HANSSON PRIVATE LABEL

Operating Assumptions (Ex

Operating Assumptions

Based on Gates' Assumption

Use formulas to calculate the numbers in the cells highlighted green. You can check your answers with Exhibit 5 from the case.
Revenue Projection:
Total Capacity (000's)
Capacity Utilization
Unit Sales Volume (000's)
Selling Price Per Unit
Revenue (000's)

2009
80,000
60.0%
48,000
1.77
84,960

2010
80,000
65.0%
52,000
1.81
93,881

2011
80,000
70.0%
56,000
1.84
103,124

2012
80,000
75.0%
60,000
1.88
112,700

2013
80,000
80.0%
64,000
1.92
122,618

2014
80,000
85.0%
68,000
1.95
132,887

2015
80,000
85.0%
68,000
1.99
135,545

2016
80,000
85.0%
68,000
2.03
138,256

2017
80,000
85.0%
68,000
2.07
141,021

growing at

2.0%

growing at
growing at
growing at

1.0%
3.0%
3.0%

0.94
3,600
2,250

0.95
3,708
2,318

0.96
3,819
2,387

0.97
3,934
2,459

0.98
4,052
2,532

0.99
4,173
2,608

1.00
4,299
2,687

1.01
4,428
2,767

1.02
4,560
2,850

growing at

3.5%

4
160.0
640.0

4
165.6
662.4

6
171.4
1,028.4

6
177.4
1,064.4

8
183.6
1,468.8

8
190.0
1,520.2

8
196.7
1,573.4

8
203.6
1,628.5

8
210.7
1,685.5

growing at

3.5%

20.00
2,000
40,000
450
18,000.0

20.70
2,000
41,400
473
19,570.9

21.42
2,000
42,849
509
21,814.0

22.17
2,000
44,349
545
24,190.2

22.95
2,000
45,901
582
26,706.0

23.75
2,000
47,507
618
29,368.2

24.59
2,000
49,170
618
30,396.1

25.45
2,000
50,891
618
31,460.0

26.34
2,000
52,672
618
32,561.1

18,640.0

20,233.3

22,842.4

25,254.6

28,174.8

30,888.5

31,969.6

33,088.5

34,246.6

Selling, General & Administrative as a percentage of Revenu

7.8%

7.8%

7.8%

7.8%

7.8%

7.8%

7.8%

7.8%

7.8%

Working Capital Assumptions (1):

Days Sales Outstanding (DSO) (Acct Rec / Sales) x 365
Days Sales Inventory (DSI) (Inventory / COGS) x 365
Days Payable Outstanding (DPO) (Acct Pay / COGS) x 365

50.0x
44.0x
38.0x

50.0x
44.0x
38.0x

50.0x
44.0x
38.0x

50.0x
44.0x
38.0x

50.0x
44.0x
38.0x

50.0x
44.0x
38.0x

50.0x
44.0x
38.0x

50.0x
44.0x
38.0x

50.0x
44.0x
38.0x

Hourly Labor Cost divided by Unit Sales Volume

0.375

0.376

0.390

0.403

0.417

0.432

0.447

0.463

0.479

Units Sales Volume divided by Total Labor Hours

0.053

0.055

0.055

0.055

0.055

0.055

0.055

0.055

0.055

Production Costs:
Raw Materials Per Unit
Manufacturing Overhead (000's)
Maintenance Expense (000's)
Salaried Labor Cost:
Managers
Average Annual Cost (000's)
Total Salaried Labor Cost (000's)
Hourly Labor Cost:
Average Fully Loaded Hourly Cost
Hours Per Year
Cost Per Hourly Employee
Number of Hourly Workers
Total Hourly Labor Cost (000's)
Total Labor Cost (000's)

(1) Based on historical averages.

ng Assumptions (Exhibit 5)

ed on Gates' Assumptions

2018
80,000
85.0%
68,000
2.12
143,841

1.03
4,697
2,936

8
218.1
1,744.5

27.26
2,000
54,516
618
33,700.7
35,445.2
7.8%

50.0x
44.0x
38.0x

0.496

3.15%

0.055

0.34%

HANSSON PRIVATE LABEL

Cost Analysis
Based on Gates' Assumptions

Balance Sheet Data:

Accounts Receivable (DSO x Sales / 365)
Plus: Inventory (DSI x COGS / 365)
Less: Accounts Payable (DPO x COGS / 365)
Net Working Capital
Change in Working Capital

2009
11,645
8,393
7,245
12,792
12,792

2010
12,868
9,118
7,872
14,114
1,322

2011
14,135
9,976
8,613
15,499
1,384

2012
15,447
10,822
9,342
16,927
1,428

2013
16,807
11,739
10,134
18,411
1,485

2014
18,214
12,641
10,913
19,942
1,531

2015
18,578
12,877
11,117
20,339
397

2016
18,950
13,119
11,326
20,743
405

2017
19,329
13,368
11,540
21,156
413

2018
19,716
13,622
11,760
21,578
421

Property, Plant & Equipment

45,000

41,000

37,000

33,000

29,000

25,000

21,000

17,000

13,000

9,000

5,000

Total Invested Capital

45,000

53,792

51,114

48,499

45,927

43,411

40,942

37,339

33,743

30,156

26,578

4.9%
1.6x

7.8%
1.8x

9.9%
2.1x

12.8%
2.4x

16.1%
2.8x

19.9%
3.2x

22.5%
3.6x

25.7%
4.0x

29.7%
4.6x

34.6%
5.3x

84,960
69,610
50.0x
44.0x
38.0x

93,881
75,628
50.0x
44.0x
38.0x

103,124
82,747
50.0x
44.0x
38.0x

112,700
89,756
50.0x
44.0x
38.0x

122,618
97,362
50.0x
44.0x
38.0x

132,887
104,851
50.0x
44.0x
38.0x

135,545
106,807
50.0x
44.0x
38.0x

138,256
108,814
50.0x
44.0x
38.0x

141,021
110,873
50.0x
44.0x
38.0x

143,841
112,987
50.0x
44.0x
38.0x

Asset Efficiency:
RNOA (1)
ATO
Sales
COGS (Total Expenses less Selling, General & Admin)
Days Sales Outstanding (DSO) (Acct Rec / Sales) x 365
Days Sales Inventory (DSI) (Inventory / COGS) x 365
Days Payable Outstanding (DPO) (Acct Pay / COGS) x

(1) RNOA is return on net operating assets, and is defined as NOPAT divided by the ending invested capital account

HANSSON PRIVATE LABEL

Cash Flow Projections

Based on Gates' Assumptions

Use the assumptions from the 'Exhibit5' tab and your understanding of the REIT method to calculate the numbers in the green cells.
0
Operating Results:
2008
Revenue
Expenses
Less: Raw Material Costs
Less: Labor Expense
Less: Manufacturing Overhead
Less: Maintenance Expense
Less: Selling, General & Administrative Expense
Less Total Expenses
Investment
Less: Upfront Investment
45,000
Less: Change in Working Capital
Less: Return of Working Capital (1)
Less Total Investment
45,000
Less Taxes
Total After-Tax Cash Flows
45,000
Discount factor 1 / (1+r)^n
1.000
PV of cash flow (Total Cash flow x Discount f 56,714
NPV
11,714
Required return of project (cost of capital)
Effective corporate tax rate
Depreciation

1
2009
84,960

2
2010
93,881

3
2011
103,124

4
2012
112,700

5
2013
122,618

6
2014
132,887

7
2015
135,545

8
2016
138,256

9
2017
141,021

10
2018
143,841

45,120
18,640
3,600
2,250
6,627
76,237

49,369
20,233
3,708
2,318
7,323
82,950

53,698
22,842
3,819
2,387
8,044
90,790

58,109
25,255
3,934
2,459
8,791
98,547

62,603
28,175
4,052
2,532
9,564
106,926

67,181
30,888
4,173
2,608
10,365
115,216

67,852
31,970
4,299
2,687
10,573
117,380

68,531
33,089
4,428
2,767
10,784
119,598

69,216
34,247
4,560
2,850
11,000
121,873

69,908
35,445
4,697
2,936
11,220
124,206

12,792

1,322

1,384

1,428

1,485

1,531

397

405

413

12,792
1,889
(5,958)
0.914
(5,447)

1,322
2,772
6,836
0.836
5,714

1,384
3,334
7,616
0.764
5,820

1,428
4,061
8,664
0.699
6,053

1,485
4,677
9,530
0.639
6,087

1,531
5,468
10,672
0.584
6,232

397
5,666
12,103
0.534
6,461

405
5,863
12,390
0.488
6,047

413
6,059
12,676
0.446
5,656

421
(21,578)
(21,156)
6,254
34,537
0.408
14,090

4,000

4,000

4,000

4,000

4,000

4,000

4,000

4,000

4,000

4,000

Sum of WC
0

9.38%
40.00%

(1) The return of working capital occurs at the end of the forecasted cash flows. It is equal to accounts receivable less accounts payable less inventory. Note that the sum of all change in working capital is zero.
Note: Because the property, plant, and equipment is specialized and almost completely depreciated, it is assumed to be worthless.

HANSSON PRIVATE LABEL

Cash Flow Projections

Based on Gates' Assumptions

Use the assumptions from the 'Exhibit5' tab and your understanding of the Tax Shield method to calculate the numbers in the green cells.
0
Operating Results:
2008
Revenue
Expenses
Less: Raw Material Costs
Less: Labor Expense
Less: Manufacturing Overhead
Less: Maintenance Expense
Less: Selling, General & Administrative Expense
Less Total Expenses
Earnings before Interest, Tax, Depr & Ammort (EBITDA)
Less: Depreciation
Earnings before Interest and Tax (EBIT)
Less: Income tax
Net Operating Profit After Tax (NOPAT)
Add Depreciation
Operating Cash Flow
Investment
Less: Upfront Investment
Less: Change in Working Capital
Less: Return of Working Capital (1)
Less Total Investment
0
Total After-Tax Cash Flows
Discount factor 1 / (1+r)^n
PV of cash flow (Total Cash flow x Discount factor)
NPV

1
2009

2
2010

3
2011

4
2012

5
2013

6
2014

7
2015

8
2016

9
2017

10
2018

0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

12,792

1,322

1,384

1,428

1,485

1,531

397

405

413

12,792

1,322

1,384

1,428

1,485

1,531

397

405

413

421
(21,578)
(21,156)

Sum of WC
0

Required return of project (cost of capital)

Effective corporate tax rate
(1) The return of working capital occurs at the end of the forecasted cash flows. It is equal to accounts receivable less accounts payable less inventory. Note that the sum of all change in working capital is zero.
Note: Because the property, plant, and equipment is specialized and almost completely depreciated, it is assumed to be worthless.

HANSSON PRIVATE LABEL

Internal Rate of Return

Based on Gates' Assumptions

Free Cash Flows:

Total Cash Flows

2008
(45,000)

IRR

13.06%

Modified IRR:
Un-Levered Free Cash Flows

2008

FV of Un-Levered FCF
Sum of FV FCF
Initial Investment
MIRR
Cost of Capital

139,012
45,000
11.94%
9.38%

2009
(5,958)

2010
6,836

2011
7,616

2012
8,664

2013
9,530

2014
10,672

2015
12,103

2016
12,390

2017
12,676

2018
34,537

2009
(5,958)

2010
6,836

2011
7,616

2012
8,664

2013
9,530

2014
10,672

2015
12,103

2016
12,390

2017
12,676

2018
34,537

(13,351)

14,005

14,265

14,836

14,920

15,274

15,837

14,823

13,865

34,537

HANSSON PRIVATE LABEL

Economic Value Added

Based on Gates' Assumptions

Invested Capital:
Beginning Balance
Plus: Change in Working Capital
Less: Depreciation
Ending Balance

2009
45,000
12,792
4,000
53,792

2010
53,792
1,322
4,000
51,114

2011
51,114
1,384
4,000
48,499

2012
48,499
1,428
4,000
45,927

2013
45,927
1,485
4,000
43,411

2014
43,411
1,531
4,000
40,942

2015
40,942
397
4,000
37,339

2016
37,339
405
4,000
33,743

2017
33,743
413
4,000
30,156

2018
30,156
421
4,000
26,578

EVA Analysis:
NOPAT
Less: Capital Charge
EVA

0
4,221
(4,221)

0
5,046
(5,046)

0
4,795
(4,795)

0
4,549
(4,549)

0
4,308
(4,308)

0
4,072
(4,072)

0
3,840
(3,840)

0
3,502
(3,502)

0
3,165
(3,165)

0
2,829
(2,829)

(3,859)

(4,217)

(3,664)

(3,178)

(2,752)

(2,378)

(2,050)

(1,709)

(1,412)

(1,154)
21,578

Cost of Capital
9.38%
PV of EVA
Plus: Return Working Capital (1)
Less: PV of 2018 Capital
Total EVA

(26,374)
8,803
10,843
(28,414)

(1) The return of working capital is equal to accounts receivable less accounts payable. Inventory is assumed to be worthless.
Note: Because the property, plant, and equipment is specialized and almost completely depreciated, it is assumed to be worthless.