can you help me calculate year 0 and year 1? based on these info's?

Year 0 Year! Year 2 Year 3 Year 4 Revenue Adv Seal Premium+Basic Incremental revenue Gross profit Ady Scal Premium+Basic Incremental gross profit Incremental advertising SG&A expenses Depreciation Incremental EBIT Taxes NOPAT Net working capital Net PP&E Free Cash Flow NOPAT + Depreciation - Capital expenditures - Investment in NWC Free cash flow Discounted value NPV IRR The Procter & Gamble Company P&G was one of the world's premier consumer goods companies. Its 2007 total rev- enue exceeded $72 billion and came from almost every corner of the globe. P&G's wide range of brands focused on beauty, grooming, and household care and delivered sation to top deliver total 2.2) Management e consumers by atue tiers) in mors whitespaces) folios into adjacent a broad array of products from Fragrances to batteries and friedication (Exhibit 22.1). P&G was an aggressive competitor in its market, seeking to deliver holder returns in the top one-third of its Deer group Exhibit 22.2) Men achieved these returns by following a strategy to reach more con extending category portfolios vertically into higher and lower value there parts of the world (by expanding geographically into category white par completely (by improving existing products and extending portfolios inta categories). NAOC's portfolio consisted of seven different product lines foothpaste toothbrushes, power toothbrushes, oral rinses, dental floss, donture adhing cleansers, and teeth whitening strips. Leveraging the collective benefit of multiple ucts enabled P&G to focus on more complete oral health solutions for concu NAOC followed the corporate strategy by, among other things, expanding the globe toothpaste presence under the Oral B. brand and to multiple adjacencies under the White brand. At the heart of the portfolio, representing more than $5 billion in an sales, was the Crest brand, a toothpasto, manual sure adhesives and nefit of multiple prod Crest Whitestrips and the context for Advanced Seal Crest Whitestrips, an at-home tooth enamel whitening treatment launched in 2001. allowed consumers to achieve whitening results that rivaled far more expensive dental office treatments. Existing whitening toothpastes had worked by polishing surface stains from the tooth enamel, but they were unable to change the funda mental color of teeth. Whitestrips worked through a strip applied temporarily to the teeth, binding the product to surface enamel and actually whitening the layer of dentin beneath the enamel itsell. The intrinsic whitening results were unique to the category. On its introduction, Crest Whitestrips saw nearly $300 million in annual sales but virtually no growth in sales or profits after the first year (Exhibit 22.3). Multiple of tempts at line extensions had failed to significantly improve results, only managing to breed skepticism in major customers. Competitors that entered the category either left shortly thereafter or encountered the same stagnant sales as had P&G. (Exhibit 224 documents the category history.) The commercial team believed that, to turn around the business's lackluster perfor mance and win back trust and merchandising support, something fundamental had to change. Advanced Seal, the extension under consideration, was based on a new technol- ogy that prevented the strips from slipping out of position during use. Because the new product binded with teeth more reliably, the active ingredient was delivered more fectively, improving both the usage experience and the whitening results, which superior to any existing product on the market. Exhibit 22.5 provides the prop packaging for the product With an extremely strong market share position (Figure 22.1), the Wh team had to manage any new launch carefully: Tuture success had to be as mu tion of P&L accretion as of increasing competitive share. The business con (Figure 22.1). the Whitestrips s had to be as much a func business rarely sow velocity of our last sful no matter what ommitted to pulling consum- nd marketing. We also offset the high carry re used to carrying straightforward as it high enough to cover and a lot of retailers are still frustrated about the mediocre velocity line extension. If they don't get behind this, it won't be successful no m we do." Whitman agreed immediately. "To show them we're committed to pull ers to the oral care aisle for this, we really need to adequately fund marketing need to allow for strong trade margins to get us display space and offsertheh ing cost of this inventory. It's a much higher price point than buyers are used to in inventory. Jackson Christopher, the data floating in his head from hours of study portunity to bring up some of his concerns. "That may not be as straightforwa sounds. Pricing this at a premium is one thing, but can we price it high enough to the costs of the improvements?" This was the first Roman had heard of this potential issue. "Say more about that agree with Christina in principle, but what are the preliminary economics we're looking at here?" "Oh, we'll be able to price this up, for sure," he replied. "We could charge a 25 premium without having a precipitous drop in volume. The problem is that this product improvement will drive up our costs by almost 75%. That could easily dilute our mar. gins. We could end up making less gross profit on this product than on our current Premium product line. If we're not careful, the more this product takes off, the worse off we'll be." "But even so," Whitman interjected, "we're confident that we'll pick up so much incremental volume that we'll be net better off anyway." Whitman knew Christopher's concerns were valid but didn't want them to kill the idea prematurely. "What do you think, Margaret?" asked Roman, turning to Margaret Tan, a market researcher. "I think the real answer is probably somewhere in the middle," Tan replied. "I don't think we'll be able to price this high enough to offset the costs, but we probably will pick up a lot of new volume. Whether we'll be net better off depends on bringing in enough new users to the category to offset profit dilution from the cost structure. Everyone was silent as Roman took a few moments to think it over. "Alright then, she said. "I'm OK to proceed at this point. I like the idea. We need to be looking ways to delight our consumers. This product improvement really is huge for this sumer; we know that she's been complaining about Whitestrips slipping off her quite some time. But we need to find ways to meet her needs while preserving of structural economics. "If I'm following your logic, Christina, you're saying we'll sell enough || units to end up net better off even with the margin dilution. That can het times, but I've been doing this long enough to know that's a risky strategy. we need a jolt to drive top-line sales on this category. I may be willing to fill but there must be enough of a top-line opportunity to make it interesting. pping off her teeth for preserving our core enough incremental an happen some ategy. That said ng to take that risk. 2 Trade margins were the amse mi Establishing a Base Case Christopher's initial analysis established the expected price point for retailers at $22 per unit for Advaneed Seal, compared to $18 and S13 per unit for P&G's Premium and as onering, respectively. Christopher had worked with his supply chain leaders to estimate the cost structure. The new technology would run at a cost of $5 per unit-cest more than the current Premium product offering, such that the gross profit for Advanced Seal would be lower than for Premium. Exhibit 22.6 provides the summary assessments that had coalesced regarding the unit price and cost for the Crest Whitestrips products. The forecasting models suggested a base case annual forecast of 2 million units for Advanced Seal. The analysis also suggested that cannibalization of existing Crest Whit- estrips products would be high, on the order of 50% to 60% for Premium units and 15% Dasic unis. Such cannibalization rates meant that 65% to 75% of Advanced Seal's 2 million expected units was coming straight out of existing P&G sales. Preliminary discussions around advertising spending indicated an expected launch budget of $6 million per year. He estimated that the cannibalized Premium and Basic products already received $4 million per year in advertising support that would no lon- ger be required after the launch. This meant the group would have to spend an incremen- tal $2 million in advertising to support the launch. He also needed to include $1 million per year for incremental selling, general, and administrative expenses. Based on the amount of time R&D felt it would take a competitor to match the product innovation, Christopher expected a project life of four years, over which time annual unit sales were expected to be relatively constant. For this type of decision, P&G used an 8% discount rate and a 40% tax rate. Manufacturing partners expected to spend S4 million in capital expenditures and incur $1.5 million in one-time development ex- penses to get the project going. Regarding capital expenditure depreciation, he con- ferred with an accounting team, which recommended the five-year accelerated schedule for tax purposes and the straight-line schedule for reporting purposes.' Engineering in- dicated that the equipment likely would need to be replaced at the end of the project life, and they did not expect it to have any residual value. Christopher also knew that he had to factor in any incremental working capital re- quired to support the project. For the Whitestrips business, net working capital turnover require that at least G's policy to model typically ran at a rate of between 8 and 10 times. The project would require the this amount be on hand prior to the market launch date. It was P&G's policy the recovery of any working capital investment at the end of the project life. print of a spreadsheet where the steam the results all depend ing the right way." Proposal to Drive Revenue Later that week, as Christopher rubbed his eyes to remove the imprint of a spr from his vision, Whitman popped her head into his cube. "I came to see where the was coming from. I guess from your cars." Christopher chuckled. "The math isn't really complicated, but the results all de on what you assume. I just need to make sure I think through everything the right He was getting close to wrapping up his work, but he knew that when Whitman by unannounced and excited, it meant her creative wheels were turning and that she looking for more advertising dollars. "I had some great buzz-creation ideas that I think we can use for the launch," she said, her voice lowering. "I'm envisioning some digital campaigns that I think could do viral, and I'm also interested in expanding our initial media plan. We have such low household penetration numbers that, if we drive a change in launch plans, we could fo- cus a great deal more on driving trial. According to Margaret, one problem with trial is that we're really at the high end of the price range. She thinks a small drop in price could really accelerate sales." "That makes sense, assuming this consumer is as elastic as Margaret says. What kind of numbers are we talking about?" "I'm going to need my starting advertising budget to go from $6 million to $7.5 mil- lion in Year 1. I can then go back to $6 million per year after that. Next, we reduce price by $1 to $21 for Advanced Seal. Margaret thinks those two effects will drive annual unit sales up 1.25 million to 3.25 million units per year." "Sounds impressive. Let me take a look, and I'll let you know where we land." "Thanks! We all know that Roman is looking for bigger revenue dollars from Whitestrips and my calculations suggest this will certainly deliver big revenue gains for the group." Proposal to Minimize Cannibalization The next day, Christopher thought he had figured out what he would recommend Roman, and he had a good risk profile built for the team to design and sell against. as he was starting to relax, Tan entered his cube. "This can't be good," Christopher said preemptively. Tan sighed. "Yes and no. I've gone back and reworked the volume force Christina's initiative. We have the potential for a more severe cannibalization than we originally thought. It's not certain, but there is greater likelihood that sourcing more of the incremental volume from our current Premium produce Volume forecast for balization problem nood that we end up Case 22 The Procter & Gamble Company Investment in Crest Whitestrips Advanced Seal 279 How much of an increase are we talking about here?" "I expect the price reduction and extra advertising to expand the range of cannibal- ization rates on Premium to between 50% and 65%." "All right, that might not be so bad. I need to look at the financials to be sure though." "Well, in case it is, we've worked up an alternative strategy." Tan continued. "The alternative is to pivot to a more conservative position, to minimize cannibalization by reducing the launch advertising splash and focusing the marketing on untapped custom- ers. In doing so, we'll have less of a broad appeal than we thought. More of a niche. We'd be prioritizing cannibalization over trial. Our thought was to also offset the gross profil differential by raising price to $23. giving Advanced Seal an SIl gross profit. It's clearly not what Christina was hoping for, but it's a choice that we have. Essentially. instead of dropping the price, raise it a little." Together, they agreed on the final assumptions. The advertising budget would be reduced by SL million each year, to $5 million. The sales model predicted that the effect on Advanced Seal units would be strong with unit sales declining to just 1 million per year. The changes would also reduce the cannibalization rate for Premium to a more certain rate of 45%. The Recommendation Christopher still needed to figure out how to convert all this data into a realistic P&L for the initiative and find the baseline net present value. Beyond that, he needed to deter- mine what the team needed to do to mold this opportunity into a winning proposition for P&G shareholders. He agreed with Whitman that this was an exciting technology, but he had to make sure that any decision would give investors something to smile about EXHIBIT 22.61 Gross Profit Comparison Advanced Seal Premium Product Basic Produrs $18 Per unit revenue and costs Revenue Cost of goods sold expenses Gross profit $13 $22 $12. $10 $7 $11 Note: Data is disguised Year 0 Year! Year 2 Year 3 Year 4 Revenue Adv Seal Premium+Basic Incremental revenue Gross profit Ady Scal Premium+Basic Incremental gross profit Incremental advertising SG&A expenses Depreciation Incremental EBIT Taxes NOPAT Net working capital Net PP&E Free Cash Flow NOPAT + Depreciation - Capital expenditures - Investment in NWC Free cash flow Discounted value NPV IRR The Procter & Gamble Company P&G was one of the world's premier consumer goods companies. Its 2007 total rev- enue exceeded $72 billion and came from almost every corner of the globe. P&G's wide range of brands focused on beauty, grooming, and household care and delivered sation to top deliver total 2.2) Management e consumers by atue tiers) in mors whitespaces) folios into adjacent a broad array of products from Fragrances to batteries and friedication (Exhibit 22.1). P&G was an aggressive competitor in its market, seeking to deliver holder returns in the top one-third of its Deer group Exhibit 22.2) Men achieved these returns by following a strategy to reach more con extending category portfolios vertically into higher and lower value there parts of the world (by expanding geographically into category white par completely (by improving existing products and extending portfolios inta categories). NAOC's portfolio consisted of seven different product lines foothpaste toothbrushes, power toothbrushes, oral rinses, dental floss, donture adhing cleansers, and teeth whitening strips. Leveraging the collective benefit of multiple ucts enabled P&G to focus on more complete oral health solutions for concu NAOC followed the corporate strategy by, among other things, expanding the globe toothpaste presence under the Oral B. brand and to multiple adjacencies under the White brand. At the heart of the portfolio, representing more than $5 billion in an sales, was the Crest brand, a toothpasto, manual sure adhesives and nefit of multiple prod Crest Whitestrips and the context for Advanced Seal Crest Whitestrips, an at-home tooth enamel whitening treatment launched in 2001. allowed consumers to achieve whitening results that rivaled far more expensive dental office treatments. Existing whitening toothpastes had worked by polishing surface stains from the tooth enamel, but they were unable to change the funda mental color of teeth. Whitestrips worked through a strip applied temporarily to the teeth, binding the product to surface enamel and actually whitening the layer of dentin beneath the enamel itsell. The intrinsic whitening results were unique to the category. On its introduction, Crest Whitestrips saw nearly $300 million in annual sales but virtually no growth in sales or profits after the first year (Exhibit 22.3). Multiple of tempts at line extensions had failed to significantly improve results, only managing to breed skepticism in major customers. Competitors that entered the category either left shortly thereafter or encountered the same stagnant sales as had P&G. (Exhibit 224 documents the category history.) The commercial team believed that, to turn around the business's lackluster perfor mance and win back trust and merchandising support, something fundamental had to change. Advanced Seal, the extension under consideration, was based on a new technol- ogy that prevented the strips from slipping out of position during use. Because the new product binded with teeth more reliably, the active ingredient was delivered more fectively, improving both the usage experience and the whitening results, which superior to any existing product on the market. Exhibit 22.5 provides the prop packaging for the product With an extremely strong market share position (Figure 22.1), the Wh team had to manage any new launch carefully: Tuture success had to be as mu tion of P&L accretion as of increasing competitive share. The business con (Figure 22.1). the Whitestrips s had to be as much a func business rarely sow velocity of our last sful no matter what ommitted to pulling consum- nd marketing. We also offset the high carry re used to carrying straightforward as it high enough to cover and a lot of retailers are still frustrated about the mediocre velocity line extension. If they don't get behind this, it won't be successful no m we do." Whitman agreed immediately. "To show them we're committed to pull ers to the oral care aisle for this, we really need to adequately fund marketing need to allow for strong trade margins to get us display space and offsertheh ing cost of this inventory. It's a much higher price point than buyers are used to in inventory. Jackson Christopher, the data floating in his head from hours of study portunity to bring up some of his concerns. "That may not be as straightforwa sounds. Pricing this at a premium is one thing, but can we price it high enough to the costs of the improvements?" This was the first Roman had heard of this potential issue. "Say more about that agree with Christina in principle, but what are the preliminary economics we're looking at here?" "Oh, we'll be able to price this up, for sure," he replied. "We could charge a 25 premium without having a precipitous drop in volume. The problem is that this product improvement will drive up our costs by almost 75%. That could easily dilute our mar. gins. We could end up making less gross profit on this product than on our current Premium product line. If we're not careful, the more this product takes off, the worse off we'll be." "But even so," Whitman interjected, "we're confident that we'll pick up so much incremental volume that we'll be net better off anyway." Whitman knew Christopher's concerns were valid but didn't want them to kill the idea prematurely. "What do you think, Margaret?" asked Roman, turning to Margaret Tan, a market researcher. "I think the real answer is probably somewhere in the middle," Tan replied. "I don't think we'll be able to price this high enough to offset the costs, but we probably will pick up a lot of new volume. Whether we'll be net better off depends on bringing in enough new users to the category to offset profit dilution from the cost structure. Everyone was silent as Roman took a few moments to think it over. "Alright then, she said. "I'm OK to proceed at this point. I like the idea. We need to be looking ways to delight our consumers. This product improvement really is huge for this sumer; we know that she's been complaining about Whitestrips slipping off her quite some time. But we need to find ways to meet her needs while preserving of structural economics. "If I'm following your logic, Christina, you're saying we'll sell enough || units to end up net better off even with the margin dilution. That can het times, but I've been doing this long enough to know that's a risky strategy. we need a jolt to drive top-line sales on this category. I may be willing to fill but there must be enough of a top-line opportunity to make it interesting. pping off her teeth for preserving our core enough incremental an happen some ategy. That said ng to take that risk. 2 Trade margins were the amse mi Establishing a Base Case Christopher's initial analysis established the expected price point for retailers at $22 per unit for Advaneed Seal, compared to $18 and S13 per unit for P&G's Premium and as onering, respectively. Christopher had worked with his supply chain leaders to estimate the cost structure. The new technology would run at a cost of $5 per unit-cest more than the current Premium product offering, such that the gross profit for Advanced Seal would be lower than for Premium. Exhibit 22.6 provides the summary assessments that had coalesced regarding the unit price and cost for the Crest Whitestrips products. The forecasting models suggested a base case annual forecast of 2 million units for Advanced Seal. The analysis also suggested that cannibalization of existing Crest Whit- estrips products would be high, on the order of 50% to 60% for Premium units and 15% Dasic unis. Such cannibalization rates meant that 65% to 75% of Advanced Seal's 2 million expected units was coming straight out of existing P&G sales. Preliminary discussions around advertising spending indicated an expected launch budget of $6 million per year. He estimated that the cannibalized Premium and Basic products already received $4 million per year in advertising support that would no lon- ger be required after the launch. This meant the group would have to spend an incremen- tal $2 million in advertising to support the launch. He also needed to include $1 million per year for incremental selling, general, and administrative expenses. Based on the amount of time R&D felt it would take a competitor to match the product innovation, Christopher expected a project life of four years, over which time annual unit sales were expected to be relatively constant. For this type of decision, P&G used an 8% discount rate and a 40% tax rate. Manufacturing partners expected to spend S4 million in capital expenditures and incur $1.5 million in one-time development ex- penses to get the project going. Regarding capital expenditure depreciation, he con- ferred with an accounting team, which recommended the five-year accelerated schedule for tax purposes and the straight-line schedule for reporting purposes.' Engineering in- dicated that the equipment likely would need to be replaced at the end of the project life, and they did not expect it to have any residual value. Christopher also knew that he had to factor in any incremental working capital re- quired to support the project. For the Whitestrips business, net working capital turnover require that at least G's policy to model typically ran at a rate of between 8 and 10 times. The project would require the this amount be on hand prior to the market launch date. It was P&G's policy the recovery of any working capital investment at the end of the project life. print of a spreadsheet where the steam the results all depend ing the right way." Proposal to Drive Revenue Later that week, as Christopher rubbed his eyes to remove the imprint of a spr from his vision, Whitman popped her head into his cube. "I came to see where the was coming from. I guess from your cars." Christopher chuckled. "The math isn't really complicated, but the results all de on what you assume. I just need to make sure I think through everything the right He was getting close to wrapping up his work, but he knew that when Whitman by unannounced and excited, it meant her creative wheels were turning and that she looking for more advertising dollars. "I had some great buzz-creation ideas that I think we can use for the launch," she said, her voice lowering. "I'm envisioning some digital campaigns that I think could do viral, and I'm also interested in expanding our initial media plan. We have such low household penetration numbers that, if we drive a change in launch plans, we could fo- cus a great deal more on driving trial. According to Margaret, one problem with trial is that we're really at the high end of the price range. She thinks a small drop in price could really accelerate sales." "That makes sense, assuming this consumer is as elastic as Margaret says. What kind of numbers are we talking about?" "I'm going to need my starting advertising budget to go from $6 million to $7.5 mil- lion in Year 1. I can then go back to $6 million per year after that. Next, we reduce price by $1 to $21 for Advanced Seal. Margaret thinks those two effects will drive annual unit sales up 1.25 million to 3.25 million units per year." "Sounds impressive. Let me take a look, and I'll let you know where we land." "Thanks! We all know that Roman is looking for bigger revenue dollars from Whitestrips and my calculations suggest this will certainly deliver big revenue gains for the group." Proposal to Minimize Cannibalization The next day, Christopher thought he had figured out what he would recommend Roman, and he had a good risk profile built for the team to design and sell against. as he was starting to relax, Tan entered his cube. "This can't be good," Christopher said preemptively. Tan sighed. "Yes and no. I've gone back and reworked the volume force Christina's initiative. We have the potential for a more severe cannibalization than we originally thought. It's not certain, but there is greater likelihood that sourcing more of the incremental volume from our current Premium produce Volume forecast for balization problem nood that we end up Case 22 The Procter & Gamble Company Investment in Crest Whitestrips Advanced Seal 279 How much of an increase are we talking about here?" "I expect the price reduction and extra advertising to expand the range of cannibal- ization rates on Premium to between 50% and 65%." "All right, that might not be so bad. I need to look at the financials to be sure though." "Well, in case it is, we've worked up an alternative strategy." Tan continued. "The alternative is to pivot to a more conservative position, to minimize cannibalization by reducing the launch advertising splash and focusing the marketing on untapped custom- ers. In doing so, we'll have less of a broad appeal than we thought. More of a niche. We'd be prioritizing cannibalization over trial. Our thought was to also offset the gross profil differential by raising price to $23. giving Advanced Seal an SIl gross profit. It's clearly not what Christina was hoping for, but it's a choice that we have. Essentially. instead of dropping the price, raise it a little." Together, they agreed on the final assumptions. The advertising budget would be reduced by SL million each year, to $5 million. The sales model predicted that the effect on Advanced Seal units would be strong with unit sales declining to just 1 million per year. The changes would also reduce the cannibalization rate for Premium to a more certain rate of 45%. The Recommendation Christopher still needed to figure out how to convert all this data into a realistic P&L for the initiative and find the baseline net present value. Beyond that, he needed to deter- mine what the team needed to do to mold this opportunity into a winning proposition for P&G shareholders. He agreed with Whitman that this was an exciting technology, but he had to make sure that any decision would give investors something to smile about EXHIBIT 22.61 Gross Profit Comparison Advanced Seal Premium Product Basic Produrs $18 Per unit revenue and costs Revenue Cost of goods sold expenses Gross profit $13 $22 $12. $10 $7 $11 Note: Data is disguised