To: , Lawrence and David Sears, Amy Young

From: CPA
Subject: Knead Bread Ltd. (KBL)

Product Mix
Please refer to the calculation in spreadsheet.
Per our calculation, the CM of white bread is higher, so it should be fulfilled first.
Demand in white bread should be fulfilled in full of 900 dozen, and the rest of oven capacity will
be able to fulfill demand in rye bread of 1980 loaves.
Purchase of oven
Please refer to the calculation in spreadsheet.
Quantitively, a new oven will bring an increased profit of $248,039. It will take about 1.2 years
to earn back the initial investment of the oven of $300k.
Winnipeg Arena deal
Per the calculation, the deal has a negative NPV of -271,392, so it will negatively impact
financially due to the large initial investment.
For qualitative factors, KBL should consider that if any problem happens to the Rex machine, it
requires technician from foreign country to fix it. This could result in extra cost. Positively,
selling in the arena could let people know more of the brand.
In conclusion, due to the negative NPV of the project and other qualitative factors, KBL should
consider to reject the deal, since it is likely to impact KBL negatively in financial aspect.
Retirement Plan
Please see detail calculation in spreadsheet
After the 20% decrease, Amy will have annual living cost of $59,520
The investment portfolio and dividend could bring Amy annul income of $26,230 annually. Even
with the acquisition of the share, the income could not cover 35 years expenses.
Amy could consider having a more aggressive investment strategy while also need to mange
the risk. Also, given Amy don’t want to sale the house, Amy could consider renting out part of
her house to earn rent income since she currently lives alone in the big house used to serve the
whole family.