Question

1. The income statement for the year 0 (the year which is just ended) and the balance sheet at the end of year 0 for Exotica Limited are as follows: Exotica limited is debating whether it should maintain the status quo or adopt a new strategy. If it maintains the status quo: • The sales will remain constant at 2000 • The gross margin and selling, general and administration expenses will remain unchanged at 20% and 8% respectively. • Depreciation charges will be equal to new investment. • The asset turnover ratio will remain constant • The discount rate will be 15%. • If exotica limited adopts a new strategy its sales will grow at a rate of 12% per year for four years. The margins, the turnover ratios, the capital structure and the discount rate however will remain unchanged. What value will the new strategy create?

Answer 1

Answer:

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