Question
Please solve using EXCEL Kendoll, a start-up, will produce the FredoB toy doll, a product that competes with other fantasy figurines. In year 0 (right
Please solve using EXCEL
Kendoll, a start-up, will produce the FredoB toy doll, a product that competes with other fantasy figurines. In year 0 (right now), Kendoll will incur costs of $1.75 million to build a plant for producing the FredoB figurines. In year 1, the company expects to sell 75,000 FredoBs for a unit price of $30.The initial price of $30 will decrease by 10% per year from years 1 to 5 because of competition. Unit sales are expected to grow by an unknown percentage, call it g, each year. During years 1 to 5, Kendoll incurs two types of costs:variable costs and SG&A (selling, general and administrative) costs. Each year, variable costs equal half of that year's revenue. During year 1 SG&A costs equal 40% of revenue.This percentage is assumed to drop by 2% per year as the product matures. Hence during year 2, SG&A costs will equal 38% of revenue, and so on.The goal is to understand how the profit behaves relative to the assumptions over the 5-year time frame.
- Create a spreadsheet showing total profit for the FredoB over the entire 5-year time horizon based on all the information given above if sales growth is 20% annually.
- At what sales growth rate g for FredoBs does Kendoll break-even by the end of year 5?
- Add a data table to show the sensitivity of the FredoB profitability results to variations in the value of the growth rate g around the value that achieves plant payback in 5 years. Choose values for gfrom 10% to 70% in increments of 10%. Briefly discuss the implications of these results.
- Is the FredoB project more sensitive to the cost of building the plant or to the initial SG&A costs? Provide numerical evidence and discuss the results.(Note: This is an open-ended question)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started