420 Analysis

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Southern New Hampshire University *

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420

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Finance

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Jan 9, 2024

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Uploaded by CoachWrenMaster1187

Rebecca Madjoucoff Fin 420 16 December 2021 Sneaker 2013 Case Study After reading the case study, Sneaker 2013 we got to compare the sneaker case and persistence. The first exercise is about a running sneaker with a large capital outlay and a six- year project life. The second project analyzes a hiking shoe with over the span of three years. After evaluating the two sneaker lines, we were able to determine the purchase and installation of the building and factory, research and development costs, cannibalizations of other sneaker sales, interest costs, which were only with persistence for $600,000. We were able to determine the terminal value between the change in current assets and current liabilities, include taxes and cost of goods sold. See the difference between the advertising and depreciation costs. The Initial outflow for the sneakers case is $180 million and after evaluating their cash flows for year 6, they have a cash flow of 38.67, revenue of 103.5, variables cost of 56.925, a fixed cost of 24, and the tax rate being 0.6 which means when multiplying deprecation and tax the answer is 2.88. We sought to find the deprecation of both the building and its equipment, and the annual depreciation combined is 57.65. The change in net working capital for year 2018 is 22.25, The terminal value that was discovered for the sneakers case is $146.62 which is from the after tax, depreciation for the building plus the after-tax amount for equipment plus year 2018 for net working capital. The projects NPV is $12.04 million, and the IRR is 12.82% having the equivalent annual cost of $3.00 million. The initial payback is 180, year one to year six we used the cash flows and depreciated it from the initial investment. The partial payback years is 0.02

and then there were five full years that were used, indicating that the total payback period would be 5.02 years. The initial outflow for the persistence case is $53.00 million. For persistence, the projects annual net operating cash flow would be $29.59, $37.42, $44.40. The terminal value was solved using the after-tax building depreciation is 1.392 added to the net working capital which gave the solution of $15 million. The projects NPV is $6.99 million, and the IRR is 21.23% having the equivalent annual cost of $3.38 million. The initial payback is 53, year one to year three we used the cash flows and depreciated it from the initial investment. The partial payback years is 0.35 and then there were three full years that were used, indicating that the total payback period would be 3.35 years. My final recommendation I would give to Rodriguez is, I would choose the Nike sneaker because they have a higher return overall. If proceeded correctly their six years of cash flows will produce a higher return. Thus, being said, from shown through the excel file sneaker had a NPV of 12.04 million compared to persistence that had only 6.99 million and even though persistence had a higher IRR that could be only from only showing three years of cash flows. From comparing both shoe lines, the EAS, earnings equivalent annual shows a higher value then persistence, stating that Nike sneaker is the choice to choose.

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