FIN 4453 Project 3: Goodweek Tires, Inc.
Assumptions:
R&D expense	$10,000,000
Test marketing expense	$5,000,000
Investment in equipment	$160,000,000
Salvage value at end of year 4	$65,000,000
# of tires per car sold for OEM market	4
Time of project in years	4		Depreciation Schedule:
Depreciation rates for 7-year MACRS			Year	Depreciation	Ending Book Value
year 1	14.30%		1	22,880,000	137,120,000
year 2	24.50%		2	33,594,400	103,525,600
year 3	17.50%		3	22,120,980	81,404,620
year 4	12.50%		4	17,234,878	64,169,743
OEM Market:
Sales
Automobile production (note: each car has 4 tires)	6,200,000
Goodweek market share	11.00%
Sales growth rate	2.50%
Price	$41.00
Replacement market:
Sales
Total market sales	32,000,000
Goodweek market share	8.00%
Sales growth rate	2.00%
Price	$62.00
Variable cost	$29.00
Growth rate of prices & variable costs	4.25%
Fixed Costs (SG&A)	$43,000,000
Growth rate of SG&A	3.25%
Tax rate	23.00%
Inflation	3.25%
Discount Rate	13.40%
NWC in year 0	$9,000,000
NWC in years 1-3 as % of sales	15.00%
Year	0	1	2	3	4
Sales
OEM Market:
Units (grow at 2.5%)		2,728,000	2,796,200	2,866,105	2,937,758
Price (grows at 4.25%)		$41.00	$42.74	$44.56	$46.45
Total Sales OEM Market		111,848,000	119,516,579	127,710,934	136,467,115
Replacement Market:
Units (grow at 2%)		2,560,000	2,611,200	2,663,424	2,716,692
Price (grows at 4.25%)		$62.00	$64.64	$67.38	$70.25
Total Sales Replacement Market		$158,720,000	$168,774,912	$179,466,803	$190,836,025
Total Sales		$270,568,000	$288,291,491	$307,177,737	$327,303,139
- Variable costs
Units (OEM + Replacement)		5,288,000	5,407,400	5,529,529	5,654,450
Costs per unit (grow at 4.25%)		$29.00	$30.23	$31.52	$32.86
Total variable cost		$153,352,000	$163,479,221	$174,276,274	$185,787,532
- Fixed costs (SG&A) (grow at 3.25%)		$43,000,000	$44,397,500	$44,397,500	$44,397,500
- Depreciation		$22,880,000	$33,594,400	$22,120,980	$17,234,878
EBIT		$51,336,000	$46,820,370	$66,382,983	$79,883,230
-Taxes		$11,807,280	$10,768,685	$15,268,086	$18,373,143
Net Income		$39,528,720	$36,051,685	$51,114,897	$61,510,087
OCF (=EBIT+dep-tax)		$62,408,720	$69,646,085	$73,235,877	$78,744,965
NWC	$9,000,000	$40,585,200	$43,243,724	$46,076,660	$49,095,471
change in NWC	$9,000,000	$31,585,200	$2,658,524	$2,832,937	$3,018,810
Year	0	1	2	3	4
CF from Assets:
Operating CF		62,408,720	69,646,085	73,235,877	78,744,965
-Change in NWC	9,000,000	31,585,200	2,658,524	2,832,937	3,018,810
-Capital Spending
CF from Assets
Year	0	1	2	3	4
Cumulative non-discounted CF
Discounted CF
Cumulative discounted CF
NPV	$207,032,003.41
IRR
Payback
Discounted Payback
PI
Accept?