罗期公司理财原书第七版GoodWeekTiresSolution

Mini Case: Goodweek Tires, Inc.

Assumptions

PP&E Investment 120,000,000 Useful life of PP&E Investment (years) 7 Salvage Value of PP&E Investment 51,428,571 Annual Depreciation Expense (7 year MACRS)

Ending Book Year MACRS % Depreciation Value

1 14.29% 17,148,000 102,852,000

2 24.49% 29,388,000 73,464,000

3 17.49% 20,988,000 52,476,000 Last year of project 412.49% 14,988,000 37,488,000

5 8.93% 10,716,000 26,772,000

6 8.93% 10,716,000 16,056,000

7 8.93% 10,716,000 5,340,000

8 4.45% 5,340,000 0 SuperTread price/unit in OEM market (year 1) 36.00 SuperTread price/unit in Replacement market (year 1) 59.00 SuperTread cost/unit (year 1) 18.00

Year 1 marketing and admin costs 25,000,000 Annual inflation rate 3.25% Corporate Tax rate 40.00% Beta (1/24/97 Valueline) 1.30 Rf (30 year U.S. Treasury Bond) 5.50% Rm (S&P 500 30 year average) 13.50% Re (from CAPM) R e= R f+ e[ R M - R f ] = 0.055 + 1.3[ 0.135 - 0.055 ] = 15.90% 15.90% Year 1 OEM Market for SuperTread (2 million new cars x 4 tires/car) 8,000,000 OEM Market growth 2.50% SuperTread share of OEM market 11.00%

Year 1 Replacement Market for SuperTread 14,000,000 Replacement Market growth 2.00% SuperTread share of Replacement market 8.00%

Year 0 1 2 3 4

Sales

OEM Market

Units 880,000 902,000 924,550 947,664 Price 36.00 37.53 39.13 40.79 Total OEM Market 31,680,000 33,852,060 36,173,042 38,653,156

Replacement Market

Units 1,120,000 1,142,400 1,165,248 1,188,553 Price 59.00 61.51 64.12 66.85 Total Replacement Market 66,080,000 70,266,168 74,717,530 79,450,885

Total Sales 97,760,000 104,118,228 110,890,572 118,104,041

Variable Costs

2,000,000 2,044,400 2,089,798 2,136,217 Units (OEM +

Replacement)

Cost 18.00 18.77 19.56 20.39 Total Variable Costs 36,000,000 38,363,166 40,881,699 43,565,831 SG&A 25,000,000 25,812,500 26,651,406 27,517,577 Depreciation 17,148,000 29,388,000 20,988,000 14,988,000 EBIT 19,612,000 10,554,562 22,369,466 32,032,633 Interest 0 0 0 0 Tax (40%) 7,844,800 4,221,825 8,947,786 12,813,053 Net Income 11,767,200 6,332,737 13,421,680 19,219,580

EBIT + Dep - Taxes 28,915,200 35,720,737 34,409,680 34,207,580 Less: Change in NWC 11,000,000 3,664,000 953,734 1,015,852 (16,633,586) Less: Capital Spending 120,000,000

(45,852,342.60) CF from Assets: (131,000,000) 25,251,200 34,767,003 33,393,828 96,693,508.60 Discounted CF from

21,787,058 25,882,152 21,449,437 53,587,509.73 Assets

Total Discounted CF from Assets

122,706,156.20

Less: Investment (131,000,000)

Net Present Value )

$(8,293,843.83)

[Note:The time 4 entry for capital spending comes from: