Question

Q If the market size is 100 millions in 2008 and s growing at 10% per year and the labor cost is 25% of unit price, materals cost is 15 % of the unit pnce and manufacturing overhead cost is 5% of unit price The company projected its gross profit for 2015, 2016 and 2017 to be 20.27 million, 22 29 million and 24.72 million respectively a) If straight line depreciation method is used and all numbers are in millions, complete the table below b) Given that the company bought equipment in 2015, calculate the valuc of these equipment assuming corresponding zero market value and 10 years service life If an mvestons thinking of investing all of its cash at the end of the year to the owners Using simple pay back, when would the investor get his money back? million for 20 % ownership of the company and the company distributes c) 2017 235 2015 199.37, 2016 2)4.35 Market size Market share Gross Revenue Manufacturing cost Gross Profit Salaries Depreciation Other operating expenses Net profit Net profit % tI. 8.23 30.23 20-2 4.5 s 5 7.5 2 2.3 110.89 (0-22 3.4 29.8 261 22.7 Pr Grino markd (2015) τ 100 ( r/r i O! R.S E 25 million eay 2 412

Answer 1

a)

		$ in million
		2015	2016	2017
	Market size	100	110	121
	Market share
Step-3	Gross Revenue (100%)(step1+ step-2)	36.85	40.53	44.95
Step-2	Manufacturig Cost (25% + 15% +5%)	16.58	18.24	20.23
Step-1	Gross Profit (Given, which is = 55% ( 100% - (25%+15%+5%))	20.27	22.29	24.72
Given	Salaries	4.5	5.5	7.5
Given	Depreciation	2.5	2.5	2.5
Given	Other operating expenses	2.3	3.4	4.5
Step-4	Net profit	10.97	10.89	10.22
Step-5	Net profit % (Net profit/gross profit)	30%	27%	23%

b)

Value of equipment

= Depreciation as per straight line method x useful life

=2.5 million *10 years life

=25 million

Value of equipment=25 million

c)

	2015	2016	2017
Cash available for distribution (Net profit + Depreciation- Capital expe)	(11.53)	1.86	12.72
Working	($ 10.97 + $ 2.5 - $ 25)	($ 10.89 + $ 2.5 - $ 11.53)	($ 10.22 + $ 2.5 )
Income received by the investor (20% of cash available )	0	0.372	2.044
Cumulative income received by the investor	0	0.372	2.416
Therefore, money invested $ 2 million

Simple payback period

up to 2nd year he recive 0.372 so rest 1.168 (2-0.372) is received in the third year

= 2 years + (12 /$ 2.044)x ($ 1.168 million)

=2 year and 10 months