1) Firms A and B sell Bison Hot Dogs. Firm B’s capital structure is dissimilar – it has $ 10 million; 5% coupon bonds. EBIT for the firms is $ 2 million. Cost of equity for A is 10%.
a) In the Modigliani and Miller (MM) world – estimate value for A & B.
b) Calculate what shareholders need as the return for A & B.
2) Crimp's product manager continues to carry out well in market. Though, a competing product is coming on strong and is looking to take over as market share leader in segment. Without sacrificing contribution margin, what can Crimp product manager perform in order to develop upon buying criteria, and therefore potentially increase demand?
i) Reposition Crimp to make it even smaller and higher performing
ii) Lower the selling price since it is the second most important buying criteria
iii) Increase the promotion budget to gain greater awareness
iv) Increase MTBF by 2000