
7. Determine whether we have the necessary skilled personnel
8. Consider plans competition has.

Question 5

Investment decision vs financing decision

Answer 5

I: Are we going to invest “buy” in a project.
F: How are we going to fund it (debt vs equity) –> goal = meet target debt-equity ratio