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Cable TV Combined Bundle Package Benefits

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A cable company offers two basic packages: sports and kids, and a combined package. there are three different types of users: parents, sports fans, and generalists. The following table show the maximum price that each type of consumer is willing to pay for each package.

Sports Package Kids Package
Parents 10 50
Sports Fans 50 10
Generalists 40 40

a. If the cable company offers any one package for $50 or the combined bundled package for $70, who will buy each package?

b. Explain why the company will make a higher profit with this method than if the bundled package option were not offered.

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Solution Preview

a) A group will buy a package if the price they are willing to pay is equal to or above the package's price. Parents will buy the kids package but not the combined package because the price of the combined package is ...

Solution Summary

Given the amounts that three different groups of consumers are willing to pay for two different cable TV bundles, this solution shows how to predict which groups will buy which packages at a particular price, and explains why the cable company makes a higher profit by bundling its services in this way.

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See Also This Related BrainMass Solution

I require assistance and help with these valuations, to allow me to write up a report on the company and to learn from the method used:

Company Valuation project - as part of a project, I am required to provide a financial Valuation of a Company using the valuation methods below. This is an Australian Company "Hills Industries" full details can be found at http://www.hills.com.au

I require assistance and help with these valuations, to allow me to write up a report on the company and to learn from the method used:

I need help with the following:

? The working out for each valuation method below and answers with calculations behind each valuation method. (if possible in a excel file so that I can review the method used) Plus a brief explanation of each method and results (so that I can them review the method and understand then and to expand and write a full report)

The only information given is the excel file attached hills.xls and suggested viewing of the annual reports for 2004 and/or 2003... also attached.

Any questions can be asked to me, via email at russ01@bigpond.net.au

Company Valuation - methods

Using fundamental analytical techniques

1. Dividend Discount Model + justifications (approx 1 page Double spaced)

a. Constant Growth model + explanation (300 words approx)

b. Differential Growth model + explanation (300 words approx)

Note a: How to apply Constant Growth Dividend Discount Model?

Step 1: Compute the beta of the stock
a) using regression
b) using spread sheet (Excel) - see illustration spreadsheet

Step 2: Look for a risk-free rate. Go to the website of Monetary Authority, such as RBA, to look for the yield of Treasury Bills (3-month) or Government Bonds

Step 3: Calculate the return of local stock market - by computing the average return of the Stock Index, such as AOI or ASX200 over a 48 or 60-month period

Step 4: Apply the CAPM formula to compute the r (Discount rate)
r = risk free rate + beta (return of AOI - risk free rate)

Step 5: Estimate the growth rate
a) using historical growth rate of Earnings per share
b) using the self sustainable growth rate = Retention ratio x ROE
c) using the industry growth rate
d) using the competitor's growth rate

Step 6: Apply the Constant growth DDM, where
Price = Current dividend (1 + growth rate) / (discount rate - growth rate)

Step 7: compare this estimated price with the current stock price. If the estimated price is higher than the current stock price, the stock is considered 'undervalue', you should make a 'buy' recommendation.

Note b: to apply a two-stage growth Dividend Discount Model?

The key points here are:

You have to estimate how long the high growth period will last.
Hint: You may simply assume 3 years or 4 years

You have to estimate a constant growth rate after the high growth period.
Hint: You may use the same constant growth rate mentioned earlier

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