16 the expiration of the patent means that general

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16. The expiration of the patent means that General Weedkillers will soon face considerably greater competition from its competitors. We would expect prices and profit margins to fall, and total industry sales to increase somewhat as prices decline. The industry will probably enter the consolidation stage in which producers are forced to compete more extensively on the basis of price. 17-4
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17. a. The industry-wide ROE is leveling off, indicating that the industry may be approaching a later stage of the life cycle. Average P/E ratios are declining, suggesting that investors are becoming less optimistic about growth prospects. Dividend payout is increasing, suggesting that the firm sees less reason to reinvest earnings in the firm. There may be fewer growth opportunities in the industry. Industry dividend yield is also increasing, even though market dividend yield is decreasing. b. Industry growth rate is still forecast at 10% to 15%, higher than would be true of a mature industry. Non-U.S. markets are still untapped, and some firms are now entering these markets. Mail order sale segment is growing at 40% a year. Niche markets are continuing to develop. New manufacturers continue to enter the market. 18. a. Expected profit = Revenues – Fixed costs – Variable costs = $120,000 – $30,000 – [(1/3) × $120,000] = $50,000 b. 60 . 1 000 , 50 $ 000 , 30 $ 1 profits ts cos fixed 1 DOL = + = + = c. If sales are only $108,000, profits will fall to: $108,000 – $30,000 – [(1/3) × $108,000] = $42,000 This is a 16% decline from the forecasted value. d. The decrease in profits is 16%, which is equal to DOL times the 10% drop in sales. e. Profits must drop more than 100% for profits to turn negative. For profits to fall 100%, revenues must fall by: % 5 . 62 60 . 1 % 100 DOL % 100 = = Therefore, revenues would be only 37.5% of the original forecast. At this level, revenues will be: 0.375 × $120,000 = $45,000 f. If revenues are $45,000, profits will be: $45,000 – $30,000 – (1/3) × $45,000 = $0 17-5
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19. a. Relevant data from the table supporting the conclusion that the retail auto parts industry as a whole is in the maturity stage of the industry life cycle are: The population of 18-29 year olds, a major customer base for the industry, is gradually declining. The number of households with income less than $35,000, another important consumer base, is not expanding. The number of cars five to fifteen years old, an important end market, has experienced low annual growth (or actual declines in some years), so the number of units that potentially need parts is not growing. Automotive aftermarket industry retail sales have been growing slowly for several years. Consumer expenditures on automotive parts and accessories have grown slowly for several years. Average operating margins of all retail autoparts companies have steadily declined. b. (i) Relevant data from the table supporting the conclusion that Wigwam Autoparts Heaven, Inc. (WAH) and its principal competitors are in the consolidation stage of their life cycle are: Sales growth of retail autoparts companies with 100 or more stores have been growing rapidly and at an increasing rate.
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