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Oracle

Income Statement
Period End: May 31st
Values in this worksheet are in thousands, except where noted.

Data Input
Assumption
Output

1994

1995

1996

1997

1998

1999

2000

2,001,147.0
499,213.0
1,501,934.0
75.1%

2,966,878.0
779,012.0
2,187,866.0
73.7%

4,223,300.0
1,096,013.0
3,127,287.0
74.0%

5,684,336.0
1,550,466.0
4,133,870.0
72.7%

397,789,163.0

8,827,252.0
3,064,148.0
5,763,104.0
65.3%

10,130,128.0
2,942,679.0
7,187,449.0
71.0%

749,796.0
197,086.0
135,099.0

1,103,345.0
260,597.0
174,203.0

1,549,231.0
389,093.0
233,141.0

1,970,394.0
555,476.0
308,215.0

2,622,379.0
841,406.0
426,438.0

2,616,749.0
1,009,882.0
480,658.0

1,081,981.0

1,538,145.0

2,171,465.0

2,834,085.0

0.0

3,890,223.0

4,107,289.0

419,953.0
21.0%

649,721.0
21.9%

955,822.0
22.6%

1,299,785.0
22.9%

0.0
0.0%

1,872,881.0
21.2%

3,080,160.0
30.4%

0.0
0.0
0.0

0.0
0.0
0.0

0.0
50,931.0
0.0

0.0
36,800.0
0.0

0.0
167,054.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

Investment income, net


Other income (expense)
Interest expense
Income (loss) before income taxes
Provision for income taxes

17,943.0
-7,562.0
6,871.0
423,463.0
139,743.0

21,095.0
-4,864.0
6,970.0
658,982.0
217,464.0

30,235.0
-8,984.0
6,632.0
919,510.0
316,231.0

47,381.0
-20,033.0
6,806.0
1,283,527.0
462,070.0

85,986.0
14,291.0
16,658.0
-83,435.0
514,124.0

118,486.0
12,135.0
21,424.0
1,982,078.0
692,320.0

6,936,955.0
125,213.0
18,894.0
10,123,434.0
3,826,631.0

Net income (loss)


Adjusted net income
Net profit margins

283,720.0
283,720.0
14.2%

441,518.0
441,518.0
14.9%

603,279.0
654,210.0
15.5%

821,457.0
858,257.0
15.1%

-597,559.0
-430,505.0
-0.1%

1,289,758.0
1,289,758.0
14.6%

6,296,803.0
6,296,803.0
62.2%

Reported net income


Add R&D
Add marketing expenses
Add tax paid on investment income
Add interest expense
Add change in deferred tax reserve
Add non-recurring costs
Add amortization of goodwill
Subtract R&D amortization
Subtract marketing amortization
Subtract investment income
Subtract tax shield from interest expense
Subtract change in deferred tax assets
NOPAT
Net Operating Margins

283,720.0
197,086.0
749,796.0
3,425.7
6,871.0
0.0
0.0
0.0
39,417.2
249,932.0
10,381.0
2,267.4
0.0
938,901.1
46.92%

NOPAT
441,518.0
603,279.0
260,597.0
440,024.0
1,103,345.0
1,549,231.0
5,356.2
7,308.5
6,970.0
6,632.0
(11,426.0)
(18,283.0)
0.0
0.0
0.0
0.0
91,536.6
179,541.4
617,713.7
1,134,124.0
16,231.0
21,251.0
2,300.1
2,280.8
0.0
0.0
1,078,578.9
1,250,994.3
36.35%
29.62%

821,457.0
592,276.0
1,970,394.0
9,845.3
6,806.0
(1,805.0)
0.0
0.0
297,996.6
1,540,990.0
27,348.0
2,450.2
0.0
1,530,188.5
26.92%

(597,559.0)
167,054.0
0.0
(617,903.9)
16,658.0
8,454.0
0.0
0.0
331,407.4
1,173,208.3
100,277.0
(102,646.1)
0.0
70,062,845.0
17.61%

1,289,758.0
841,406.0
2,622,379.0
45,624.6
21,424.0
120,031.0
0.0
0.0
460,271.4
1,530,924.3
130,621.0
7,483.2
0.0
2,811,322.7
31.85%

6,296,803.0
1,009,882.0
2,616,749.0
2,669,480.6
18,894.0
130,243.0
0.0
0.0
610,128.4
1,746,376.0
7,062,168.0
7,141.9
0.0
3,316,237.4
32.74%

1997
36.0%

1998
-616.2%

1999
34.9%

2000
37.8%

Net revenues
Cost of revenues
Gross profit
Gross margins
Operating expenses:
Sales and marketing
R&D
General and administrative
Other
Total operating expenses
Income (loss) from operations
Operating margin
Non-recurring costs
Acquired in-process R&D
Amortization of goodwill

Effective tax rate

1994
33.0%

1995
33.0%

1996
34.4%

Oracle
Balance Sheet

Data Input

Period Ends: May 31


ASSETS

1994

1995

1996

1997

1998

1999

Current assets:
Cash and cash equivalents
Short-term investments in marketable securities
Accounts receivable
Prepaid and refundable income taxes
Prepaid expenses and other current assets
Total current assets

404,810.0
59,948.0
515,669.0
53,765.0
41,420.0
1,075,612.0

480,158.0
105,660.0
846,342.0
135,491.0
49,543.0
1,617,194.0

715,742.0
125,166.0
1,203,976.0
171,560.0
68,021.0
2,284,465.0

890,162.0
323,028.0
1,708,939.0
274,366.0
74,601.0
3,271,096.0

1,273,681.0
645,518.0
2,065,024.0
260,624.0
78,203.0
4,323,050.0

1,785,715.0
777,049.0
2,478,996.0
299,670.0
105,844.0
5,447,274.0

7,429,206.0
332,792.0
2,790,167.0
212,829.0
118,340.0
10,883,334.0

378,483.0
100,329.0
40,560.0
157,668.8
499,864.0

535,034.0
99,855.0
172,434.0
326,729.2
985,495.3

41,963.0
685,754.0
99,072.0
245,989.0
587,211.8
1,400,602.3

116,337.0
868,948.0
98,981.0
268,953.0
881,491.2
1,830,006.3

186,511.0
934,350.0
99,012.0
276,088.0
717,137.8
656,798.0

249,547.0
987,482.0
98,870.0
476,481.0
1,098,272.4
1,748,252.7

110,000.0
934,455.0
94,609.0
1,054,381.0
1,498,026.0
2,618,625.7

1,176,904.8
263,116,000.0

2,119,547.5
3,736,741.5

3,060,592.1
5,345,057.1

4,064,716.5
7,335,812.5

2,869,896.8
7,192,946.8

4,658,905.1
10,106,179.1

6,310,096.7
17,193,430.7

6,898.0
95,799.0
62,591.0
136,488.0
227,118.0
44,781.0
108,426.0

9,599.0
124,773.0
134,121.0
211,643.0
316,273.0
67,449.0
191,291.0
1,055,149.0

5,623.0
169,895.0
181,999.0
295,048.0
434,435.0
99,409.0
268,555.0
1,454,964.0

3,361.0
185,444.0
203,646.0
394,153.0
602,862.0
121,914.0
410,759.0
1,922,139.0

2,924.0
239,698.0
181,354.0
541,809.0
877,087.0
119,600.0
521,693.0
2,484,165.0

3,638.0
283,896.0
277,700.0
693,525.0
1,007,149.0
128,774.0
651,741.0
3,046,423.0

2,691.0
287,495.0
2,821,776.0
725,860.0
1,133,482.0
165,304.0
725,630.0
5,862,238.0

82,845.0
12,139.0
38,916.0
133,900.0
49,210,000.0

81,721.0
10,361.0
27,490.0
119,572.0
1,174,721.0

897.0
21,726.0
9,207.0
31,830.0
1,486,794.0

300,836.0
24,226.0
7,402.0
332,464.0
2,254,603.0

304,337.0
57,095.0
15,856.0
377,288.0
2,861,453.0

304,140.0
77,937.0
135,887.0
517,964.0
3,564,387.0

300,770.0
186,178.0
266,130.0
753,078.0
6,615,316.0

38,430.0

38,438.0

657,532.8

1,312,224.5

1,987,814.1

2,711,497.5

1,373,935.8

2,846,525.1

4,116,651.7

740,553.0
263,906,000.0

1,211,358.0
3,736,741.5

1,870,449.0
5,345,057.1

2,369,712.0
7,335,812.5

2,957,558.0
7,192,946.8

3,695,267.0
10,106,179.1

6,461,463.0
17,193,430.7

139,128.0
868,948.0
367,934.0
2,711,497.5
17,803.2
4,105,310.8
3,566,235.4
3,027,160.0
1,078,150.8

(77,390.0)
934,350.0
375,100.0
1,373,935.8
25,473.6
2,631,469.4
3,368,390.1
4,105,310.8
(1,473,841.4)

(158,275.0)
987,482.0
575,351.0
2,846,525.1
35,714.3
4,286,797.4
3,459,133.4
2,631,469.4
1,655,327.9

(2,738,211.0)
934,455.0
1,148,990.0
4,116,651.7
148,584.1
3,610,469.8
3,948,633.6
4,286,797.4
(676,327.6)

Fixed assets:
Long-term investments in marketable securities
Property and equipment, net
Computer software development costs, net
Intangibles and other assets
R&D expenditures, net
Marketing expenditures, net
Cumulative non-recurring costs
Total fixed assets
Total assets

2000

LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:
Notes payable and current maturities of long-term debt
Accounts payable
Income taxes payable
Accrued compensation and related benefits
Customer advances and unearned revenues
Value added tax and sales tax payable
Other accrued liabilities
Total current liabilities
Non-current liabilities
Long term debt
Other
Deferred income taxes
Total non-current liabilities
Total Liabilities
Put warrants
Postretirement and other postemployment benefits
Minority interest
Equity equivalents
Shareholders' equity:
Total shareholders' equity
Total liabilities and shareholders' equity

Invested Capital
Net working capital
Net property plant & equipment
Other assets
Equity equivalents
Operating cash (2% of cash and cash equivalents)
Total invested capital
Average capital
Beginning capital
Increase in capital

(64,349.0)
378,483.0
140,889.0
657,532.8
8,096.2
1,120,652.0

(14,174.0)
535,034.0
272,289.0
1,312,224.5
9,603.2
2,114,976.7
1,617,814.3
1,120,652.0
994,324.7

(5,784.0)
685,754.0
345,061.0
1,987,814.1
14,314.8
3,027,160.0
2,571,068.3
2,114,976.7
912,183.3

Amortization Schedule for Equity Equivalents


R&D Capitalization
New R&D Expenditures
Depreciation

1994

1995

1996

1997

1998

1999

2000

197,086.0
39,417.2

260,597.0
39,417.2
52,119.4

440,024.0
39,417.2
52,119.4
88,004.8

592,276.0
39,417.2
52,119.4
88,004.8
118,455.2

167,054.0
39,417.2
52,119.4
88,004.8
118,455.2
33,410.8

841,406.0

1,009,882.0

88,004.8
118,455.2
33,410.8
168,281.2
201,976.4

118,455.2
33,410.8
168,281.2
201,976.4

33,410.8
168,281.2
201,976.4

168,281.2
201,976.4

201,976.4

52,119.4
88,004.8
118,455.2
33,410.8
168,281.2

2001

2002

2003

2004

2005

2006

2007

* R&D amortized over 5 years


Depreciation
Net Cum. R&D Expenditures

Sales & Marketing Capitalization


New Sales & Mktg Inv.
Depreciation

39,417.2
157,668.8

91,536.6
326,729.2

179,541.4
587,211.8

297,996.6
881,491.2

331,407.4
717,137.8

460,271.4
1,098,272.4

610,128.4
1,498,026.0

522,123.6
975,902.4

403,668.4
572,234.0

370,257.6
201,976.4

201,976.4
-

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

749,796.0
249,932.0

1,103,345.0
249,932.0
367,781.7

1,549,231.0
249,932.0
367,781.7
516,410.3

1,970,394.0

2,622,379.0

2,616,749.0

874,126.3
872,249.7

874,126.3
872,249.7

872,249.7

367,781.7
516,410.3
656,798.0

516,410.3
656,798.0
-

656,798.0
874,126.3

2005

2006

2007

*Sales and marketing investments amortized over 3 years


Depreciation & Amortization
Net Cum. Sales & Mktg Inv.

Cumulative Goodwill Amortization


Goodwill Amortization
Cumulative Goodwill Amortization
Cumulative Non-Recurring Costs
Non-recurring costs
Cumulative non-recurring costs

249,932.0
499,864.0

617,713.7
985,495.3

1,134,124.0
1,400,602.3

1,540,990.0
1,830,006.3

1,173,208.3
656,798.0

1,530,924.3
1,748,252.7

1,746,376.0
2,618,625.7

1,746,376.0
872,249.7

872,249.7

872,249.7

872,249.7

872,249.7

872,249.7

872,249.7

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

50,931
50,931.0

36,800
87,731.0

167,054
254,785.0

254,785.0

254,785.0

254,785.0

254,785.0

254,785.0

254,785.0

254,785.0

254,785.0

254,785.0

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

1994
-

1995
-

Return On Invested Capital Analysis

AVG capital
NOPAT
ROIC
EVA

1998
213,906,000.0
70,062,845.0
32.8%
38,100,582.7

1999
-210,446,866.6
-67,251,522.3
32.0%

Incremental capital
Incremental NOPAT
Return on incremental capital

Beginning capital
NOPAT
ROIC
EVA

1998
4,105,310.8
70,062,845.0
1706.6%
69,449,421.3

EV (minus cash)
IC
EV/IC Ratio

1999
2,631,469.4
2,811,322.7
106.8%
2,418,123.3

2000
3,948,633.6
3,316,237.4
84.0%
2,726,224.6
2000
489,500.2
504,914.7
103.1%
2000
4,286,797.4
3,316,237.4
77.4%
2,675,695.5

1999
2000
-1,473,841.4 1,655,327.9
-67,251,522.3 504,914.7
4563.0%
30.5%

Incremental capital
Incremental NOPAT
Return on incremental capital
ROIC-WACC Spread
ROIC-to-WACC Ratio

1999
3,459,133.4
2,811,322.7
81.3%
2,294,452.1

69.04%
5.62
222,838,002
3,610,470
61.72

15-Aug-00

Balance Sheet Analysis

Inventory turnover
Days in inventory

1995
0.0
0.0

1996
0.0
0.0

1997
0.0
0.0

A/R turnover
Days in receivables

4.4
83.8

4.1
88.6

3.9
93.5

A/P turnover
Days in payables

7.1
51.7

7.4
49.1

8.7
41.8

CCC

32.1

39.5

51.7

Flow ratio

0.99

1.00

1.07

1998
1,416,227.0
198,352.0
-328,358.0
1,614,579.0
0.4%
1,286,221.0
0.3%

1999
1,737,674.0
69,425.0
-346,592.0
1,807,099.0
20.5%
1,460,507.0
16.5%

###
###
###
18.0%

2,811,322.7
1,655,327.9
1,155,994.7
13.1%

Cash Flow Analysis

Cash earnings
Cash from change in NWC
CAPEX
CFO
Operating CF margin
Free cash flow
Cash king margin

1997
1,215,665.0
-185,161.0
-390,741.0
1,030,504.0
18.1%
639,763.0
11.3%

Free Cash Flow using The Quest for Value Methodology


NOPAT
Increase (decrease) in invested capital
Free cash flow
Cash king margin

1,530,188.5
1,078,150.8
452,037.7
8.0%

1998
0.0
0.0

1999
0.0
0.0

2000
0.0
0.0

210.8
1.7

3.9
93.9

3.8
94.9

0.0
#DIV/0!

11.7
31.2

10.3
35.4

#DIV/0!

62.8

59.5

0.97

0.95

0.53

2000
-113,915.0
3,037,479.0
-263,443.0
2,923,564.0
28.9%
2,660,121.0
26.3%

3,316,237.4
-676,327.6
3,992,564.9
39.4%

Cost of Equity (CAPM)


Beta
L-T risk-free rate
Historical MRP
Cost of Equity

1.46
5.72%
6.32%
14.94%

Cost of Debt
Average interest rate
Effective tax rate
After-tax cost of debt
Capital Structure (Market Values)
Total debt-to-equity & debt
Total equity to (equity + debt)
WACC

6.90%
37.80%
4.29%

0.00
1.00
14.94%

(Source: Market Guide)

arket Guide)

Return

Operating Income

Operating Cost

Capital
$4,000,000

4000000

Number of Video
Streamed per day

200000

Ads revenue per Video

$0.05

0.05

Revenue Per Video

$0.55

0.55

Number of Days operated


in a year

Streaming cost per video


Annual Server Rental

365

0.6

Revenue

43800000

OPEX

36500000
4000000
40500000

$0.50
$2,000,000

PROFIT
ROIC

3300000
0.825

Measuring Economic Value Added (EVA

Economic Value Added measures performance by comparing an institution's net


after taxes (NOPAT) with a capital charge, or opportunity cost. The capital charge is
return to stockholders based on a specific allocated risk capital amount.
Market Value Added (MVA) represents the increase in market value over the hist
of capital invested. It is equivalent to the gross profit level of the firm. To measure
one needs an accurate measure of the cost of capital.
Capital derives from several sources. It includes funds derived from new stockh
issued, deferred (net) tax credits, non-recurring items such as restructuring charges
unamortizede securities gains. The corresponding NOPAT thus differs from standar
measures of the cost of capital in that it reflects the weighted average cost of capit
EVA Example
A. Balance Sheet
Assets
Cash
Securities
Commercial Loans
Credit Card Loans
-Loss Reserve
Other Assets
Total Assets
Risk-weighted Assets:
Weight
Asset
0.50
$800.00
1.00
$2,000.00
1.00
$1,900.00
1.00
$250.00
Total
B. Income Statement
Interest Income
Rate
Asset
6.50%
$800.00
9.00%
$2,000.00
10.00%
$1,900.00
Total
Provision for Loan Losses
Noninterest Income
Noninterest Expense

$Millions
$150.00
$800.00
$2,000.00
$1,900.00
-$100.00
$250.00
$5,000.00

Value
$400.00
$2,000.00
$1,900.00
$250.00
$4,550.00

Amount
$52.00
$180.00
$190.00
$422.00

Rate

Liabilities and Equity


Demand Deposits
6.50% MMDAs
9.00% CDs
10.00% Small Time Deposits
Deferred Tax Credits
Equity
Total Liability & Equity

Tier 1 Equity Capital


Total Capital
Tier 1 Ratio
Total Reserve Ratio

Interest Expense
Rate
Asset
3.00%
$1,800.00
5.50%
$1,300.00
4.50%
$680.00
Total

Pre-Tax Income
Taxes at
40.00%
Net Income

Rate

C. Profitability Measures
### Return on Equity (ROE)
Net Income
Equity Capital
ROE:
### Return on Assets (ROA)
Net Income
Assets
ROA

$66.54
$320.00
20.79%
$66.54
$5,000.00
1.33%

=($66.54) $320.00

=($66.54)

Provision for Lo
$5,000.00
3.

###

Economic Value Added (EVA)


NOPAT
Opportunity Cost of Capital (OCC)
Allocated Risk Capital (ARC)
EVA:

$74.90
12.00%
$550.00
$8.90

=($74.90) -

mic Value Added (EVA)

ring an institution's net operating profit


st. The capital charge is the required
ital amount.
rket value over the historical amount
of the firm. To measure these variables

erived from new stockholder equity


as restructuring charges, and
hus differs from standard GAAP
ed average cost of capital from all sources.

Example

bilities and Equity


mand Deposits

$Millions
$800.00
$1,800.00
$1,300.00
$680.00
$100.00
$320.00
$5,000.00

ll Time Deposits
erred Tax Credits

al Liability & Equity

1 Equity Capital

Reserve Ratio

Rate
3.00%
5.50%
4.50%

$320.00
$420.00
7.03%
9.23%

=($320.00)
=($420.00)

Net Interest Income


Amount
$54.00
$71.50
Income
$30.60
Expense
$156.10 et Income

$422.00
$156.10
$265.90
-$25.00
$60.00
-$190.00

$4,550.00
$4,550.00

$110.90
$44.36
$66.54

Net charge write-offs


$22.00
Cash taxes paid
$39.00
Capital charge (OCC)
12.00%
cated Risk Capital (ARC)
$550.00 (by assumption)
Net Operating Profit After Taxes (NOPAT)
Pre-Tax Income
$110.90
Provision for Loan Losses
$25.00
Net charge write-offs
-$22.00
Cash taxes paid
-$39.00
NOPAT:
$74.90

(12.00%)X $550.00

Economic Value Added Example


Subject Company: XYZ Consolidated
XYZ Consolidated is an example of a manufacturing company operating in a capital intensive
industry. Over five years, revenue grew at a compound annual growth rate (CAGR) of 9.6%. At
the same time, operating earnings expanded at a CAGR of 9.0%. The company also invested
approximately 86 in new fixed assets for each $1.00 of incremental sales.
From an income statement perspective, this company is a successful middle-market business,
even though the company's EVA was negative in two of the five years. On a cumulative
present value basis, the firm generated positive EVA over the full period and, therefore, built
economic or shareholder value in excess of the required return on invested capital.
The economic value calculation is based upon the company's historical annual Profit & Loss
Statements and Balance Sheets summarized on pages 2 & 3. Net operating profit after tax
("NOPAT"), on page 4, is determined by adjusting GAAP operating earnings to reflect any
difference between book and economic depreciation, the recognition of R&D expenditures over
the period that they are expected to benefit the business, and the capitalization of operating
lease obligations. Total capital employed in the business, on page 5, is determined by
adjusting book value of interest bearing debt and equity to include capitalized R&D
expenditures, any excess book depreciation in prior periods, all previously amortized goodwill,
and the present value of future operating lease obligations. Different or additional adjustments
may be appropriate depending on the circumstances of the subject business.

The conclusions regarding the company's ability to generate economic value added are
presented on page 6.

EVA is a trademark of Stern Stewart & Co

EVA Example

- 15 -

EVA is a trademark of Stern Stewart & Co

Summary Profit and Loss Statement


Year
Sales
Sales Growth

Cost of Sales
Gross Profit
Gross Margin

S, G & A
Depreciation & Amortization
Operating Profit
Operating Margin

130,984
14.4%

124,530
-4.9%

134,801
8.2%

100,293

111,953

137,567

34,509

40,374

43,606

26.9%

25.0%

25.6%

24.1%

16,258
9,225

16,173
9,016

17,487
8,995

19,291
8,322

10,377

5,622

9,320

13,892

15,993

8,414

3,863

Tax Expense

2,861

Net Profit

5,554

EVA Example

26.5%

15,256
9,602

1,802
(39)

EBITDA

10.0%

31,105

1,823
(65)

EBITDA Margin

181,173

93,425

1,813
150

Net Profit Margin

13.0%

35,235

6.9%

Pre-tax Profit

152,327

95,749

4.5%

Interest Expense
Other (Income) Expense

7.9%

4.2%

19,830
15.1%

9.1%

8.8%

1,869
215

2,064
1,395

7,557

11,808

12,534

1,314

2,569

4,015

4,262

2,550

4,988

7,794

8,272

2.0%

14,912
12.0%

3.7%

18,375
13.6%

5.1%

22,672
14.9%

- 16 -

4.6%

22,920
12.7%

XYZ Consolidated
Unadjusted Annual Balance Sheet
($ in Thousands)

Summary Balance Sheet


Year

7,084
14,072

9,208
12,472

10,071
13,262

14,428
18,028

5,190
19,358

21,156

21,681

23,333

32,457

24,548

Property & Equipment


Less: Accumulated Depreciation

95,430
(45,169)

103,596
(54,180)

113,045
(60,283)

122,537
(68,120)

136,762
(72,286)

Net Property & Equipment

50,261

49,416

52,763

54,417

64,476

1,074
-

1,964
-

1,472
-

1,398
-

3,623
-

72,491

73,061

77,568

88,272

92,647

3,892
11,195
1,177

3,574
12,093
1,198

3,846
12,805
62

5,950
19,056
3,679

4,759
14,706
3,638

16,263

16,865

16,713

28,685

23,103

34,072
724

33,215
929

33,077
1,065

29,395
1,522

25,408
1,865

21,432

22,052

26,712

28,670

42,270

72,491

73,061

77,568

88,272

92,647

Cash
Trading Assets
Total Current Assets

Deposits an Other Assets


Goodwill
Total Assets
Bank Credit Line
Accounts Payable
Other Accrued Liabilities
Current Portion of Long-term Debt
Total Current Liabilities
Long Term Debt, less current portion
Other LT Liabilities
Net Worth
Total Liabilities & Net Worth

EVA Example

- 17 -

XYZ Consolidated

Assumptions in red bold

Annual EVA Summary


($ in Thousands)

Net Operating Profit After Taxes


Year

Operating Profit

10,377

5,622

9,320

(150)
-

65
-

39
-

Comments

13,892

15,993

Net of depreciation and amortization

Adjustments:
Depreciation
Other Expense
LIFO Adjustment
Research & Development

335

Operating Lease Expense

3,257

Miscellaneous
Taxes

NOPAT

EVA Example

(150)
3,224
-

(215)
1,041

(89)
3,412

18
3,471

(1,395)
(376)
(80)
3,218
-

(4,699)

(2,979)

(4,312)

(6,190)

(5,902)

9,121

5,782

8,370

12,017

11,458

- 18 -

No adjustment made - book and economic


depreciation are reasonably equivalent
Change in the LIFO Reserve
Difference between expensing all R&D and
capitalizing and amortizing over 5 years
Add back annual rents and operating lease
payments
Taxes payable on adjusted operating profits
excluding the tax shield from interest expense.

XYZ Consolidated

Assumptions in red bold

Annual EVA Summary


($ in Thousands)

Total Invested Capital and Cost of Capital


Year

Comments

35,249
21,432

34,413
22,052

33,139
26,712

33,074
28,670

29,046
36,942

56,681

56,465

59,851

61,744

65,989

6,901

6,751

6,662

6,680

6,600

Capital Employed:
Debt
Equity
Book Value of Capital

All interest bearing debt


Book value of equity

Adjustments:
Capitalized R&D

Total R&D expenditures, net of amortization

Depreciation

No adjustment necessary

Goodwill

Add back all cumulative goodwill amortization

Present Value of Operating Leases

10,558

12,645

11,678

9,700

7,400

Total Adjusted Capital

74,140

75,860

78,191

78,123

79,988

Cost of Capital:

Pre-Tax

Debt (Kd)
Equity
Weighted Average (Kw)

6.5%
20.0%

Tax Rate

34.0%

EVA Example

12.6%

Add present value of operating leases


discounted at Kd.

After-Tax Weighting
4.3%
20.0%
11.4%

Average over 5 years, should be based on


the capitalization norm within the industry

55%
45%

- 19 -

XYZ Consolidated
Annual EVA Summary
($ in Thousands)

Economic Value Added


Year

NOPAT

9,121

5,782

8,370

12,017

11,458

Capital Cost

8,441

8,636

8,902

8,894

9,106

681

(2,854)

(532)

3,123

2,351

Current Value of Cumulative EVA

442

(1,623)

(2,052)

751

3,103

NOPAT Return on Adjusted Capit

12.3%

7.6%

10.7%

15.4%

14.3%

Return Hurdle (cost of capital)

11.4%

11.4%

11.4%

11.4%

11.4%

0.9%

-3.8%

-0.7%

4.0%

2.9%

EBIT

10,228

5,687

9,359

13,677

14,598

EBITDA

19,979

14,847

18,336

22,887

24,315

Sales Growth

14.4%

-4.9%

8.2%

13.0%

18.9%

Operating Earnings Growth

50.3%

-45.8%

65.8%

49.1%

15.1%

Net Profit Growth

-21.4%

-54.1%

95.6%

56.3%

6.1%

Operating Margin

7.9%

4.5%

6.9%

9.1%

8.8%

Net Profit Margin

4.2%

2.0%

3.7%

5.1%

4.6%

EBITDA Margin

15.1%

12.0%

13.6%

14.9%

12.7%

Return on Equity(ROE)

25.9%

11.6%

18.7%

27.2%

19.6%

9.7%

4.4%

8.2%

12.3%

11.3%

Annual EVA

Value Added / -Shortfall

Other Performance Measures

Return on Net Assets (RONA)


EVA Example

- 20 -

Sales / Gross Fixed Assets

EVA Example

1.4

1.2

1.2

1.2

- 21 -

1.3

EVA Template
Subject Company:
This worksheet is intended as a simple template for calculating economic value added (EVA) from annual
financial statement inputs provided by the user. Depending on the circumstances of the subject company, it
may not provide all of the adjustments that would be appropriate for a technically precise EVA calculation. A
more detailed explanation of the calculation of EVA and the underlying financial theory can be found in "The
Quest for Value" by G. Bennett Stewart III, published by HarperBusiness.
EVA is a trademark of Stern Stewart & Co.

Insert assumptions

Unadjusted Annual Performance Data


($ in Thousands)

Summary Profit and Loss Statement


Year
Sales
Sales Growth

100,000
-12.7%

110,000
10.0%

121,000

133,100

10.0%

10.0%

146,410
10.0%

Cost of Sales

75,000

82,500

90,750

99,825

109,808

Gross Profit

25,000

27,500

30,250

33,275

36,603

Gross Margin

S, G & A
Depreciation & Amortization
Operating Profit
Operating Margin

Interest Expense
Other (Income) Expense
Pre-tax Profit
Tax Expense
Net Profit
Net Profit Margin

EVA Template

25.0%

25.0%

25.0%

25.0%

25.0%

12,000

13,200

14,520

15,972

8,500

9,000

9,000

9,000

9,000

4,500

5,300

6,730

8,303

10,033

4.5%

4.8%

5.6%

1,813
150

1,823
(65)

1,802
(39)

1,869
215

2,064
1,395

2,537

3,541

4,967

6,219

6,574

863

1,204

1,689

2,114

2,235

1,674

2,337

3,278

4,105

4,339

1.7%

2.1%

6.2%

17,569

2.7%

3.1%

- 22 -

6.9%

3.0%

EBITDA
EBITDA Margin

EVA Template

12,850
12.9%

14,365
13.1%

15,769

17,088

13.0%

12.8%

- 23 -

17,638
12.0%

Insert assumptions

Unadjusted Annual Balance Sheet


($ in Thousands)

Summary Financial Position


Year
Cash
Trading Assets
Total Current Assets
Property & Equipment
Less: Accumulated Depreciation
Net Property & Equipment
Deposits an Other Assets
Goodwill
Total Assets
Bank Credit Line
Accounts Payable
Other Accrued Liabilities
Current Portion of Long-term Debt
Total Current Liabilities
Long Term Debt, less current portion
Other LT Liabilities
Net Worth
Total Liabilities & Net Worth

EVA Template

7,300
14,000

9,000
12,500

10,100
13,000

14,700
18,000

5,400
19,300

21,300

21,500

23,100

32,700

24,700

95,000

103,500

113,000

122,000

136,700

(45,200)

(54,200)

(60,300)

(68,100)

(72,300)

49,800

49,300

52,700

53,900

64,400

1,000
-

2,000
-

1,500
-

1,400
-

3,600
-

72,100

72,800

77,300

88,000

92,700

3,900

3,700

3,800

5,950

4,750

11,200

12,100

12,800

19,000

14,700

1,200

1,200

50

3,700

3,600

16,300

17,000

16,650

28,650

23,050

34,100
700

32,900
900

32,850
1,100

29,150
1,500

25,550
1,900

21,000

22,000

26,700

28,700

42,200

72,100

72,800

77,300

88,000

92,700

- 24 -

Annual EVA Summary


($ in Thousands)

Net Operating Profit After Taxes


Year

Operating Profit

4,500

5,300

6,730

8,303

Comments

5
10,033

Net of depreciation and amortization

Adjustments:
Depreciation

(150)

65

39

Research & Development

335

(150)

(89)

Operating Lease Expense

3,257

Other Expense (Income)


LIFO Adjustment

Miscellaneous
Taxes

NOPAT

EVA Template

3,224
-

(215)

3,412
-

(1,395)

1,041

(376)

18

(80)

3,471

3,218

(2,700)

(2,869)

(3,431)

(4,290)

(3,876)

5,242

5,569

6,660

8,328

7,524

- 25 -

Adjust for the difference between book and


economic depreciation
Deduct other expenses
Change in the LIFO Reserve
Add back difference between current period
R&D expense and amortization of capitalized
R&D
Add back annual rents and operating lease
payments
Deduct taxes payable on adjusted operating
profits excluding the tax shield from interest
expense.

Insert assumptions

Annual EVA Summary


($ in Thousands)

Total Invested Capital and Cost of Capital


Year

Comments

Capital Employed:
Debt
Equity
Book Value of Capital

35,300
21,000

34,100
22,000

32,900
26,700

32,850
28,700

29,150
33,039

56,300

56,100

59,600

61,550

62,189

6,901

6,751

6,662

6,680

6,600

All interest bearing debt


Book value of equity

Adjustments:
Capitalized R&D

Depreciation

Goodwill

Present Value of Operating Leases

Total Adjusted Capital

Cost of Capital:
Debt (Kd)
Equity
Weighted Average (Kw)
Tax Rate

EVA Template

10,558

12,645

11,678

9,700

7,400

73,759

75,495

77,940

77,929

76,188

Pre-Tax

After-Tax

Weighting

6.5%

4.3%

55%

20.0%

20.0%

45%

12.6%

11.4%

Add historical R&D expenditures, net of


amortization. Amortize over period that value
is expected to be derived
Add back excess book depreciation in prior
periods
Add back all cumulative goodwill amortization
Add present value of operating leases
discounted at Kd.

Kw should be weighted based upon the


capitalization norm for the industry

34.0%

- 26 -

Annual EVA Summary


($ in Thousands)

Economic Value Added


Year

NOPAT

5,242

5,569

6,660

8,328

7,524

Capital Cost

8,379

8,576

8,854

8,852

8,655

Annual EVA

(3,137)

(3,006)

(2,193)

(525)

(1,130)

Current Value of Cumulative EVA

(2,040)

(4,217)

(5,985)

(6,457)

(7,587)

NOPAT Return on Adjusted Capit

7.1%

7.4%

8.5%

10.7%

9.9%

11.4%

11.4%

11.4%

11.4%

11.4%

-4.3%

-4.0%

-2.8%

-0.7%

-1.5%

4,350

5,365

6,769

8,088

8,638

EBITDA

13,000

14,300

15,730

17,303

19,033

Sales Growth

-12.7%

10.0%

10.0%

10.0%

10.0%

Operating Earnings Growth

-34.8%

17.8%

27.0%

23.4%

20.8%

Net Earnings Growth

-76.3%

39.6%

40.2%

25.2%

5.7%

Operating Margin

4.5%

4.8%

5.6%

6.2%

6.9%

Net Profit Margin

1.7%

2.1%

2.7%

3.1%

3.0%

12.9%

13.1%

13.0%

12.8%

12.0%

Return on Equity (ROE)

8.0%

10.6%

12.3%

14.3%

10.3%

Return on Net Assets (RONA)

2.9%

4.1%

5.4%

6.5%

5.9%

1.1

1.1

1.1

1.1

1.1

Return Hurdle (cost of capital)


Value Added (-Shortfall)

Other Performance Measures


EBIT

EBITDA Margin

Sales / Gross Fixed Assets

EVA Template

- 27 -

Appendix 3: Additional OperationalData FY2013


Productivity Metrics

Average # trucks
Total # of Lifts
Trucks Unit Lift
Total m3 collected
Truck unit Volume
Average KM travelled per truck per year
Total Tonnes disposed
Total working days per year
Number of Lifts per day
# customers
Customer per Unit Volume
Volume of waste per day
Truck Metrics
Average waste density before compacting (tonnes /m3)
Campactor Capacity increased by 10%
Average truck capacity (m3 pertruck)
Average truck fuel economy (KM per Litre)
Fuel Economy
Electric
LNG
Average fuel cost per L
Fuel Type
Electric
LNG
Diesel
Average repairs & maintenance cost / truck / year
Labour Metrics
Labour metrics Truck driver labour cost per hour
Hours pershift

Revenue
Price Average
Disposal Cost
Disposal Quantity
Disposal Average
Trucks Average km
Truck Total Km
Truck km/liters
Truck liters
Truck liters cost
Truck Fuel Cost
Truck Unit R&M
Truck R&M Cost
Truck Driver Hourly
Truck Hour Shift
Labor Shift Per Day
other income and Exxpense
Management Fees
Padding
Truck Labor Cost

Depreciation
Intangibles Amortization
Adjustments
Taxations
NPAT
Current Asset
Current Liability
Working Capital
PPE
Goodwill
Fixed Asset
Inversed Capital
NPAT
ROIC
KPI
Revenue Lift per truck no days

Cost truck unit->operating cost


Cost Driver hourly->Operating cost

Production volume for relays and other mechanical components varies ac


market. In the past, we have had trouble matching equipment investment
thereby decreasing our return on facilities ratios.

This business requires that we minimize wasted investment in equipment


Accordingly, we have focused on downsizing our production equipment,
factor of 1/n.

Our first concern was to reduce Necessary Management Resources (N) , r


smallest unit possible. By Downsizing equipment, we limited investment,
the machinery.

Compared to an all-or-nothing approach to adding production capacity,


other words, we successfully reduced our Loss-Making Resources (L) . A
against order opportunity loss when demand rises further. From the persp
units to meet demand increases their order flexibility while reducing exce
Customers (V) .

ionalData FY2013
Existing

782
3,755,287
4,802
10,787,872
13,795
42,971
979,288
330
11379.6575757576
225,191
46.89
32,690.52
0.091
45
1.19

0.952
$1.95

$27,764
$15.21
10

What if
789.82
3,792,840
4,850
10,895,751
13,933

%
1.00%
1.00%
1.00%
1.00%
1.00%

7.82
37,553
48
107,879
138

327

-1.00%

-3

225,191
47
33,017

0.00%
1.00%
1.00%

0
0
327

397,789,163
36.87
64,851,954
979,288
66.22
42,971
33,603,322.00
1.19
28,238,085.71
$1.95
59,885,500
27,764
21,711,448
15.21
10
3
-3,206,425
15,360,750
#REF!
117,752,778.00

46,853,756
795,912
#REF!
18,624,300

32,816,000
37,207,000
-4,391,000
122,446,000
107,854,000
230,300,000
225,909,000
70,062,845
0.3101
Old ROIC
31.01%

401,767,055
37
65,500,474
989,081
67
43,401
33,939,355
28,520,467
60,484,355
28,042
21,928,562
15.36
10.10
3.00
-3,238,489.25
15,514,357.50
#REF!
120,107,596.88

1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
0.00%
1.00%
1.00%
1.00%

3,977,892
0.37
648,520
9,793
1
430
336,033
0
282,381
0
598,855
278
217,114
0.15
0.10

401,767,055

-32,064.25
153,607.50
#REF!
2,354,819

-3,238,489.25
15,514,357.50
#REF!
120,107,596.88
#REF!

47,322,293.56
803,871.12

1.00%
1.00%

468,537.56
7,959.12

#REF!

1.00%

#REF!

18,810,543.00

1.00%

186,243.00

33,144,160
37,579,070
-4,434,910
123,670,460
108,932,540
232,603,000
228,168,090
#REF!

1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
1.00%

328,160
372,070
-43,910
1,224,460
1,078,540
2,303,000
2,259,090

#REF!
New ROIC
32.19%

65,500,474

60,484,355
21,928,562

#REF!
47,322,293.56
803,871.12
#REF!
#REF!
18,810,543.00
#REF!

31.00%
31.00%

30.90%
30.40%

cal components varies according to seasonality and demand in the home electronics
ng equipment investment with this changing demand, adding equipment too late,
.

investment in equipment, while responding correctly to changes in demand.


ur production equipment, or in other words, reducing production equipment by a

agement Resources (N) , relay or switch production equipment in this case, to the
nt, we limited investment, floor space requirements, and the energy required to run

ding production capacity, we avoided waste in terms of low utilization / turnover. In


Making Resources (L) . At the same time, we have enough capacity to protect
es further. From the perspective of the customer, our adding capacity in minimum
bility while reducing excess inventory. This is a definite increase in Value to

397,789,163
64,851,954

59,885,500
21,711,448

-3,206,425
15,360,750
3,822,798
117,752,778.00
280,178,803
117,610,360
46,853,756
795,912
69,960,692
#REF!
18,624,300
#REF!

#REF!

Return

Operating Income

Operating Cost

Capital
$4,000,000

4000000

Number of Video
Streamed per day

200000

Ads revenue per Video

$0.05

0.05

Revenue Per Video

$0.55

0.55

Number of Days operated


in a year

Streaming cost per video


Annual Server Rental

330

0.6

Revenue

39600000

OPEX

33000000
4000000
37000000

$0.50
$2,000,000

PROFIT
ROIC

2600000
0.65

Based on the same research, and considering the variable brewing, packing an
margin for barrels is $63, while the contribution margin for cases is $12 due to t

Sweet and Sour Tea leases 3 resources: a brewing machine, a packing and filli
filling machine for cans. The lease depends on the capacity of the machine: the
be used to brew the tea for either products) is $10 per lbs of tea per month. The
per month for the barrels line and $5/lbs per month for the cans line.

Josh has a few days to sign a contract leasing the brewing, filling and packing e
contract, and thus has to take all costs and forecasts into consideration.

Whats the monthly value (Profit minus the month leasing cost) if Josh contracts
1

2 Whats the optimal capacity configuration for brewing?

3 Whats the optimal capacity configuration for packing barrels of tea?

Whats the optimal capacity configuration for packing cans of tea?


4

Whats the monthly value (profit minus leasing cost) associated with your optim
5

6 Whats the rationale behind the capacity proposal?

(Hint: To identify the optimal capacity, consider the initial capacity starting from
product do you choose? What is the optimal capacity? Now consider the second
Given the capacity for product 1, what is the optimal capacity for product 2? No

able brewing, packing and filling costs, Josh determined that the contribution
for cases is $12 due to the more intense competition.

chine, a packing and filling machine for barrels, and another packing and
acity of the machine: the leasing cost for the brewing resources (which can
bs of tea per month. The leasing cost of the packing and filling is $7.2/lbs
the cans line.

wing, filling and packing equipment. He will have to commit to a long-term


to consideration.

ng cost) if Josh contracts packing equipment for the capacity of 4,050 lbs of barrels of tea per month, 22,000 lbs of cans of te

arrels of tea?

ans of tea?

sociated with your optimal capacity configuration? State the result in $.

ial capacity starting from (0,0,0). Image that you only sell one product, which
Now consider the second product. Is it ever profitable to sell product 2? Why?
pacity for product 2? Now try to optimize the entire portfolio.)

Based on the same research, and considering the variable brewing, packing and fi
contribution margin for cases is $12 due to the more intense competition.

Sweet and Sour Tea leases 3 resources: a brewing machine, a packing and filling m
depends on the capacity of the machine: the leasing cost for the brewing resources
month. The leasing cost of the packing and filling is $7.2/lbs per month for the barr

Josh has a few days to sign a contract leasing the brewing, filling and packing equi
and forecasts into consideration.

Whats the monthly value (Profit minus the month leasing cost) if Josh contracts pac
1 cans of tea, and brewing capacity of 26,050. State the result in $
Variables
Contribution Margin
Brewing
Packing
Filling

Low
Medium
High

Likelihood
20%
40%
40%

Monthly Demand for Barrels ($)


63
40824
102060
153090
Monthly Demand for Barrels (in Ibs)
3240
4050
6075

Type of Resources
Leasing Cost $/Ibs per Month
brewing machine
10
packing and filling machine for barrels
7.2
packing and filling machine for cans.
5
4,050 lbs of barrels of tea per month, 22,000 lbs of cans of tea, and brewing capacit

brewing, packing and filling costs, Josh determined that the contribution margin for barrels is $63, while the
se competition.

ne, a packing and filling machine for barrels, and another packing and filling machine for cans. The lease
or the brewing resources (which can be used to brew the tea for either products) is $10 per lbs of tea per
s per month for the barrels line and $5/lbs per month for the cans line.

, filling and packing equipment. He will have to commit to a long-term contract, and thus has to take all costs

cost) if Josh contracts packing equipment for the capacity of 4,050 lbs of barrels of tea per month, 22,000 lbs of
t in $

mand for Barrels ($)


63
40824
102060
153090

Monthly Demand for Cases ($)


12
50160
105600
126720

90984
207660
279810
578454

nd for Barrels (in Ibs)Monthly Demand for Cases (in Ibs)


3240
20900
4050
22000
6075
26400

st $/Ibs per Month


Capacities (Barrels per month)
10
26050
7.2
4050
5
22000
tea, and brewing capacity of 26,050. State the result in $
Equipment Leasing Cost ($)

648
1620
2430
4698
63
295974
Equipment Contracting (Leasing) Cost
Brewing
Barrels of Tea
Cans of Tea
260500
29160
110000

Optimal Capacity Confi.


.

$151,525.60
-169516
178500
169810

$399,660.00
$426,928.40

$178,794.00

Lets go consider the follow vector of capacity contract: (Packing Equipment for Barrels, Packing Equipment for Cans, Brew
If we need to seel 1 barrel of tea per month, which should vector resource contract choose?
Profit of (1, 0, 0) = 63 - 7.2 = $ 55.8
Profit of (0, 1, 0) = 0 - 5 = $ -5
Profit of (0, 0, 1) = 63 - 10 = $ 53
If we need to seel 1 can of tea per month, which should vector resource contract choose?
Profit of (1, 0, 0) = 0 - 7.2 = $ -7.2
Profit of (0, 1, 0) = 12 - 5 = $ 7
Profit of (0, 0, 1) = 12 - 10 = $ 2
Now with a second product:
If we need to seel 1 barrel and 1 can of tea per month, which should vector resource contract choose?
Profit of (1, 1, 0) = 63 - 7.2 + 12 - 5 = $ 62.8
Profit of (1, 0, 1) = 63 - 7.2 + 12 - 10 = $ 57.8
Profit of (0, 1, 1) = 12 - 5 + 63 - 10 = $ 60
Profit of (2, 0, 0) = - 7.2 + 63 - 7.2 = $ 48.6
Profit of (0, 2, 0) = - 5 + 12 - 5 = $ 48.6
Profit of (0, 0, 2) = 63 - 10 + 12 - 10 = $ 55
Therefore, as expected the best choice in all of cases is to contract Packing Equipments for the each
demand expectation.

4180
8800
10560
23540
12
282480

648

1540

$33,825.60 $117,700.00 $151,525.60

2188

g Equipment for Cans, Brewing Resources), and that this vector start in root (0, 0, 0). The first important thing to stand out is that the

Packing Equipment
PBT = P1
PCT = P2
1
0
0
1
0
0
$7.20

$5.00

Packing Equipment
PBT = P1
PCT = P2
1
0
0
1
0
0
$7.20

$5.00

Packing Equipment
PBT = P1
PCT = P2
1
1
1
0
0
1
12
12
12
0
0
12
$7.20

$5.00

BRR = P3
0
0
1

Contribution Margin
PBT
PCT
BRR
$63
$0
$55.80
($5.00)
$53.00

$10.00

BRR = P3
0
0
1

Contribution Margin
PBT
PCT
BRR
$0
$12
($7.20)
$7.00
$2.00

$10.00

BRR = P3
0
1
1
0
12
12
$10.00

Contribution Margin
PBT
PCT
BRR
$63
$12
$62.80
$57.80
$60.00
$48.94
$53.00
$55.00

nt thing to stand out is that the margim profit of barrels or cans is independent of the resource to be used in production. So, we can an

in production. So, we can analyze the marginal profit only by using optics to minimize the cost.

Based on the same research, and considering the variable brewing, packing an
the contribution margin for cases is $12 due to the more intense competition.

Sweet and Sour Tea leases 3 resources: a brewing machine, a packing and filli
depends on the capacity of the machine: the leasing cost for the brewing resou
month. The leasing cost of the packing and filling is $7.2/lbs per month for the b

Josh has a few days to sign a contract leasing the brewing, filling and packing e
costs and forecasts into consideration.

Whats the monthly value (Profit minus the month leasing cost) if Josh contracts
1 lbs of cans of tea, and brewing capacity of 26,050. State the result in $
Processes
Contribution Margin
Brewing
Packing
Filling

Low
Medium
High

Likelihood
20%
40%
40%

Type of Resources
brewing machine
packing and filling machine for barrels
packing and filling machine for cans.

Monthly Demand for Barrels ($)


63
40824
102060
153090

Monthly Demand for Barrels (in Ibs


3240
4050
6075

Leasing Cost $/Ibs per Month


10
7.2
5

Equipment Leasing Cost ($)

260500
29160
110000

Monthly Value ($)

-219676
72900
43090

Monthly Value ($)

Monthly Value ($)

Monthly Value ($)

ng the variable brewing, packing and filling costs, Josh determined that the contribution margin for barrels is $63, while
to the more intense competition.

brewing machine, a packing and filling machine for barrels, and another packing and filling machine for cans. The lease
e leasing cost for the brewing resources (which can be used to brew the tea for either products) is $10 per lbs of tea per
filling is $7.2/lbs per month for the barrels line and $5/lbs per month for the cans line.

ng the brewing, filling and packing equipment. He will have to commit to a long-term contract, and thus has to take all

month leasing cost) if Josh contracts packing equipment for the capacity of 4,050 lbs of barrels of tea per month, 22,000
6,050. State the result in $
Monthly Demand for Barrels ($)
63
40824
102060
153090

Monthly Demand for Cases ($)


12
50160
105600
126720

Agregrate PROFIT margin


90984
207660
279810
578454

Monthly Demand for Barrels (in Ibs)Monthly Demand for Cases (in Ibs)
3240
20900
4050
22000
6075
26400
10125
48400
Leasing Cost $/Ibs per Month
10
7.2
5

Capacities (Barrels per month)


26050
4050
22000
260500
29160
110000

-210340
76440
16720

Equipment Categories
Brewing
Barrels of Tea
Cans of Tea
Equipment Contracting (Leasing) Cost
260500
29160
110000

Agregrate VALUE = profit equipment Leasing Cost


Brewing
-$169,516.00
Barrels of Tea
$178,500.00
Cans of Tea
$169,810.00

Brewing

-$219,676.00

Barrels of Tea
Cans of Tea

$72,900.00
$43,090.00

Brewing
Barrels of Tea
Cans of Tea

-$210,340.00
$76,440.00
$16,720.00

arrels is $63, while

or cans. The lease


0 per lbs of tea per

us has to take all

per month, 22,000

648
1620
2430
4698
63
295974
20%
40%
40%

4180
8800
10560
23540
12
282480

648

5210
1620
8800

1540

2188