Discussion Topic Special Instructions Format: Feel free to use bullets/paragraphs/other formatting tools to clearly identify you position. Your deliverable should be 2 pages maximum (single-spaced) including any exhibits. Groups: This is a group project. Groups will be assigned at the beginning of the class. Company Background: Elite Motorcycle, Inc. is a motorcycle manufacturer that produces heavyweight motorcycles and a complete line of motorcycle parts, accessories and general merchandise. The Company designs, manufactures and sells at wholesale heavyweight (engine displacement of 651+ cubic centimeters) Elite Motorcycle motorcycles, as well as a line of motorcycle parts, accessories, general merchandise and related services. Elite Motorcycle only sells its bikes in Australia, Germany, US, and Canada and is positioned as a ?high-end? brand with average selling price of a bike at $50K. All of Elite?s motorcycles are manufactured in the United States. China?: It?s the year 2015 and BYD COMPANY LIMITED, a company based in China approach Elite Motorcycle with an exciting offer. BYD COMPANY LIMITED is principally engaged in the research, development, manufacture and distribution of automobiles, secondary rechargeable batteries and mobile phone components. With increasing wealth in China, BYD wants to release heavy-weight motorcycles in China. Elite Motorcycle feels BYD has the right geo-political specific knowledge in China and is a reliable partner to enter a brand new market. BYD hopes to sell Elite Motorcycle in its distribution sites under the brand name ?Stealth Dragon?. Some excerpts from the deal below: FINANCIAL INFORMATION - Average Selling Price of Motorcycle in China: $50,000 - Average Manufacturing Cost Information (?fully-loaded?): Unit Cost Assumption Cost Materials $10,000 Labor $10,000 OH (125% of Labor) $10,000 Fully-loaded cost $30,000 - Total Investment Required (calculated by cost analyst): $800 million (includes distribution facility, working capital - inventory/accounts payable/accounts receivable etc.) - The Company expects to sell 25,000 units in China - 50% of OH costs are variable overhead - Weighted-Average-Cost of Capital: 12.5% - Cannibalization: None, since Elite Motorcycle doesn?t sell into China - Tariffs: Chinese authorities can charge an extra 20% on the selling price as the bikes are not manufactured in the US. This however is under consideration and yet to be determined. - BYD: Will charge 5% ?logistics? charge per revenue earned for marketing, shipping, etc. - Elite Motorcycle Financials for FY 2015 ELITE MOTORCYCLE Balance Sheet as of 12/31/2015 ($ in millions) ELITE MOTORCYCLE Income Statement for FY 2015 ($ in millions) Asset Liability Sales Revenue $ 6,000 Cash $ 2,000 AP $ 700 Cost of Sales $ (3,500) AR $ 1,600 Accrued Exp. $ 1,000 Gross Margin $ 2,500 Inventory $ 500 ST Notes $ 500 PP&E $ 3,000 LT Notes $ 4,000 SG&A $ (2,000) EBT $ 500 Equity $ 900 Tax expense $ (400) Total Assets $ 7,100 Liab + OE $ 7,100 Net Income $ 100 OTHER CONSIDERATIONS - Average Selling Price of Motorcycle in China: $50,000. Elite?s marketing consultants suggest that they should expect the ASP for the heavyweight class in China to be $50,000. - Foreign Exchange considerations: The Chinese Yuan is currently trading at Yuan 6.5/$, however, the Chinese Yuan could depreciate to as much as Yuan 8/$ as the Chinese authorities

Discussion Topic Special Instructions Format: Feel free to use bullets/paragraphs/other formatting tools to clearly identify you position. Your deliverable should be 2 pages maximum (single-spaced) including any exhibits. Groups: This is a group project. Groups will be assigned at the beginning of the class. Company Background: Elite Motorcycle, Inc. is a motorcycle manufacturer that produces heavyweight motorcycles and a complete line of motorcycle parts, accessories and general merchandise. The Company designs, manufactures and sells at wholesale heavyweight (engine displacement of 651+ cubic centimeters) Elite Motorcycle motorcycles, as well as a line of motorcycle parts, accessories, general merchandise and related services. Elite Motorcycle only sells its bikes in Australia, Germany, US, and Canada and is positioned as a \"high-end\" brand with average selling price of a bike at $50K. All of Elite's motorcycles are manufactured in the United States. China?: It's the year 2015 and BYD COMPANY LIMITED, a company based in China approach Elite Motorcycle with an exciting offer. BYD COMPANY LIMITED is principally engaged in the research, development, manufacture and distribution of automobiles, secondary rechargeable batteries and mobile phone components. With increasing wealth in China, BYD wants to release heavy-weight motorcycles in China. Elite Motorcycle feels BYD has the right geo-political specific knowledge in China and is a reliable partner to enter a brand new market. BYD hopes to sell Elite Motorcycle in its distribution sites under the brand name \"Stealth Dragon\". Some excerpts from the deal below: FINANCIAL INFORMATION - Average Selling Price of Motorcycle in China: $50,000 - Average Manufacturing Cost Information (\"fully-loaded\"): Unit Cost Assumption Materials Labor OH (125% of Labor) Fully-loaded cost Cost $10,000 $10,000 $10,000 $30,000 - Total Investment Required (calculated by cost analyst): $800 million (includes distribution facility, working capital - inventory/accounts payable/accounts receivable etc.) - The Company expects to sell 25,000 units in China - 50% of OH costs are variable overhead - Weighted-Average-Cost of Capital: 12.5% - Cannibalization: None, since Elite Motorcycle doesn't sell into China - Tariffs: Chinese authorities can charge an extra 20% on the selling price as the bikes are not manufactured in the US. This however is under consideration and yet to be determined. - BYD: Will charge 5% \"logistics\" charge per revenue earned for marketing, shipping, etc. - Elite Motorcycle Financials for FY 2015 ELITE MOTORCYCLE Balance Sheet as of 12/31/2015 ($ in millions) Liability $ 2,000 AP Asset Cash AR Inventory PP&E $ $ $ 1,600 500 3,000 Accrued Exp. ST Notes LT Notes $ 700 $ 1,000 $ 500 $ 4,000 ELITE MOTORCYCLE Income Statement for FY 2015 ($ in millions) Sales Revenue $ 6,000 Cost of Sales $ (3,500) Gross Margin $ 2,500 SG&A $ (2,000) $ $ 500 (400) $ 100 Equity Total Assets $ 7,100 $ 900 EBT Tax expense Liab + OE $ 7,100 Net Income OTHER CONSIDERATIONS - Average Selling Price of Motorcycle in China: $50,000. Elite's marketing consultants suggest that they should expect the ASP for the heavyweight class in China to be $50,000. - Foreign Exchange considerations: The Chinese Yuan is currently trading at Yuan 6.5/$, however, the Chinese Yuan could depreciate to as much as Yuan 8/$ as the Chinese authorities Question 1: Please calculate the following financial ratios. Profitability: Profit Margin, Gross Margin, EBT/Sales, ROE Financial Stability: Debt/Equity, Current Ratio, Coverage Ratio Working Capital metrics: DSO, DSI (assuming ending balance = average balance for balance sheet account) Question 2: Calculate the Marginal Profit applying conventional cost analysis for Dragon Bike. Would you invest and why? Question 3: Under Strategic Cost Analysis, identify risk factors to the project above (provide metrics/calculations to support your responses). Further relate each risk factor to either Value Chain Analysis and/or Strategic positioning analysis