Answer To: Assessment 3: Business Case Studies 2 Your total assignment submission will consist of a word...
Vasudha answered on May 10 2021
GTI pessimistic case
Chapter 11, section 11.2b example, GTI
Pessimistic case
General assumptions
Initial (depreciable) investment
Asset life in years 5
Straight line depr'n per year $0
Industry total unit sales year 1
Growth in market size per year
GTI market share year 1
Additional market share per year
Selling price year 1
Growth in selling price per year from year 2
Production costs as % of selling price
Income tax rate 30%
Discount rate
Sales data 0 1 2 3 4 5
Sales price per unit $0.00 $0.00 $0.00 $0.00 $0.00
Market size in units 0 0 0 0 0
Market share 0% 0% 0% 0% 0%
Market share in units 0 0 0 0 0
Net income 0 1 2 3 4 5
Revenues $0 $0 $0 $0 $0
– Cost of goods sold $0 $0 $0 $0 $0
– SG&A expenses
– Depreciation expense $0 $0 $0 $0 $0
Taxable income $0 $0 $0 $0 $0
– Taxes $0 $0 $0 $0 $0
After-tax income $0 $0 $0 $0 $0
Working Capital 0 1 2 3 4 5
Cash
Accounts receivable
Inventory
– Accounts payable
Net working capital $0 $0 $0 $0 $0 $0
Annual Net Cash Flow Estimates 0 1 2 3 4 5
Investment in fixed assets $0 $0 $0 $0 $0 $0
CF due to change in net working capital $0 $0 $0 $0 $0 $0
Net income $0 $0 $0 $0 $0 $0
Add back depreciation (non-cash expense) $0 $0 $0 $0 $0 $0
Net cash flows during forecast period $0 $0 $0 $0 $0 $0
NPV $0.00
GTI optimistic case
Chapter 11, section 11.2b example, GTI
Optimistic case
General assumptions
Initial (depreciable) investment $6,000,000
Asset life in years 5
Straight line depr'n per year $1,200,000
Industry total unit sales year 1 550,000
Growth in market size per year 8%
GTI market share year 1 7%
Additional market share per year 2%
Selling price year 1 $225
Growth in selling price per year from year 2 0%
Production costs as % of selling price 58%
Income tax rate 30%
Discount rate 12%
Sales data 0 1 2 3 4 5
Sales price per unit $225.00 $225.00 $225.00 $225.00 $225.00
Market size in units 550,000 594,000 641,520 692,842 748,269
Market share 7% 9% 11% 13% 15%
Market share in units 38,500 53,460 70,567 90,069 112,240
Net income 0 1 2 3 4 5
Revenues $8,662,500 $12,028,500 $15,877,620 $20,265,617 $25,254,076
– Cost of goods sold $5,024,250 $6,976,530 $9,209,020 $11,754,058 $14,647,364
– SG&A expenses
– Depreciation expense $1,200,000 $1,200,000 $1,200,000 $1,200,000 $1,200,000
Taxable income $2,438,250 $3,851,970 $5,468,600 $7,311,559 $9,406,712
– Taxes $731,475 $1,155,591 $1,640,580 $2,193,468 $2,822,014
After-tax income $1,706,775 $2,696,379 $3,828,020 $5,118,091 $6,584,698
Working Capital 0 1 2 3 4 5
Cash
Accounts receivable
Inventory
– Accounts payable
Net working capital $0 $0 $0 $0 $0 $0
Annual Net Cash Flow Estimates 0 1 2 3 4 5
Investment in fixed assets -$6,000,000 $0 $0 $0 $0 $0
CF due to change in net working capital $0 $0 $0 $0 $0 $0
Net income $0 $1,706,775 $2,696,379 $3,828,020 $5,118,091 $6,584,698
Add back depreciation (non-cash expense) $0 $1,200,000 $1,200,000 $1,200,000 $1,200,000 $1,200,000
Net cash flows during...