GROUP D

Presentation Script
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Theoretical Part – Pg 28
List of Topics:
1. Market Gap VS Market Share.
2. Marginal Cost VS Marginal Revenue.
3. Selecting Location of Project.
4. Investment Cost, Capital Cost, Cost of Capital.
5. Capital Intensive VS Labor Intensive.
6. Summary.

Group D members
Omar Ahmed Bassiouny 22221037047
Dina Atef Mohamed 22221038031
Kareem Nader Ali 22221040052
Nora Hassan Mohamed 22221036037
Walid Hosny AbdelRahim 22211035273
Khalid Mohamed Mahmoud 22221038032

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Market Gap VS Market Share

Market Gap
Definition & meaning
Is an opportunity to make and sell something that is not available ,in
other words  refers to the difference between the supply and
demand for that product.
For example, Netflix has filled several market gaps over the years.
First, with its initial mail-order movie rentals and then with its
streaming platform by providing wide range of movies ,series & tv
programs with reasonable prices available 24/7 from any smart
device.
Six ways to identify market Gap
1. Monitor Trends in Your Area of Expertise.
2. Elicit Feedback from Customers (and Listen to it!)
3. Evaluate Competitors’ Offerings and Differentiate Yourself.
4. Think Globally.
5. Adapt an Existing Product or Service.
6. Hire Outside Resources to do the Legwork for You.
When to exploit the Gap? Four elements must be present to exploit
the Gap:
1.There must be demand, i.e., a need, for this product or service. 
2.You have the means to meet this demand.
3.You have a way to apply the means to meet the demand.
4. There is a method to benefit. In other words, it is profitable.

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Why filling market gap is important?

Helps you make sure you avoid diving into a market that is already
oversaturated becoming the trendsetter of a particular market,
Increasing the demand on your product or service which in return
will maximize your company’s profit.

Market Share
Market share shows the size of a company, a useful metric in
illustrating a company’s dominance and competitiveness in a given
field.
How to calculate market share?
Market share is calculated by taking the company's sales over certain
period and dividing it by the total sales of the industry over the same
period. For example, if a company sold $100 million in tractors last
year domestically, and the total amount of tractors sold in the U.S.
was $200 million, the company's U.S. market share for tractors
would be 50% =100/200=50%
Market share=company’s sales ÷ Industry sales
How Can Companies Increase Market Share
A company can increase its market share by offering its customers
innovative technology, strengthening customer loyalty, hiring
talented employees, and acquiring competitors.
1.New Technology: By offering New technology consumers will shift
to this company ignoring their loyalty to others.

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2. Customer Loyalty: By strengthening customer relationships from

their positive experience with the company, Gaining market share
via word of mouth increases a company's revenues without
concomitant increases in marketing expenses.
3. Talented Employees: Bringing the best employees on board
reduces expenses related to turnover and training, and enables
companies to devote more resources to focus on their core
competencies.
4.Acquisitions: increase market share is acquiring a competitor. By
doing so, a company accomplishes two things. It taps into the newly
acquired firm's existing customer base, and it reduces the number of
firms fighting.

Market share benefits

 Investors and analysts monitor increases and decreases in

market share carefully as this can be a sign of the relative
competitiveness of the company's products or services. 
 Market share increases can allow a company to achieve greater
scale with its operations and improve profitability.
  Gains or losses in market share can have significant impacts on
a company's stock performance, depending on industry
conditions.

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Conclusion from market gap & market share

We noticed that discovering more gaps in the market by finding

customers need or product not met yet and start to find the suitable
means to fill this gap in the market by making comprehensive study
about it .gap is an area where are few possibilities for someone else
to exceed your domination. If you succeed in finding a niche where
you are the only one.
By time the demand will increase increasing the sales of this product
or service, making market share of your company increasing
gradually in this industry as you considered pioneer brand of this
industry.
Ex: Apple – IPhone - Especially within the mobile phone sector we
have seen a constant change of who is “top dog”. A few years ago
few could contend with Nokia; however in more recent years we
have seen a shift to Apple products due to them realising a gap in the
market for a more style orientated and user friendly product. Which
in return leads to significant increase in Iphone market share in
smart phone industry.

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Marginal Cost VS Marginal Revenue

 Marginal cost of production and marginal revenue are economic

measures are used to determine the amount of output and the price
per unit of production that will maximize profit.
 Companies seeks to squeeze out much profit, the relationship
between marginal cost and marginal revenue helps them to
“Identify” the point at which this occurs.

Marginal Cost
 Marginal cost is the addition cost incurred by generating one addition unit
of output or the change in total cost for a business as a result of a one
unit change in the output. Mathematically, it is the difference in total cost
at each level of output.

Example of the calculation of Marginal Cost:

Marginal Cost (MC) = Change in total cost (TC) / Change in quantity (Q).

Output (Units) Total Cost ($s) Marginal Cost ($s)

0 $ 200 -
1 $ 60 $ 60
2 $ 300 $ 40
3 $ 320 $ 20
4 $ 340 $ 20

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Marginal Revenue
 Marginal Profit is the increase in profit when one more unit is sold.
Example of the Marginal Revenue

The relationship between marginal cost & marginal revenue

5
4.5 Marginal Cost Marginal Revenue
4
3.5
3
2.5
2
1.5
1
0.5
0
Q1 Q2 Q3

Investment Cost, Capital Cost, Cost of Capital

The investment cost: is the cost paid in the establishment years
before starting the project. This cost is paid on two types of items;
long term items and short term items. The long term ones are
divided into tangible and intangible ones. Any investment cost must
include CIF and Customs duties. It is the Eligible Costs spent by the
Company for the acquisition of the land, buildings, intangible assets,
plant and machinery to be located on the Site for the purposes of the
Project. The fair value may not necessarily be equal to the book
value or the historical cost. If an investment is acquired in exchange
or part exchange, for another asset, the acquisition cost of an
investment is determined by reference to the fair value of the asset.

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For example: Investment cost table

Items Y-1
Long term tangible non-depreciable 0.64
Land
Long term tangible depreciable 0.60
Building
Long term tangible depreciable 2.40
Machinery
Long term tangible depreciable 0.80
Trucks
Long term tangible depreciable 0.20
Furniture and fixtures
Long term intangible salable 0.50
Know- how
Short term 0.30
1st working capital
Total of investment cost 5.44

The capital cost refers to funds that are used by a company for
the purchase, improvement, or maintenance of long-term assets.
These assets are that a company uses in its production process and
with a useful life of more than one year. Such assets are also to
improve the efficiency or capacity of the company. Long-term assets
are usually physical, fixed and non-consumable assets. Tangible
assets are assets with a physical form and that hold value. Examples
include property, plant, and equipment. Tangible assets are such as
property, equipment, or infrastructure and that have a useful life of
more than one accounting period.

Capital cost includes the purchase of items such as new equipment,

machinery, land, buildings or warehouses, furniture and fixtures,
business vehicles, software, or intangible assets, intangible
assets such as a patent or license.

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Capital costs have an initial increase in the asset accounts of an

organization. However, once capital assets start being put in service,
depreciation begins, and they decrease in value throughout their
useful lives.

Depreciation refers to the reduction in the cost of the tangible

fixed assets over its lifetime which is proportionate to the use of the
asset in that specific year. Examples of tangible assets which are
depreciated are the plant, equipment, machinery, building, and
furniture. Depreciation of tangible assets can be done by using either
a straight-line method or an accelerated depreciation method.

Amortization refers to the reduction in the cost of the intangible

assets over its lifespan. Examples of intangible assets which are
amortized are patents, trademarks, lease rental agreements,
concession rights, brand value, etc. Amortization of the intangible
assets is mostly done using the straight-line method.

For example, a fossil fuel power plant's capital costs include the following:

- Purchase of land upon which the plant is built

- Permits and legal costs
- Equipments needed to run the plant
- Costs involving the construction of the plant
- Financing and commissioning the plant (prior to commercial operation)

They don't include the cost of the natural gas, fuel oil or coal used
once the plant enters commercial operation or any taxes on the
electricity that is produced. They also do not include the labor used
to run the plant or the labor and supplies needed for the
maintenance.
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The cost of capital is the minimum rate of return required to

persuade investors to finance a capital budgeting project. Before a
business can turn a profit, it must at least generate sufficient income
to cover the cost of the capital it uses to fund its operations. This
consists of both the cost of debt and the cost of equity used for
financing a business.

A company’s cost of capital depends, to a large extent, on the type of

financing the company chooses to rely on – its capital structure. The
company may rely either solely on equity or solely on debt or use a
combination of the two.

Investors use the cost of capital as one of the financial metrics they
consider in evaluating companies as potential investments. 

Firms and investors use cost of capital as a financial analysis tool to

weigh a company’s debt and equity capital and evaluate the
opportunity cost of a particular investment. Cost of capital considers
the costs of financing—like loan interest or the minimum return
investors expect to earn on their investment in the company, for
example. Cost of capital considers all sources of capital, including
common stock, preferred stock, bonds, and long-term debt.

The significance of cost of capital:

Cost of capital is a useful tool for financial analysts and investors
alike.
 Cost of capital influences a company’s decision to take investments .
Finance departments use cost of capital to determine the required rate of
return, or hurdle rate, for a capital budgeting project. Worthwhile
investments have an expected return on capital benchmark that’s higher
than the cost of capital.

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 Cost of capital impacts a company’s valuation . Companies with

growing costs of capital can have higher risks and lower valuations.
Investors can demand a higher risk premium for a company with a higher
cost of capital.
 Cost of capital determines a company’s discount rate . Financial
analysts often use the weighted average cost of capital to determine the
discount rate of a company’s future cash flows in discounted cash flow
(DCF) analysis. Additionally, WACC acts as the discount rate when
calculating a company’s net present value (NPV).

Weighted Average Cost of Capital (WACC)

Weighted average cost of capital (WACC) is a financial metric used to
identify a particular company’s cost of capital. Firms and investors use WACC
to find the average rate a firm expects to pay to finance its operations.
Financial analysts determine a company’s weighted average cost of capital by
using the WACC formula, which takes into account the weighted average cost
of debt and the weighted average cost of equity.

Example of Cost of Capital

A company has a cost of equity of ten percent and a cost of debt of
five percent. This company finances its operations with sixty percent
equity and forty percent debt. With this information, calculate the
cost of capital with the following equation: (0.6 x 10%) + (0.4 x 5%) =
8%

Based on this calculation, the company’s WACC is eight percent.

Financial analysts and investors can use this eight percent WACC as a
benchmark to determine if an investment’s rate of return exceeds
the weighted average cost of capital. 

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Choosing Location of the Project

Physical Characteristics

When you are first trying to choose a location for your construction
project, you will want to ensure that you carefully review the area prior
to making a decision. There are several factors that will be critical in
choosing the right location. Topographical components can have a
substantial impact on the difficulty level of completing the project. You
will also want to look at the environmental factors of the area, as well as
the specific dimensions of the lot.

Laws in the Area

Various areas will have differing legal requirements and expectations. It

will be important to learn about the local building codes before you
decide on a specific location. The codes and regulations you will have to
follow will have a large impact on both how the project is completed and
the finished outcome of the area.

Brand Image

Consider the brand of your business. You will want to ensure that you
choose a location that will help you to match the brand of your company
and convey the image that you desire for your building. Your building will
have a huge impact on the overall first impression that your company
makes on other people, which is another reason that this is such a critical
consideration.

Traffic Flow

The flow of traffic around the area will impact the comfort of the building,
as well as how easily you are able to get to the building. Not only is it

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important to consider the traffic that you can expect around the building,
but you will also want to consider the roads that are around the area.

Accessibility

Most commercial buildings need to be easily accessible. Due to this, you

will want to keep the accessibility of the area in mind when you are
choosing the right location for your construction project. Consider any
issues that the location might pose throughout the construction project,
as well.

Cost-Effective

The cost of the area will be an important factor, because it will help you
to plan and budget accordingly. You will want to ensure that the location
that you choose will fit into your designated budget. You may also want
to consider the cost of living in the area, as you will likely want to reside
close to your building. These factors can help you to make a good
decision for the location of your project.

Local Crime Rates

You want your employees and customers to feel safe with your company.
In order to create this environment, you will want to ensure that you do
your research and learn about the local crime rates. This consideration
will often help you to ensure that you are able to choose a better location
to meet the needs of your project.

Other Buildings in the Area

In many situations, a building that is surrounded by like buildings will fit in

better. Due to this, you will want to ensure that you consider the various
other buildings that are in the area to help you make a better decision for
the location of your project.

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Capital Intensive VS Labor Intensive

Capital Intensive: the term "capital intensive" refers to business processes or industries that
require large amounts of investment to produce a good or service and thus have a
high percentage of fixed assets, such as property, plant, and equipment (PP&E). Companies
in capital-intensive industries are often marked by high levels of depreciation.
Examples of Capital Intensive: automobile manufacturing, oil production, and refining,
steel production, telecommunications, and transportation sectors (e.g., railways and
airlines)

Labor Intensive: The term "labor-intensive" refers to a process or industry that requires a
large amount of labor to produce its goods or services. The degree of labor intensity is
typically measured in proportion to the amount of capital required to produce the goods or
services: the higher the proportion of labor costs required, the more labor-intensive the
business.
Examples of Labor Intensive: Agriculture, construction, and coal-mining industries

To differentiate between both we can know by comparing capital to labor

expenses.

Capital Intensive Advantage:

1. Products are more accurate:

No offense to humans, but products made by machines or robots, is more

accurate. As long as the machine in use is in good shape, it will continue to
deliver the same quality and standard for years. And as a consequence, there
might be little or no complaints from customers who are comfortable with the
same standard.

2. Increased output:

Machines and robots can produce more goods than human laborers. They can
work extra time without complaining. Products are also provided with higher
speed and efficiency. So, customers will not have to wait for too long to get the

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products they need, unlike the labor-intensive production process. In labor-
intensive production, the workers may even forget about the fact that they have a
deadline and continue interacting with one another.

3. Reduced employee wages and costs:

In a capital intensive production, 10 workers can produce 10,000 products per

day. But in the labor-intensive production system, the business might need to
hire 100 workers or more to be able to deliver 10,000 products per day. So, you
can see that in the capital intensive system, companies don’t spend much money
when it comes to paying salaries because they have fewer workers. And as a
result, the cost of production is also reduced a bit.

4. Machines can work round the clock:

Can humans work round the clock? The answer is no! But machines can work 24
hours throughout the week. Also, even if they work round the clock for days, the
quality and standard of the product or output will not be compromised.

Disadvantage of Capital intensive:

1. The high initial setup costs:

The idea of owning a capital intensive business looks attractive. I understand

perfectly well. But one thing that is preventing many people from venturing into
such kind of business is the initial startup cost. Consider the airline business as
an example; you will need over $1 million to start the business.

2. Difficulty customizing orders:

Products made with machines are uniform. They are always the same. You can’t
tweak the machine to make one particular order to be different.

3. Lack of creativity:

Machines do not have initiatives. They are inflexible and will not know when to
come up with new ideas that will make the product unique.

Labor intensive Advantage:

1. Employment opportunities:

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Machines don’t have a family nor responsibilities, but humans do. The labor
intensive industry tends to provide more employment opportunities than the
capital intensive one, which is beneficial to the economy and country as a whole.

2. High flexibility:

Machines and robots can only act according to what is programmed in them.
Hence, they are not flexible. But humans are adaptable and can utilize diverse
ideas to create customized products.

3. Can take over when machines breakdown:

Most machines are too expensive that when they malfunction, employing human
labor becomes a better option. The repairs of these machines can also be too
costly.

4. Ability to provide instant feedback:

Businesses can get feedback in a labor-intensive production system, which could

lead to the improvement of specific products or services. The feedback and
changes effected can give the company a competitive advantage, too.

Labor intensive disadvantage:

1. Labor-related problems abound:

Labor unions can go on strike at anything, thus causing production to stop. This
can affect the company in diverse ways. However, machines don’t have
associations, so they do not go on strike.

2. High level of inconsistency and inaccuracy:

In a labor-intensive production system, you cannot get the same quality of

product all the time. Humans are also more prone to errors than machines.

3. Expensive in the long run:

If you take time to calculate the amount paid to each worker as salaries for a year
or more and revenue the business generated during the same period, you will
discover that a labor-intensive system is a bit more expensive in the long run.

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