Machiq Limited’s bid for world domination
Marvin and Chiquita (see previous case studies) had seen their business, Machiq
Limited, change considerably over the years to a point where its brand name was recognised
throughout the country. However, the two directors were very ambitious and
believed that there was a worldwide market for the company’s products if only they
could achieve global brand awareness. To this aim, they decided to investigate the cost
of launching their own television channel (Machiq TV) to broadcast advertisements for
Machiq Limited’s products 24 hours a day, seven days a week to the northern hemisphere.
Alternatively, they intended to consider a joint venture with Kaboosh Limited
to launch a satellite (Matrix 1) that would enable the whole world to receive advertisements
for both company’s products.
Available data is as follows:
Machiq TV:
Initial set-up costs: £250m
Annual running costs: £100m
Estimated life of project: 5 years
Value of assets released at the end of the project: £40m
Increased sales as a result of advertising products: £60m in the first year, growing
cumulatively by 50% each year for the following four years.
Matrix 1 satellite:
Initial set-up costs: £700m
Annual running costs: £50m
Value of assets released at the end of the project: £10m
(Note: all the above to be shared 50/50 with Kaboosh Limited)
Estimated life of the project: 6 years
Increased sales for Machiq Limited as a result of advertising products globally: £80m
in the first year, growing cumulatively by 20% each year for the following five years.
Funding for both projects would be at a cost of capital of 6%.
Relevant discount factors at 6% p.a. are:
| Year | Discount factor |
| 1 | 0.943 |
| 2 | 0.890 |
| 3 | 0.840 |
| 4 | 0.792 |
| 5 | 0.747 |
| 6 | 0.705 |
