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CaseBW COMBO
Case Author: Prof Narasimha Mohan, Business Division, Baldwin Wallace College
June2011, Page 1
Product Name BW COMBO a. Sale price of the unit:Most Likely $230.00 each. Optimistic $265 each. Pessimistic $200 each. b. Variable cost: Most Likely 30% of revenue. Optimistic 25% of revenue. Pessimistic 40% of
revenue
c. Fixed Expenses per year: Most Likely $10 million. Optimistic $9 million. Pessimistic $12 million. d. Expected worldwide unit sales for years 1 thru 8:
Most Likely: Optimistic: Pessimistic: 240,000; 270,000, 310,000; 310,000; 230,000; 200,000; 170,000; 130,000. Quantity sold is higher by 12% during first four years only. Quantity sold is lower by 20% for years 1 thru 8.
e. Impact on current BWC products: Erosion of sales of pure GPS units: $1.2 million per year Erosion of sales of pure Radar units: $0.8 million per year
g. Net working capital requirements: The net working capital for this project is expected to be 12% of sales and is expected to occur at beginning of the year.
h. Tax rates:
2.3%.
The marginal tax rates are as follows: Federal = 35%, State = 5.2%, Local =
Case Author: Prof Narasimha Mohan, Business Division, Baldwin Wallace College
June2011, Page 2
i. Minimum acceptable rate of return (MAAR): BeforetaxRate is 20% j. Project life and terminal Values
The expected life of the project is 8 years. At the end of that life, the salvage value is for the equipment 1, 2, and 3 are expected to be 6%, 12% and 15% of their purchase prices.The building will be used for something else. You have been hired by Vince Carter. You will write a 2to3 page report answering the following questions. Attach all relevant spread sheets (these attachments dont count toward the 1 3 page limits on the write up. Your report should have a summary statement of your recommendation along with a discussion of your findings and the rationale behind your recommendation.
6.
Case Author: Prof Narasimha Mohan, Business Division, Baldwin Wallace College
June2011, Page 3