Lab 1 - 1 Year Financial Model

It is June 1, 2021. Bob Morton, the Vice-President of Operations for Omni Consumer Products
(OCP) is assessing a brilliant new product line, a disruptive breakthrough in design of baby
diapers. Bob expects to have the product ready for market on Jan 1, 2022.

Bob wishes to analyze the financial performance of the new product for its first full year in the
market (2022) for a meeting with his CEO, Richard Jones. Here is what he knows:

a) The total market size is 52 million households.

b) The addressable market for the company’s product in 2022 is expected to be 6% of the total
market.

*** In this case the addressable market (aka household penetration rate), represents
the percentage of households that have children under the age of 3.

c) Each household in the addressable market will buy 2 packages per month (will consume and
need to refill their purchase twice per month).

d) For the first year in the market, a unit market share of 10.75% is expected.

e) The average selling price is $20.00 per unit in 2022.

f) The variable cost of production is $13.50 per unit.

g) Variable marketing and selling expenses (including commissions and broker fees) are
projected at 5% of the average selling price.

h) Variable packaging costs are forecasted at $1.85 per unit.

i) Fixed marketing costs are targeted at 4% of sales in any given year.

j) Fixed manufacturing costs are $6,000,000 per year.
k) Fixed G & A (general & admin) expenses are $3,500,000 per year.

l) OCP has an average tax rate of 25.5%

m) The initial investment to launch the product is $50.0 million which will be spent in 2021.
Included in this budget would be to finalize product development, setup of production
facilities and initial marketing campaign for the product launch.

Instructions:
1. Create a 1-year financial model to detail the prospective performance of the company.
Please be mindful of the general rules and formatting tips given during class and the
related lecture slides.

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 Lab 1 - 1 Year Financial Model

a. Please include (and complete) a dedicated column for a common-size analysis.

2. What is the approximate 1-year ROI, expressed as a %.

a. In 1-2 sentences max, discuss, will ROI be a useful or insightful analytical metric
for application to this case?
3. If OCP were able to increase their initial selling price by 10%, what would be the
approximate % change in net income for 2022?
4. In 1-2 sentences max, can you offer 1 useful and informative observation for Bob to
present to his CEO?

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