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TARGET 1-09-2002 TO 1-09-2003 TOTAL SHAREHOLDER RETURN

TARGET 1-09-2002 TO 1-09-2003 TOTAL SHAREHOLDER RETURN. Dividends paid + change in stock price TSR= Initial stock price = ( 0.26 + 37.05 – 31.42)/31.42) = 0.1792 = 17.92%. ECONOMIC PROFIT (Impact of $ 1 MM Cost of R&D). NOPAT = EBIT – TAXES = 2676 – 853 = 1823

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TARGET 1-09-2002 TO 1-09-2003 TOTAL SHAREHOLDER RETURN

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  1. TARGET 1-09-2002 TO 1-09-2003TOTAL SHAREHOLDER RETURN Dividends paid + change in stock price TSR= Initial stock price = ( 0.26 + 37.05 – 31.42)/31.42) = 0.1792 = 17.92%

  2. ECONOMIC PROFIT(Impact of $ 1 MM Cost of R&D) • NOPAT = EBIT – TAXES = 2676 – 853 = 1823 • EP = NOPAT – Capital Chargers = 1823 – 526 = 1297 • Assume Target treats R&D as corporate overhead (SG&A) and R&D has a 1 MM budget: Then EP would be 1296 or a change of - 0.08% in the EP.

  3. Make vs. Buy Decision • R&D has researched production and R&D technologies for eyewear and concludes: 1. We should not build our own production facilities, because: • Large and efficient facilities already exist and can be employed under contract to manufacture our products at comparatively low cost. We could not match their low cost of plant and labor (Example: Foresight Optical 1) • Construction of a manufacturing facility would delay the time to market of our product 2. We can produce enough units on sophisticated laboratory / small-scale production equipment to: • Test the market with our innovative designs now and in the future • Generate an economic profit within 2 years

  4. R&D PROPOSED BUDGET Direct Materials Class 1000 Clean Room 65,000 Eclipse LX Surface blocker 17,000 SGX turbo Surface Generator 12,500 Acuity Finer and Polisher 9000 Stratum Lens Coater 9000 Kappa SP Lens Finishing System 6500 Innovations Lab Software 1200 Consumables 11,000 131,200

  5. R&D PROPOSED BUDGET Direct Labor Director R&D 110,000 Associate Director 90,000 Chief Design Engineer 85,000 Design Engineer (6) 420,000 Technician (6) 210,000 915,000 Overhead Rate * Other Direct Costs Travel 55,000 Consultants 60,000 Special Testing ** 35,000 150,000 * Use Target pool / direct labor **XPS/SIMS Surface analysis (Columbia University)

  6. R&D PROPOSED BUDGET Indirect Labor Custodial staff 30,000 Security 35,000 65,000 Indirect Material Office supplies 5500 Utilities (laboratory) 15,000 20,500 1,281,700

  7. Appendix: Capabilities-Foresight Optical TAIWANManufacturing-Space: 2,367 square meters.-Injection Molding : 14 machines (mostly 250 ton)-Automatic central material supply incorporation humidity control dryer system-Standard Clean room fully automated Lens coating facility-Clean 1000 room for specialty coating systems.-Ultrasonic cleaning-Annealing & Curing-Hard coat system-Vacuum DepositProduct development- R&D Department-In-house mold making-Fully Equipped Test lab XIANAMENManufacturing- Employee: 200+- Space : 12,000 sq.mt- Building : A 6858 sq.mt. B 6,000 sq.mt.- Injection Molding Machines : 22 machines, mostly 250 tons- Clean room enclosed Lens coating facility- Ultrasonic cleaning- Annealing & Curing- Hard coat system- Vacuum Deposit …5 machines Daily production capacity: 120,000+ pair

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