C3T3_FE 323 project change summary
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Boston University *
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Course
323
Subject
Finance
Date
Jan 9, 2024
Type
docx
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Uploaded by GeneralWhale2068
FE 323 Instructor: Min Kim
Section:
Team:
A.
Summary of the changes since the workshop
FE Workshop
Dec 2 or earlier
Cost of capital
NEW SIZE PREMIUM: We chose a midpoint between the
size premium for the 10y and 10z decile companies in the
Morningstar note, which have an average of a 96 and 1
million market cap. We used our NPV as a proxy for
market cap. Because our NPV was approximately 14
million with our old discount rate, we calculated
8.9+(11.6-8.9)/95 * 14 to get our size premium.
NEW MARKET RATE OF RETURN: Used Morningstar
historical market rate of return to get our discount rate
closer.
NEW COMPARABLE COMPANY: Changed Williams Sonoma
to Lovisa. Lovisa is traded on Australian exchange – is this
ok?
NPV
14.551 million now. We cut down our variable
costs and are now cash flow positive from year 2-
5.
IRR
We are concerned our IRR is too high – it is
107%?
Terminal value
16 million. We cut down our variable costs and
are now cash flow positive from year 2-5.
Growth rate
14.28%. This was calculated by assuming a 12 year
product life cycle. The remaining 7 years after our 5 year
forecast were divided by 100% to calculate how much
decline in growth rate we would need each year to reach 0
in cash flow, giving us 14.28%.
The year that the
perpetuity for TV
starts
5 (should it be six?) TV is calculated as yr 5 cf / r
– g.
The year that FCF
peaks
Year 5 (is this normal?) at 1.7 million. Why does
it peak here?
Life time of the
product
12 years. We assume this based on average life
cycle by industry from this IBISWorld report:
https://www.ibisworld.com/blog/understanding-
industry-life-cycles/99/1127/.
Total initial
startup costs
Buildout costs are reduced to 229k due to use
reducing our year 1-3 factory space. Still
using 20% assumption given in guidelines.
Start up cash in
NWC
Cash now includes 2 months worth of first year
direct and indirect labor.
B. Outline the modifications implemented by your team concerning the FE
assumptions and analyses (expand or condense the list as necessary).
1. We reduced direct materials per unit by around 3 dollars total in OM
workbook, which allows us to be cash flow positive.
2. We reduced MOH by utilizing a lower factory space, allowing us to be cash
flow positive.
3. What should we do about the distribution centers?
4.
5.
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