Monday, January 27, 2020

Analyze The Mix And Activities Of Nestle Marketing Essay

Analyze The Mix And Activities Of Nestle Marketing Essay In this report we are trying to investigate and analyze the Marketing Mix Activities of NESTLE. Most of the marketing practitioners regard marketing mix as a tool for transaction marketing and the archetype for operational marketing planning. (Gronroos, 1994:347) 4ps.png Elements of Marketing Mix (Armstrong and Kotler, 2001). MANAGING THE MARKETING MIX Customer Wants Marketing Mix Variables Managing the Marketing Mix (Baker, 1999:302) The above figure describes how a company could by research and successful adaptation can understand and develop products to match the customers requirements. According to Baker (1999: 303), by understanding and matching the needs of the customers efficient management of marketing mix is possible. COMPONENTS OF MARKETING MIX Impact Positive and Negative PRODUCT Kotler and Armstrong (2001) define a product as any entity that can be offered to a market by a company for attention, acquisition, consumption or use that might satisfy the needs of their customers. Product Mix Product mix is the total range of products that are manufactured by a company. The major aspects to be considered in product mix are explained below. http://genevalunch.com/files/2010/01/Nestl%C3%A9_products_1001192.jpg Variety: Nestle offers a wide product mix that comprises of food, health and nutrition products to meet the customer needs. Nestle offers its products in the following categories: Bottled water, Baby foods, Breakfast cereals, Chocolate and confectionery, Coffee, Dairy products, Drinks, Ice cream, In the Kitchen, Nestle Professional, Nutrition and Health, Pet care. Quality: Nestle is well known for the quality and taste of its products. Nestle Believes that Success is built on Quality. Design: As its variety range, Nestle also has a greater range of design. Nestle make sure all their new products look different and attractive. Nestle creates more jobs in Yorksmarties-jh4_gem.jpg smarties image by libsta_girl Features: Nestle have made sure that all their products have special features to make it more attractive to the customers. For example: In case of their ice creams, they have tried to include the special feature that is the low fat and sugar content. http://squeezydeals.files.wordpress.com/2009/04/picture-11.png?w=273h=258 Brand name: A strong brand name is important for both the company and the consumers as it adds to the value of the company, differentiates the products from those of its competitors and affects the consumer discernment of the company (Jobber 2007:328). A strong brand name also acts as a source of quality certification and can influence consumer preferences of products. Nestle, through its strong brand name and market presence has captured the heart of the customers worldwide. In the present health- conscious society, Nestle has captivated a loyal customer base through its focus on nutrition and health requirements and consumer preferences at a competitive price and it has enhanced the reputation of the company. A Nestle brand name on a product is a promise to the customer that it is safe to consume, that it complies with all regulations and that it meets high standards of quality Packaging: Packaging involves designing and developing a cover for a product in order to make it attractive to the consumers. Packaging was just a means for protecting the product in the past, but today increase in competition has resulted in the need to differentiate the product from those of its competitors to attract the customers and to describe the features of the product in order to gain consumer recognition. Poor designs can be one of the reasons for reduction in sales of a product due to less customer satisfaction. Nestle uses very attractive packaging as one of their main marketing strategies. For its efforts, Nestle has won several accolades such as the Silver Star and Best in category as Best Packaging Innovation leading to a significant reduction in household waste by the British Institute of Packaging for the Dairy Box biodegradable tray which is manufactured by using renewable resources. http://www.sophiesflorist.co.uk/images/chocolates/dairy%20box.jpg ROMOTION Stanton and Futrell (1987:418), describe promotion as an important element of marketing mix which aims in informing and persuading the market about the products and services of the company. J:uad18.jpg J:nescafe.jpg According to Baker (1999, 310) the method of communicating the product offer which is made by a company to match the needs of the customers and to persuade them to try the product is Promotion. They feel that the significance of promotion increases when the distance between the producers and customers increase and as the number of customers increase. Promotion activity does not depend on the demand; even if the demand is high promotional activities should go on in order to keep the manufacturers name before the customers. Nestle uses promotion as one of the major source to reach their customers to make them aware of the value of different products introduced in the market. Nestle adopts a promotion mix with a perfect blend of several different promotion tools to promote the value of its product and make the customers aware of their products. Promotion Tools PERSONAL SELLING: According to Stanton and Futrell (1987: 418), personal selling is mainly used when the market is geographically concentrated (Few customers) and when the products are custom made. It is defined as a face to face communication with buyers in the aim of pursuing the customers to purchase by Simon(). Its a one to one marketing. Tele marketing, door drops inserts, Door to door selling are all techniques used in personal selling. J:7_essentialprotein_image.jpg J:6_essentialprotein_image.jpg Nestle uses personal selling for specialized and sophisticated products. ADVERTISING: Advertising according to Groucutt (2005:215) is to communicate to a specific audience to stimulate action and its success is in the way the right information reaches the right person at the right time. Majaro (1993) says that advertising is any paid form non-personal communication of products, services or ideas through a commercial media. (Stanton and Futrell, 1987) Promotion through advertising is mainly done when the market is geographically dispersed or when the product is standardized. Nestlà ©s advertisements are well known in the market and they have made sure that the advertisements are attractive through all the possible media. Nestle also uses internet to promote their products, where they have different websites hosted for different products. Different strategies for each product like online competitions and distributions. HOW ADVERTISING WORKS Tim Ambler and Demetrios Vakratsas have formulated a framework for studying how advertising works for a company. How Advertising Works (Ambler, Vakratsas 1999:26) They have considered the input to be advertising own and competitive brands. Scheduling the media and message contents are the motivation factors or triggers the consumers response. Cognition, the thinking dimension of a persons response, and affect, the feeling dimension, are portrayed as two major intermediate advertising effects (Ambler, Vakratsas, 1999:26) SALES PROMOTION: Sales promotion represents non- media campaigns such as sampling displays, shows, exhibitions and contests (Majaro, 1993:35). Stanton and Futrell (1987:418) believes that sales promotions one of the fastest growing promotional methods these days. Free samples, Money off coupons, extra value offers buy one get one free, bundling, privilege points are all different methods used in sales promotion. Nestle also uses sales promotion as one of their promotion tools by offering programmes like every day eating coupon codes and discounts and offers for online shopping on nestle products. PUBLICITY: Publicity is a promotional method where the organization is not paying for the communication about its products and is benefiting from it (Stanton and Futrell 1987:419). This occurs either through a non-personal news story appearing in a mass medium or is delivered by a person in an interview or a speech. Publicity is achieved mainly through public relations activities. According to Jobber (2007) sponsorship provides more opportunities for publicity in the media. Nestle is a well known brand in the market and its fame describes its publicity and the further publicity occurs during various interviews of officials of Nestle. Publicity for Nestle also occurs during the launch of every new product and when the annual sale reports are published. This publicity obtained by Nestle is not by paying any of the media. Nestle, public relation activities is evident from how they try to communicate with government organizations as well as the customers about the different issues that they face. Through public relations Nestle try to bring to the attention of all the customers and organizations concerned about various issues and the current approach they are taking towards these issues. PRICE Price is defined as the value of a product that we get in return for all the effort that was taken for its production and also for marketing of the same product. Price is the revenue earner so it is considered as the odd one in the marketing mix. It is also considered as an important market tool which is visible to both customers and competitors (Baker 1985). The price of a product depends on a number of factors like, changes in technology, effect of suppliers, competitive pressure and the increasing price sensitivity of the customers. Price is also directly dependent on the demand of the product. If the demands increase the price will also increase and vice versa. Consumers generally show a keen interest in tracking the prices of the products which they usually purchase. This enables them to analyze the attractiveness of the product and be vigilant about the changes in price of the product, thus enabling them to compare the prices of the product in various stores (Vanhuele and Dreze 2002:72). Pricing of the Product Companies usually do not set a single price, but rather develop a pricing structure that reflects variations in geographical demand and costs, market-segment requirements, purchasing timing, order levels, delivery frequency, guarantees, service contract, and other factors (Kotler, Keller, Brady, Goodman and Hansen: 2009). According to David Jobber, pricing of a product mainly depends on 3 factors: cost, competitor and the market. COST ORIENTED PRICING The most common method of pricing of a product is cost oriented pricing, in which it is divided into full cost pricing which involves the calculating of cost of all labour and materials and direct cost pricing which involves the calculation of only those costs that are likely to rise as output increases. COMPETITOR ORIENTED PRICING The approach to pricing which only depends on the competitor rather than costs when framing a business is called competitor oriented pricing. Every consumer will judge the price of a product by comparing it with a similar product in the same range which is produced by their competitor (Kotler, Armstrong, Saunders and Wong 2001). MARKET ORIENTED PRICING Market oriented pricing is one of the important area which depends on competiveness of a product in the market. For a new product the positioning strategy controls the pricing and for an existing product price will depend on the strategic objectives. Price-Quality Relationships Price is directly dependent on the quality of the product. As the quality of a product increases the price also goes up. Nestle is a quality focused company and hence to compete with current market it need to carry out the pricing process of the product very carefully. Nestle is a very successful company and all its products are at affordable prices. PRODUCT LINE PRICING Most of the companies usually develop product lines rather than single products. In product line pricing the management must decide on the pricing steps to set between various products in a line (Kotler, Armstrong, Saunders and Wong 2001). In product line pricing, cost difference between the product in the line, evaluation of customers and also the competitors products with small price difference is also taken into account. EXPLICABILITY Explicability is defined as the capability of sales people to explain a high price to customer. In market customer demands the economic justification of product prices. If the sales people fail to give a clear idea of the product development stages, it will reduce the value of product. As Nestle is very innovative it needs a high financial support for its RD and it is not easy to give idea about the product development costs to an ordinary customer. COMPETITION Competition plays an important role in the cost consideration of a product in a business. The main competitors of Nestle are Heinz, Kraft, ConAgra, Mars Incorporated, Hershey, Cadbury, General mills etc. Since all their main competitors are also well branded, they cannot price a product without analyzing the competitors pricing. But the main advantages behind their successful pricing are that they are very superior in its market position. NEGOTIATING MARGINS In certain market customer expects a price reduction in some products. Competitive discounts, fast payment discounts an annual volume bonus and other promotional allowances come under this category. Nestle and its negotiations with its suppliers made them to gain a good reasonable margin in all its goods. EFFECT OF DISTRIBUTORS/RETAILERS Well qualified suppliers and efficient retailers is also a factor which affects the price of a product. If a distributor supplies a product with high price or a retailer sells a product in high margin it will cause the variations in price of the products. Nestle itself agreed that their distributors are well developed and hence the company can control the price of its products. POLITICAL FACTORS Nestle sometimes blames the policies of governments for its poor reflection on the exports. Some of the government policies which results in increase in packaging cost makes the product less competitive in the global exporting market. PLACE Armstrong and Kotler (2001) describes place as the activity of a company to make the products available to the customers. Place Strategies The major factors to be considered while formulating a place strategy are Channels, Coverage, Assortments, Locations, Inventory, Transportation, and Logistics. Channel distribution strategies deal with the decisions on making the products available to the target customers in usable condition. A channel of distribution is the combination of institutions through which a seller markets the products to the user or ultimate consumer (Peter, Donnelly 2004:145). As the time and finances required for setting up a channel of distribution are comparatively high, the place strategies are often critical for the success of a firm. The channels of distribution can be of two different types on the basis of the targeted consumer. It may differ when the end user of the product is a consumer or an organization, the Consumer Marketing Channel and the Business Marketing Channel. Consumer Marketing Channel: Armstrong and Kotler (2001) Nestle adopts the consumer marketing channel where the products from the producer reaches the consumer through the wholesalers or retailers. Nestle has e-marketing for some of its products where the products reach the consumers directly from the producer. Business Marketing Channel (Armstrong and Kotler, 2001) According to Donnelly (2004:150),the channel of distribution strategic decisions are determined on the basis of the following factors: Distribution coverage required Degree of control desired Total distribution cost Channel flexibility Distribution coverage may vary based on the features of the product, the market and the target customers. The company may opt for intensive distribution, selective distribution or exclusive distribution. In the case of intensive distribution, the company tries to sell the product through the maximum number of retailers and wholesalers. In selective distribution, the company may limit the number of wholesalers and retailers which are the best in that market while in the case of exclusive distribution; the manufacturing company may provide exclusive rights for distributing the product to only one or a few distributors. Nestle has adopted intensive distribution strategy in order to make its products available to a large customer base. Nestle products are available through a large number of retail outlets. Besides this, Nestle has also launched an e-shop for promoting its confectionary in Japan which allows the consumers to buy Kit Kat chocolates online. The coverage of Nestle is world-wide as it has a wide distribution channel and several manufacturing units at different places around the world. Marketing logistics involves the planning, implementing and controlling of physical flow of goods, services and related information from points of origin to points of consumption to meet customer requirements at a profit (Armstrong and Kotler 2001:342). Nestle underwent a complete re-engineering of its supply chain which was aided by Total Logistics which has benefitted both Nestle and its consumers. Nestle has been able to operate composite pallet loads for entire UK, combining beverages and confectionery through two vehicle fleets and two distribution hubs (http://www.total-logistics.eu.com/logistics-clients/logistics-consultants-case-studies/nestle.html). Through this, Nestle has been able to decrease its fleet size and satisfy smaller delivery volumes without any increase in the costs.

Saturday, January 18, 2020

Marketing and Full-service Pet Salon

Chapters 1-3 1)The public is becoming more aware of how marketers’ activities affect the welfare of consumers and society. As a result, more firms are working to -create a responsible approach to developing long-term relationships with customers and society 2)A Junior marketing executive at MegaGrain Cereals suggests increasing the package size and price of its best-selling brand without increasing the amount of cereal inside the box. Her superior warns that this might be a bad idea because MegaGrains long-term survival, like most companies, depends on creating and maintaining satisfying exchange relationships 3)Which of the following statements about marketing environment forces is not correct? -They fluctuate slowly and thereby create threats to a firm’s marketing mix 4)Which of the following is not an example of the implementation of the marketing concept? -Burger King reduces the labor costs to produce its sausage-egg biscuits 5)Which one of the following statements by a company president best reflects the marketing concept? -We have organized out business to make certain that customers get what they want )Three basic forms that a product can take are -services, ideas, and goods 7)SunnyD is aimed at mothers with children under age 12. The mothers represent SunnyD’s -target market 8)Which of the following best describes the acceptance of the marketing concept by American organizations? -The marketing concept has yet to be fully accepted by all organizations 9)Greensprings Cemtery in upstate New York, Offers a full service funeral and burial that is non-toxic to the environment. All materials used in the burial are natural and will decompose with no negative impact†¦Ã¢â‚¬ ¦. The owners of the Greensprings Cemeteries are apparently operating under which of the following orientations? -Marketing Orientation 10) Marketing knowledge and skills -enhance consumer awareness and help provide people with satisfying goods and services A change in the minimum drinking age in any given state illustrates a change in the _____________ for Miler Brewing. -Marketing environment 12)Paws and Claws Hotel is a full-service pet salon and boarding kennel. Paws and Claws has an interactive website where customers can directly booka grooming appointment, obedience class, or overnight accomodation for their dog and cat†¦. †¦Ã¢â‚¬ ¦ †¦Ã¢â‚¬ ¦ Previously, Paws and Claws was most likely using which type of orientation? ?-sales 13)Which of the following is most likely to be an idea marketer? -abuse counselor 14)A physical product you can touch is a -good 15)Long-term relationships with profitable customers is the key objective of -customer relationship management 16)P aws and Claws Hotel is a full-service pet salon and boarding kennel. Paws and Claws has an interactive website where customers can directly booka grooming appointment, obedience class, or overnight accomodation for their dog and cat†¦. †¦Ã¢â‚¬ ¦. †¦.. The fact that Paws and Claws is open 24 hours each day is part of which marketing mix variable? -distribution 17)Resource deployment and coordination of functional areas of business are determined by -corporate strategy 18)A firm’s unique symbols, personalities, and philosophies compromise its -corporate strategy 19)The Acme Corporation is expanding operations into countries outside the U. S. To improve local managers’ responsiveness to local conditions, Acme’s senior management has decided to delegate decision-making authority further down the chain of command. Acme is decentralizing 20)Electronic marketing has greatly improved the ability of marketers to target individual customers. As a result, ma ny fell that marketing’s emphasis is shifting from share of market to share of -? customer 21)A ________ is created when a company matches its core competency to opportunities it has discovered in the marketplace. -competitive advantage 22)Starbucks is presently involved in a process of assessing marketing opportunites and resources, determining marketing objectives, re-defining marketing strategies, and developing guidelines for implementation and control. Thus, Starbucks is involved in -marketing planning 23)According to the text, a market is defined as -a group of individuals and/or organizations that have needs for products in a product class and have the ability, willingness, and authority to purchase these products. 24)Borders Books uses technology to help them identify specific customers, establish interactive dialogues with them to learn about their needs, and combine this information with their purchase histories to customize products to meet those needs. Borders Books is using the ________ approach. customer relationship management ? 25)A competitive advantage exists when a -firm matches a core competence to opportunities it has discovered in the marketplace. 26)The marketing plan is -a written document detailing activities to be performed to implement and control marketing actions 27)EXperience Limited is a company which offers tours and vacations that include participation in an extreme sport, such as hang-gliding, bungee ju mping, skydiving, and motorcross. Adrian Moss†¦ The information in EXperience Limited’s database could be best used to develop a CRM program 28)Harley-Davidson’s Harley Owner’s Group (HOG) helps to foster strong relationships between riders and their motorcycles, giving it a ________ over other motorcycle manufacturers. -sustainable competitive edge 29)Which of the following is false with regard to customer lifetime value? -All customers have equal value to a firm 30)The Boston Consulting Group classifies products that have a dominant market share but low prospects for growth and that generate more cash than is required to maintain market share as -cash cows 31)A market opportunity results from the right combination of circumstances and timing that permit and organization to take action to reach a particular target market. EXperience Limited is a company which offers tours and vacations that include participation in an extreme sport, such as hang-gliding, b ungee jumping, skydiving, and motorcross. Adrian Moss†¦ According to the BCG matrix, the hang-gliding and bungee jumping tours have been a _________ for EXperience Limited, while the skydiving and motorcross tours represent a ________. -cash cow; questionmark†¦ ? or star 33)A new U. S. utomobile company, Specialty Motors, was established in 2004. In 2008, a recession caused disposable income to decline, and the annual amount of dollars spent by consumers dropped drastically. Specialty Motors faced a problem of trying to determine whether the economy would turn toward prosperity or toward depression. No matter what happend, Specialty Motors was also worried†¦.. The income a consumer would use to purchase a Specialty Motors automobile is considered _______ income. -discretionary ? 34)____________ competitors provide very different products that satisfy the same basic customer need. Generic 35)Marketers who attempt to influence and change the various environmental forces have a _________ response to these forces. -proactive 36)Which of the following is not a reason that marketers try to maintain good relations with political officials? -Political officials can accept direct corporate compaign contributions. 37)More than half of the research of technology created is paid for by -the federal government 38)Meyer’s Sporting Goods, a national chain, has been doing business with Soljur Sports†¦. †¦Ã¢â‚¬ ¦ †¦. Where should he file a complaint? -Better Business Bureau? g 79 39)The Pharmaceutical Research and Manufacturers of America sets guidelines for its member firms to follow regarding the use of unethical practices. Thus, it is engaging in -self-regulation 40))Meyer’s Sporting Goods, a national chain, has been doing business with Soljur Sports†¦. †¦Ã¢â‚¬ ¦ What action should the BBB take against Meyers if the complaint was substained and Meyers did not change the offending practice? -Issue a warning to consumers t hrough the local newspaper 41)Which of the following industries is most commonly regulated by state regulatory agencies? Utility companies 42)Why are marketers interested in consumers’ levels of disposable income? -It is a ready source of buying power 43)Consumers begin to become more price and calue conscious during periods of -recession 44)One way for corporations to attempt to influence the political environment is through -contributions to poilitical action committees 45)Marketers primarily focus their environmental analysis on ____ competitors. -brand 46)Which of the following are the most frequently sentenced organizational crimes? -fraud and antitrust violations 7)Companies that compete for the same limited financial resources of the same customers are known as _________ competitors. -total budget 48)When a firm has many potential competitors and tries to develop a marketing strategy to differentiate its porducts from the competitors’ products, a ___________ str ucture exists in the competitive environment. -monopolistic competition 49)The best approach for a company to take when monitoring its competitors is -developing a system for gathering ongoing information about competitors. 50)The amount of money received through wages, rents, investments, pensions, and subsidies is called -income

Friday, January 10, 2020

What does a firm’s overall cost of capital mean?

Cost of capital is the return necessary to make a capital budgeting process worthwhile. Further, it is the returns that a company gets after an investment. This is the money that evaluates any new project of a company for it determines the minimum profit expected by investors in the business. To satisfy investors, the return on capital employed must be above the company’s average debts, thus making investments worthwhile. That is, the expected output must be more than the invested capital; the returns are more than the capital (Armitage, 2005).Moreover, if a project costs the same as the company’s average business activities, then it is wise to use the average cost of capital of the company as the base. This ensures that the company’s security on the cost of capital is calculated. It is done by first calculating the cost of debt and equity. Afterwards, calculate the expected returns after doing business. This is done by dividing the dividend payment per share wit h the market price then adding the growth rate. One can thus issue dividends to investors.From a financial manager's perspective, discuss the capital budgeting process used to identify projects that add to the firm's value? How do capital budgeting decisions help to define a firm's strategic direction? The capital budgeting process is used to identify projects that add value to a firm. Afterwards, the managers have to calculate the cash required acquiring a new building or equipment without deriving any cash benefits from the disposal of the replaced commodity.Any additional working capital in relation to the new equipment is initially outlaid and the initial investment is included as a part only if changes occur at the beginning of the project. After this, the managers calculate the terminal cash flow after the sale of the assets, savings after the operations, as well as the net present value of the assets. This procedure helps them to calculate the feasibility of purchasing an equ ipment or building. Capital budgeting decisions help to define a firm’s strategic direction by deciding whether to invest in a specific asset or project.This process helps to determine whether to engage the firm in acquiring certain assets which were not formerly used by the firm. In addition, this undertaking can help to replace any outdated assets, thus maintaining their efficiency. How does a firm’s capital structure relate to your personal capital structure? In what ways are they similar? Provide examples of how you use debt and equity in your personal financial life that parallels the basic capital structure decisions made by a firm.Capital structure is the combination of equity, debt, and other finance sources used to fund other long-term finances. It is therefore related to personal capital structure since the 2 represent the money working in the business, thus showing money flow in the business. Both are similar for they are the working capital of a business. T hey indicate the amount of money invested in the business as well as the profit gained. They both indicate the amount of borrowed capital flowing in the business.Further, they indicate any other form of capital that are used to run a personal business, such as, a dealer servicing one’s business with goods then settling the dues later. Debt and equity in personal financial life parallels the basic capital structure decisions made by a firm since the amount of money invested at the launch of the business, together with the sum total of goods provided by a dealer to be paid later in form of equity, is indicated.The amount of money borrowed by an individual to help strengthen their capital is indicated as equity for it represents the total amount borrowed to run the business. Modigliani and Miller [MM] employed the concept of arbitrage to develop their theory. Explain the concept of arbitrage and the role of arbitrage in the MM model. Discuss the assumptions and the issues underl ying the MM model. http://www. rdboehme. com/MBA_CF/Chap_15. pdf The concept of arbitrage can be explained using the analogy two different markets with one selling at a lower price.Sellers will buy from the low-price market and sell in the market with high prices. The prices thus tend to rise in the low-priced market until the difference is bridged. The role of the MM model is to indicate the safety of investments, that is, if a firm runs two companies, then one might have high market value per share but be very risky regarding market price per share. Conversely, the other may be low market price. Investors will then sell the shares of the risky firms and purchase the other’s, thus standardizing the average cost of capital of the group.The assumptions of the MM model are that the capital market is perfect if only the investors know the market forces. Further, the model classifies firms in groups according to business risks. Investors are assumed to use the operating income to determine the market price. It is also assumed that there are no corporate income taxes. The issues underlying the MM model are that it is very hard to run a business without paying of taxes. Further, the market prices fluctuate, thus the knowledge about market prices is not conclusive. It is thus hard to gauge the market price. What does a firm’s overall cost of capital mean? Cost of capital is the return necessary to make a capital budgeting process worthwhile. Further, it is the returns that a company gets after an investment. This is the money that evaluates any new project of a company for it determines the minimum profit expected by investors in the business. To satisfy investors, the return on capital employed must be above the company’s average debts, thus making investments worthwhile. That is, the expected output must be more than the invested capital; the returns are more than the capital (Armitage, 2005).Moreover, if a project costs the same as the company’s average business activities, then it is wise to use the average cost of capital of the company as the base. This ensures that the company’s security on the cost of capital is calculated. It is done by first calculating the cost of debt and equity. Afterwards, calculate the expected returns after doing business. This is done by dividing the dividend payment per share wit h the market price then adding the growth rate. One can thus issue dividends to investors.From a financial manager's perspective, discuss the capital budgeting process used to identify projects that add to the firm's value? How do capital budgeting decisions help to define a firm's strategic direction? The capital budgeting process is used to identify projects that add value to a firm. Afterwards, the managers have to calculate the cash required acquiring a new building or equipment without deriving any cash benefits from the disposal of the replaced commodity.Any additional working capital in relation to the new equipment is initially outlaid and the initial investment is included as a part only if changes occur at the beginning of the project. After this, the managers calculate the terminal cash flow after the sale of the assets, savings after the operations, as well as the net present value of the assets. This procedure helps them to calculate the feasibility of purchasing an equ ipment or building. Capital budgeting decisions help to define a firm’s strategic direction by deciding whether to invest in a specific asset or project.This process helps to determine whether to engage the firm in acquiring certain assets which were not formerly used by the firm. In addition, this undertaking can help to replace any outdated assets, thus maintaining their efficiency. How does a firm’s capital structure relate to your personal capital structure? In what ways are they similar? Provide examples of how you use debt and equity in your personal financial life that parallels the basic capital structure decisions made by a firm.Capital structure is the combination of equity, debt, and other finance sources used to fund other long-term finances. It is therefore related to personal capital structure since the 2 represent the money working in the business, thus showing money flow in the business. Both are similar for they are the working capital of a business. T hey indicate the amount of money invested in the business as well as the profit gained. They both indicate the amount of borrowed capital flowing in the business.Further, they indicate any other form of capital that are used to run a personal business, such as, a dealer servicing one’s business with goods then settling the dues later. Debt and equity in personal financial life parallels the basic capital structure decisions made by a firm since the amount of money invested at the launch of the business, together with the sum total of goods provided by a dealer to be paid later in form of equity, is indicated.The amount of money borrowed by an individual to help strengthen their capital is indicated as equity for it represents the total amount borrowed to run the business. Modigliani and Miller [MM] employed the concept of arbitrage to develop their theory. Explain the concept of arbitrage and the role of arbitrage in the MM model. Discuss the assumptions and the issues underl ying the MM model. http://www. rdboehme. com/MBA_CF/Chap_15. pdf The concept of arbitrage can be explained using the analogy two different markets with one selling at a lower price.Sellers will buy from the low-price market and sell in the market with high prices. The prices thus tend to rise in the low-priced market until the difference is bridged. The role of the MM model is to indicate the safety of investments, that is, if a firm runs two companies, then one might have high market value per share but be very risky regarding market price per share. Conversely, the other may be low market price. Investors will then sell the shares of the risky firms and purchase the other’s, thus standardizing the average cost of capital of the group.The assumptions of the MM model are that the capital market is perfect if only the investors know the market forces. Further, the model classifies firms in groups according to business risks. Investors are assumed to use the operating income to determine the market price. It is also assumed that there are no corporate income taxes. The issues underlying the MM model are that it is very hard to run a business without paying of taxes. Further, the market prices fluctuate, thus the knowledge about market prices is not conclusive. It is thus hard to gauge the market price.

Thursday, January 2, 2020

The Kruskal Wallis Test And The Mean Betas Finance Essay - Free Essay Example

Sample details Pages: 4 Words: 1209 Downloads: 4 Date added: 2017/06/26 Category Finance Essay Type Narrative essay Did you like this example? The descriptive statistics results of different markets are shown in Table 1, Table 2 and Table 3. The daily yield averages of BRIC countries, Nordic countries and North American countries are 0.077572581, 0.019607 and -0.02738 respectively. The yield average of BRIC region is quite higher than other regions. This explains why international idle money constantly has flowed into emerging economies in recent years. The yield average of North American region is negative because of the failure of US top banks. Similarly, we can clearly see that large fluctuation existed in every market and the result showed high skewness. The kurtosis value of almost every stock exceeded 3 in every markets, which specified the yield distribution of three markets were non-normal and comparing with each other, Nordic countries and BRIC countries had more understandable and larger skewness and higher kurtosis so the likelihood that the yield of Nordic market and BRIC market kept away fro m the average was higher and higher risk existed in Nordic countries and BRIC countries and the markets were not stable. Although the yield average of BRIC region was obviously higher than other market, it was not mature like them, and large fluctuation existed in it. Table 4, Table 5 and Table 6 describe the descriptive statistics of beta and R-Square.R-square tells us that whether the movements of a portfolio are explained by movements in the market index or not. In other words, it measures how dependable the stocks beta is in evaluating its market sensitivity. Most of the R2 values as found in our observations are significant and specifies that the beta measurement is relevant to its actual performance. Figure 1, Figure 2 and Figure 3 describe the normality plot of beta for different market. It appears that betas of all markets are not normally distributed.However; Nordic region shows slight normality in the betas distribution particularly in the crisis period. Table 4 r eports about the one sample statistics of Beta for all regions and all periods. Simply speaking, beta (?) is a measure of risk or volatility related with a portfolio of investment as compared to the total market as a whole. A beta equals 1 means that an investments volatility or price movements are similar to the markets price movements. It can be supposed that an investment is less volatile than the market if ? lt; 1 but is more volatile than the market if ? gt;1.It is evident from the table that the value of beta for North America is slightly higher than 1 but significantly greater than other regions for the 10 year period. There is minor difference between the beta of BRIC and Nordic for the overall duration. All the markets have higher beta in the crisis period. North American banking sector showed more volatility than the market in the crisis period while other two became less volatile than the market. During the pre-crisis period all the markets have beta less than 1 but North American market has the highest beta among the three yet again. As a whole, it is cleared that North American market statistically doesnt seem significantly risky but it is riskier than other markets. Chart 1 represents the mean beta comparison and illustrates that the North American market is riskier than other two markets.Particluarly in the crisis period, the North American banking sector proved to be very risky. Table 5 reports the results of our analysis concerning mean systematic-risk differences significance test. The negative mean differences in Panel A evidently suggest us to reject the null hypothesis but the significance values are not in favour of alternative hypothesis at 5% level of significance. The risk of BRIC banking stock is greater than Nordic ones. However, during the crisis period Nordic banking stock turned out to be more risky than the BRIC ones. Panel C says that the North American banking stocks are more risky than the Nordic banking stocks in all the periods. Interestingly, the mean differences between Nordic and North America are greater in pre-crisis period than in during crisis period. The results are not significant statistically at 5% level except for the pre crisis period. Panel B rejects the null hypothesis based on the positive mean differences value indicating that North American banking stocks are riskier than BRIC ones. Yet, looking at the F-value and 5% significance level, we cannot reject our null hypothesis for all the panels A, B and C. This indicates that the risk between two regions is not significantly different. Overall, the mean systematic-risk differences significance t test supports us to conclude that the North American banking stocks are the riskiest among the three. The cause behind the increased risk in the North American banking stocks may be the unstable economic conditions in the last 10 years. Similarly, the BRIC banking stocks being less risky than Nordic in crisis period implies that the exis ting financial crisis has less impact in BRIC regions. Table 6 represents the Mann Whitney Non Parametric test. The table clearly shows that Nordic and BRICs banking stocks are significantly less risky than that of North America for the whole period, pre-crisis period and crisis period. Panel A statistics says that the Nordic banking sector is less risky than that of BRIC banking sector for the whole period of observations and sub-period of pre-crisis. But the result is opposite for the crisis period and supports previous t-test. Nordic banking stocks are riskier than BRIC stocks in this period. However, these all facts are not significant in statistical terms. Panel B says that the North American banking sector is more risky than BRICs.This result is for all the periods and supported by z-statistics value of -2.19,-2.06 and -1.92.These findings are statistically significant at 5% level of significance. Once again North American banking stocks are proved to be riskier. Panel C wh ich also supports the result from t-test indicates that they are riskier than Nordic for all the period. But the risk level was higher in pre crisis period and statistically significant at 5% level of significance. These findings illustrate the fact that mean betas are not equal to each other and are independent sample. Table 7 gives the result of our Friedman test. It gives the x2 statistic value of 4.8 (p=0.0907), 9.10 (p=0.0106) and 3.70 (p=0.1572) for overall period, pre-crisis period and crisis period respectively. The overall period and crisis period are not statistically significant at 5% significance level leaving no evidence to reject the null hypothesis. But the pre-crisis period is statistically significant at 5% significance level and there is evidence to support the alternative hypothesis. Table 8 is also a non parametric inferential statistic sign test. According to this table, we cannot reject the null hypothesis except in the pre-crisis period for Nordic and No rth America because the mean betas were not significantly different from each other in most cases. I further performed the Kruskal Wallis test in order to test whether the three mean betas of independent sample are not equal. For this, Table 9 summarizes the result. The results suggest that there is not a statistically significant difference at 5% significance level between Nordic, BRIC and North America except for the pre-crisis period. These results are similar to the Friedman tests results. The North American banking stocks were found significantly higher than that of BRIC and Nordic. Also the chi square statistics undoubtedly indicate that there is no mean difference between the three samples. Don’t waste time! Our writers will create an original "The Kruskal Wallis Test And The Mean Betas Finance Essay" essay for you Create order