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Case Study Vatermobils Company The Vatermobils showroom have enough free space to display two Vonder SDEs and they need to employ an experienced salesperson in order to secure the marketing rights. Due to the need to stock spare parts there will also be other costs. Vatermobils planning to absorb the cost of initial training for two of their service mechanics to be adept at servicing the SDE. However, the costs of maintaining and updating that training will need to be covered by profits from SDE sales. Vonder Global will coordinate and finance the promotion of the SDE in the beginning. Within 6 months, it is expected that sales of the Vonder SDE will have risen to a total of 6 per month and will plateau at that level unless the Vatermobils hires an extraordinarily successful salesperson. Details of costs and revenues are in Appendix 1. Vatermobils wish to know whether they will break even on the SDE and what is the break-even quantity per month. Vatermobils offers finance packages to the new purchasers. Since the new market is highly competitive, Vatermobils management think that they could boost sales of the Velcraft if they offer finance at an annual interest rate of 3%, compounded monthly. However, Vatermobils pays its bank 4.5% per annum, compounded monthly, for the funds required. Therefore, in order to compensate for this discrepancy in interest rates, the price of the Velcraft needs to be carefully determined. Details of prices and upfront deposit amounts are given in Appendix 2. What is the real present value price of a Velcraft financed at 3% interest? What up front cash price should be accepted if offered by a customer? The Task Write a report for Vatermobils management that answers the two main sets of questions as below. Your report should be coherent and professional, composed of sentences and paragraphs that are easy to read and understand. All of the detailed calculations shall be in appendices to your report: Appendix 1, Appendix 2. There should be no calculations in the body of your report. Note especially that case study reports should be completed by students individually, including all computer files (e.g. Excel. Word documents, etc.). It is important that each student's assignment be distinct from that of any other person including computer output (eg. Excel) files. There will be many opportunities for the understanding of each student to be assisted by discussions with other students and with teaching staff in the course, both on line and face to face. However, each student's written report and calculations must be their own work, informed by the understanding that they have obtained.You will need to do the work that appears in the appendices first, and then write your report based on the answers that you get, but your appendices will appear after the body of your report in your submission. You should quote numerical results in your report and explain what they mean. At the very least your report should contain: A title or heading. Perhaps even a title page. A brief executive summary that contains the answers and recommendations without wordy explanations of what the problems and questions are. An executive summary is not the same thing as an introduction. Just imagine that you are a Vatermobils manager who doesn't have time to read the whole report and that you know what the questions are. You just want to be told the answers. The recommendations in the executive summary can be taken directly from the middle section of the report. Actually, they are the highlights of the middle section. An introduction that describes the Vatermobils business situation and talks briefly about the problems to be solved. There should be no answers here. A middle section or body that describes the problems in some detail and gives answers and explains them where necessary. There will be cross-references here to the appendices, so that the curious reader can find the calculations that support the answers. A conclusion that re-states the main results and perhaps makes a suggestion or two that Vatermobils management might not have thought of. Your appendices, containing detailed calculations as required. [15 marks]The two sets of questions (appendices) Appendix 1 Break even The Vonder SDE will be sold at a retail price of $56998, including dealer delivery. The purchaser will pay stamp duty, registration and insurance on top of this. Vatermobils will need to pay Vonder Global $52190 per boat, including shipping costs and import duty. On arrival each boat needs to be thoroughly checked, at a cost of $430. All of these figures include 10% GST, which will need to be deducted in order to find Vatermobils' net revenues and costs. In order to market the SDE, Vatermobils need to employ a salesperson at $9500 per month and a mechanic at $7000 per month. Both of these amounts include all on-costs. Stocking the required spare parts is expected to cost about $3000 per month. The cost of maintaining the servicing skills of two mechanics is expected to be $300 per month in total. a) Calculate the contribution margin of a Vonder SDE, showing details. [4 marks] b) What is the total fixed cost per month? [4 marks] c) What is the monthly break-even quantity for the Vonder SDE? [4 marks] d) Would you expect Vatermobils to make a profit or a loss on the SDE if monthly sales are 6 units? Give clear reasons for your answer. Calculate the amount of profit or loss. [4 marks] e) Vatermobils are confident that in the long term they will be able to earn $ 1500 per month from sales of spare parts for SDEs. Would this change the fixed cost or the variable cost? What effect would it have on the monthly break-even quantity of sales? [4 marks]Appendix 2 Annuities and NPV The Velcraft is a luxury high speed boat. Vatermobils' Finance Manager plans to offer it for sale at $69 999. The buyer pays a deposit of $6 999 and the remainder is to be financed at 3% per annum compounded monthly. The buyer pays equal monthly payments over 3 years to discharge the debt. a) Calculate the size of each monthly repayment. Explicitly write down your modelling information here. That is, write the values of the parameters that you know, indicate the value that you want to know and which formula you are using. Then evaluate R to the nearest cent by using your calculator or a spread sheet (Excel). [7 marks] b) Construct an amortization table for a period of 3 years. [2 marks] c) Does your answer seem reasonable? (Calculate what the monthly repayments would be if the loan was interest-free and compare). 2 marks] d) Given that Vatermobils' cost of capital is actually 4.5% per annum compounded monthly, what is the present value to them of the stream of repayments they receive from the customer? [4 marks] e) What is the total present value of all payments received from the customer, including the deposit? How much is the discount? f) Should a Vatermobils salesperson accept an offer of $68 600 cash for a Velcraft? [3 marks] [2 marks] g) Patrick Myers wishes to buy a Velcraft but his cash flow is irregular. He has only $1000 to pay upfront as a deposit, but thereafter he can afford to pay $9,000 at the end of the first month, $10,000 at the end of the second month, and so on up to $14,000 at the end of the sixth month. He thinks this will be more than enough because his payments add up to $70,000. Patrick's payments Deposit $1,000 After 1 month $9.000 After 2 months $10,000 After 3 months $1 1,000 After 4 months $12,000 After 5 months $13,000 After 6 months $14.000 Total $70 000 With the cost of capital still being 4.5% per annum compounded monthly, what is the net present value of Patrick's proposed schedule of payments? Is Patrick offering too much for the Velcraft, or too little? This is not a straightforward annuity because the regular payments are not equal in value, so Excel's NPV function may be useful. [5 marks]