BUS 320: FINANCE BMM.09: PARKING LOT SNO-BOT CASE DCF ANALYSIS CASE SCENARIO-At

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BUS 320: FINANCE BMM.09: PARKING LOT SNO-BOT CASE DCF ANALYSIS CASE SCENARIO-At a recent meeting of the board of directors of Bicknell Industries and Technologies, Inc (BITI), W.B. Yount, BITI's CEO, came manufacturers entering its traditional product lines of gasoline-free consumer durable power equipment like lawn mowers, under some pressure to address the company's declining profitability from price competition from hedge trimmers, leaf blowers, garden tillers, and snow blowers. Mr. Yount -an enthusiast about Google's driverless cars and Tesla's all-electric semi-truck prototype - indicated to BITI's directors that he had tasked his CFO, James Keeler, with performing a strategic analysis of the feasibility of BITI likewise entering the higher margin commercial market with an innovative line of computer controlled power equipment. Specifically, global climate change has created a winter scenario of monster storms" in the midst of warmer winters in USA's east coast states -a trend that the National Oceanographic and Aeronautic Agency (NOAA) says could hold through the upcoming century. Mr.Yount and Mr. Keeler believe that a market opportunity exists for a robotic snow removal machine that could tackle the strain on commercial personnel and budgets created by such extreme episodic winter weather s survey of municipal managers a store managers from New England and mid-Atlantic states indicates a actionable need for "peak demand" support of snow removal operations during periodic "wicked winter weather". BITI's engineers conceived a commercially viable and OSHA approvable product design. Table No. 1 from the accompanying spreadsheet represents Mr. Keeler's assessment of product demand and pricing of the contemplated robotic machine RITY's "Parking Lot Sno -Bot" (pusa), Table No. 2indicates RIT's best guess a bout MACRS depreciation rates under the current Republican administration's tax proposal. Mr. Keeler keenly is aware of the "serious capital investment" that RITI will could take on as well as the need to "get the details right" before giving the project a "go" Financing new projects like PLSB entail greater capital acquisition risks and Mr Keeler forecasts that Rm will experience a 14% cost of capital should the PLSB project be taken on Table No. 3 indicates BITI's current "most likely case" forecast parameters for PLSB's acquisition and manufacturing operations Because Mr. Yount faced a testy board of directors during his last meeting with them, he wants to be sure that he has al ducks in a row" going into the next board meeting where he will seek board approval of the PLSB initiative. Accordingly, at directors: 1- Pro forma financial statements showing forecast revenues, variable costs, fixed costs, net income, and net cash flows a minimum, Mr. Yount wants the following PLSB project "work up" for his upcoming presentation to RIT's board of

Explanation / Answer

I assume your question is regarding how to arrive at "accounts receivable", "accounts payable" & "inventory" values for working capital assessment.

As per table-3, information on the working capital cycle has been provided as depicted below:

FY's average days to collect accounts receivable (out of 360 days): 45

Formula for receivables (A/R): Receivable days/ Total days in year * Sales = 45/360* Sales for the respective year

Similarly for accounts payable,

FY's average days to pay total current period's fixed + variable manufacturing costs (accounts payable): 30

Formula for payables (A/P) : Payable days/ Total days in year * Cost of Sales = 30/360* Cost of sales for the respective year (raw material costs)

For inventory,

FY's days of next period's sales in inventory: 15

Formula for Inventory: Inventory days/ Total days in year * Cost of sales: 15/360 * Cost of sales

Please note that information provided suggested total days in year shall be 360. Hope this clarifies the question.

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