College of Washington EMBA Program Regional 20

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Slide 1

College of Washington EMBA Program Regional 20 Conquistador Beer Suggested Solution October 10, 2003

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Approach to the Problem Calculate a Demand Forecast for the Company. At that point figure Break Even Volume and look at them. Request Forecast = Industry Demand * Market Share for Conquistador Beer BEV = Fixed Costs/(Price – Variable Costs)

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Calculation of Industry Demand Method 1: Uses Tables An and B. Per capita brew utilization * populace **Assumes straight line development.

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Calculation of Industry Demand Method 2: Uses Table E. "Charges Paid Approach" Assuming a straight line development, request will be 3.07 million gallons in 2003.

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Market Share Projection Market Share Estimates are accessible in Study C. We appraise 23% piece of the overall industry in 2003. Request Forecast = 23% * 3.1 million gallons = 713,000 gallons

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Investments The speculations given for the situation (Table A) neglect to incorporate assessments of money and records receivable. Table F gives a gauge of the rate of aggregate resources required at 16.3% $1,589,000/(1-.163) = $1,898,447

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Fixed Cash Flows (Annual) The case (Table B) does exclude: Salary cost and advantages. Gauge that 10% of aggregate pay is as motivations, and 30% is in non-pay benefits. $425,000/(1-.1)*(1/(1-.3)) = $674,603 Advertising. Accept cost is 3% of offers 713,000*.03*$6.40 = $136,896 (note: cost will be talked about later) Debt retirement/intrigue. Expect 20 year credit at 8%. Larry acquires $1,548,000 ($1,898,447 - $350,000 that he invests). Recurring installment of $155,526 every year Travel and other related costs: $40,000/year

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Fixed Cash Flows (Annual) Depreciation is not an income, and in this manner ought not be incorporated. The updated altered expenses are as per the following: Utilities and Telephone $46,000 Insurance $112,000 Property Taxes $18,000 Marketing/Co-operation Advertising $136,896 Debt Retirement and Interest Payments $155,526 Travel and Related Expenses $40,000 TOTAL $1,183,025

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Unit Contribution Price can be assessed utilizing Exhibit I. We accept that Conquistador is a premium brew, and can offer at a discount value equivalent to the normal cost of the main three lagers recorded ($3.61 for a 6-pack). This converts into $6.40/gallon (128 ounces for every gallon, 12 ounces for each lager). Likewise, barrels will be sold at a rate of 1/3 the gallons of containers and jars. Cost for barrels is 45% of container/can cost.

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Unit Contribution **The discount cost is computed by increasing the cost of products sold (which from Exhibit F is 80.3% of offers) by the cost per gallon. Unit commitment is subsequently $1.09 ($5.52 - $4.43)

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Break Even Volume BEV = Fixed Costs/Unit Contribution = $1,183,025/$1.09 = 1,087,900 gallons Our request estimate was 713,000 gallons. We will in all likelihood not earn back the original investment. Larry ought to most likely not put resources into this business!!

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Total Research Required… Exhibits C,E,F, and I for an aggregate cost of $3,350 And $4,150 left over!