27 Market Size Model 28 The first step is to model the entire market. The company manufacturers two products (A and B) so each market must be modeled. 29 Modeling the market requires establishing growth rates for each of the products. 30 Complete the model by entering formulas in the green cells below. 31 The exercise is designed such that an error early in the assignment will not adversely impact later grading. 32 33 The market size of each product can be forecast based on growth expectations. 34 Product A's growth will decelerate, declining linearly by .5% every year. 35 Product B's growth will be stable at 10% annually. 36 Hint: When financial analysts adjust a growth rate or market share you do not compound the adjustment. If the growth rate is 10% and it declines by 3%, the adjusted growth rate is 7%. Please use this clarification to understand how to forecast throughout this Sheet. 37 38 39 Market Size Units 40 Product A 41 Product B 2020 1,075 2021 1,075 2022 1,075 2023 1,075 2024 2025 2026 2027 2028 2029 2030 1,075 1,075 1,075 1,075 1,075 1,075 538 538 538 538 538 538 538 538 538 538 1,075 538 538 538 538 538 538 538 538 538 538 538 538 42 43 Market Unit Growth Rate 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 44 Product A 45 Product B 10.0% 10.0% 46 47 Company Sales Model 48 The sales of the company for each product can be calculated based on an outlook for its market share of the product. 49 The company's market share of Product A is expected to be flat. 50 The company's market share of Product B is expected to decline by 5% this year because of a new entrant but will then remain flat thereafter. 51 52 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 53 Market Share 54 Product A 55 Product B 30% 60% 56 57 Company's Unit Sales 484 0 0 0 0 0 0 0 0 0 0 58 Product A 59 Product B 161 323 60 61 Capacity Expansion Model 62 Product A and B require the same amount of capacity to manufacture. That simplifies the analysis of capacity as we can measure capacity in 'units' of Product A and B as a common denominator. 63 The company will choose to deploy scarce capacity on the most profitable products. 64 The price of Product A is $110 and the price of Product B is $100. 65 Therefore, the company will manufacture Product A before Product B. 66 The company currently has 500 units of capacity. 67 The Unit Sales Given Capacity Contraints forecast of sales is based on the scenario that no capacity is added. 68 Write formulas in the green boxes below to calculate how many units of each product would be sold. Hint: You will need to use a MIN/MAX/IF function. 69 70 71 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 72 Unit Sales Given 500 Units of Capacity 73 Product A 74 Product B 75