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INVESTMENT, STRATEGY,
AND ECONOMIC RENTS
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11-1 LOOK FIRST TO MARKET VALUES
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11-1 LOOK FIRST TO MARKET VALUES
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11-1 LOOK FIRST TO MARKET VALUES
• Rental yield = 10 - 3 = 7%
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FIGURE 11.1 DEPARTMENT STORE RENTS
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11-1 LOOK FIRST TO MARKET VALUES
• Example
• King Solomon’s mine
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11-1 LOOK FIRST TO MARKET VALUES
• Example, continued
• If the gold price is forecasted to rise by 5%
p.a.:
.10(840 480) .10(882 480)
NPV 400 ..... $70 million
1.10 1.10 2
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11-1 LOOK FIRST TO MARKET VALUES
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11-1 LOOK FIRST TO MARKET VALUES
• Competitive Advantage
• Proposal to manufacture specialty chemicals
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TABLE 11.1 NPV CALCULATION, U.S. COMPANY
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TABLE 11.2 NPV CALCULATION, EUROPEAN
COMPANY
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TABLE 11.3 NPV CALCULATION, U.S. COMPANY
WITH EUROPEAN COMPETITION
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TABLE 11.4 GARGLE BLASTER INDUSTRY
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FIGURE 11.2 DEMAND FOR GARGLE BLASTERS
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11-3 MARVIN ENTERPRISES DECIDES TO EXPLOIT
A NEW TECHNOLOGY—AN EXAMPLE
• Value of Gargle Blaster Investment
6 3 10
NPV new plant 100 10 t
1.2 1.25
$299 million
1
Change PV existing plant 24 t
$72 million
1.2
Net benefit 299 72 $227 million
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11-3 MARVIN ENTERPRISES DECIDES TO EXPLOIT
A NEW TECHNOLOGY—AN EXAMPLE
VALUE OF CURRENT BUSINESS: VALUE
WINDFALL LOSS:
227
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