BUSINESS ECONOMICS ASSIGNMENT

Instructor: MA. Nguyen Xuan Huong

***

JOT TOY COMPANY

CASE STUDY

Group members:
1. 2. 3. 4.

Trng Thy Hoa Nguyn Th Hoa Nguyn Th Ha Bi Lan Phng

5. 6. 7. 8.

V Th Thu Thy inh Th Bch Hng Thn Dng Thy Phan Thu Hin

Jot case study - 2013 Group 12

Table of Contents

I. II.

INTRODUCTION .................................................................................................... 2 SCENARIO ANALYSIS ...................................................................................... 3 1. 2. Priotization of issues facing Jot ......................................................................... 3 Discussion and recommendation: ...................................................................... 5 2.1. Late delivery of Christmas product ................................................................ 5 2.2. Near-shoring proposal to Voldania ................................................................ 6 2.3. Launch of new range of toy for 9-11 age group ............................................. 8 2.4. Fault in new flying spaceship ......................................................................... 9

III. 1. 2. 3. IV. V.

ETHICAL ISSUES DETECTION ...................................................................... 11 Range of ethical issues facing Jot .................................................................... 11 Responsibility for fault in new flying spaceship toy ....................................... 11 Personal donation to Grot ................................................................................ 12 CONCLUSION ................................................................................................... 13 APPENDICES ....................................................................................................... 14

Appendix A: Industry research .................................................................................. 15 Appendix B: PEST analysis ...................................................................................... 16 Appendix C: Financial analysis ................................................................................. 17 Appendix D: SWOT analysis .................................................................................... 21 Appendix E: Calculation of NPV for manufacture in Voldania and in China .......... 22 REFERENCE ................................................................................................................ 24

Jot case study - 2013 Group 12

I.

INTRODUCTION

Jot is a small unlisted company which designs and outsourses the manufacture of a range of children s toys. It has gained a lot of significant achievement and developed sustainably since it was established in 1998. However, recently Jot has been facing a number of problems as well as some proposals that may bring many benefits to the company. As the consultant department of Jot , we prepare this report in order to priotise, analyse and evaluate those current issues. The core part of this report tries to prioritise the current issues of the management of Jot while discussing and advising upon them. The issues have been categorised in two groups: (i) Issues that threaten the business: - Late delivery of Christmas product - Fault in new flying spaceship Plans relating to expansion and market: - Near-shoring propasal in Voldania - Launch a new product range for children aged 9-11

(ii)

In the next part of this report, ethical issues are addressed and recommendations related to those issues are made. On the other hand, we also want to carry out analysis process so that the current situation of the business would be understanded thoroughly. As a result, strategic and financial analysis have been added in the appendices at the end of the report.

Jot case study - 2013 Group 12

II. SCENARIO ANALYSIS

1.

Priotization of issues facing Jot

Top priority late delivery of Christmas product

The top priority is the need to make a decision on how to distribute 75% of the initial product order coming from Gull which will not be able to deliver the full order. These products are being delivered on the 4th November, 2011, which 3days from today. And this is the 4th quarter, the period in which there are higher sales. It is possible to see the urgency of this issues which makes it top priority. If we do not solve this problem immediately, we are under the risk of losing our reputation and all the appreciation of customers and may face a considerable decrease in sale revenue. We may also consequently disrupt the business relationship. If so, all effort aiming at finding new suppliers and introducing new toys may be less effective.

Second priority near-shoring proposal to Voldania

This is considered to be the second priority as clearly it is becoming expensive to outsource from China with the rising raw material and oil prices. Jot is a growing company that is dependent on its sales for profit, and to achieve tis it needs to source a cheaper place to reduce on the cost of production. This relates to the long term benefit of the company, but it is not as urgent as the settlement of late delivery Christmas product so we put it in the second. In addition, it is predicted that solving the first priority problem will not take too much time so that we can soon begin to carry out this second prioritised proposal which means long term benefits can be achieved and at the same time, the first priotized urgent problem can be solved.

Jot case study - 2013 Group 12

Third priority launch of new range of toys for 9-11 age group
Jot has grown rapidly and has managed to gain a good market share in Europe and USA, and would like to expand its sales to other areas in the world. It provides products for specifically two age groups. Decision on developing a new range of toys for a new age group means opportunity for Jot to maintain its already existing customers, and attract even new and more customers, hence increasing its market share and sales. We put this proposal right after the near-shoring proposal of new suppliers because when the second priotized proposal is being done, we can at the same time complete the idea of new toy, and those two proposals could be matched perfectly. Also, this issue is more urgent than the fault in new flying spaceship toy because we have to capture the latest trend in the toy world: The current trend is towards electronic toys and computer assisted learning. Noone knows when this trend is over because fashion trends are difficult to predict. The only way to cope with this fact is that we carry out the idea as soon as possible.

Fourth priority fault in new flying spaceship toy

The fourth priority is regarded as the fault in the new flying spaceship. Recharging the toy takes two hours, but some consumers have taken to leaving the toy plugged in meaning it charges for more than two hours. As a result there have been reports of the toy becoming too hot to touch, and two reports of smoke coming from the toy. They have been only 12 reported incidents so far. Jot has sold 1200 units out of the initial 6000units ordered, leaving 3200units in inventory which are ready to be shipped out to the customers. This issue must be the fourth priority because this is the least urgent issues in comparison with others. Also, the fault is relatively less serious too as it has been found only in a small number of cases when the toys are charged for more than 2 hours.

Jot case study - 2013 Group 12

2.

Discussion and recommendation:

2.1. Late delivery of Christmas product Discussion of possible options: Basically, there are two options for Jot: One is to send all 75% of the products to its seven major customers who control 68% of Jots sales. This will ensure that the major customers will not get angry and disrupt the existing business relationship that could otherwise hamper the future relationship with them. Another is to proportionately distribute the products to all the customers so that the independent toyshops at least get a portion of what was ordered on time and have a few to sell in the time waiting for the rest to be delivered. By this way, Jot will show that they are giving equal importance to the small retailers.

In our groups opinion, based on Jots financial state, the business should take the first suggestion by supplying the entire order to the main customers and ignore the independent toyshops until the next delivery. Otherwise, the long-run relation with big retailers will deteriorate and that is something Jot cannot afford right now. With regards compensation, it depends on the long term strategy of Jot. If they choose to switch production from China to Voldania, then they can charge compensation to the suppliers for their error that will cost Jot a substantial amount both materially and in terms of goodwill with its customers. If they do not shift their production, they had better not go for any fine but instead have other strategies whereby no such thing can occur. For instance, Jot can find other smaller but reliable suppliers to whom Jot can be a preferred customer due to the volume of orders whereby enjoying a much better service in return. Recommendation:

Jot must receive the 75% part of its order and distribute the product to largest customers which are the seven companies, then wait for the other remaining 25% of the product to come and distribute it to the remaining smaller companies.

Jot case study - 2013 Group 12

Actions to be taken: Borris Hepp must communicate to the smaller companies that will not receive their order in time in advance making them aware that the goods will be delivered to them late. Tani Grun should put up a compensation plan in form of discounts for the inconvenienced companies, this will help Jot keep its customers besides them being disappointed. Michael Werner should prepare a document outlining the key criteria for the selection of outsourced manufacturers. This then needs to be approved by the Jot Board. Michael Werner should also prepare a document outlining the key performance measures to be used to monitor its outsourced manufacturers. He may need help from specialized agencies to help prepare a useable and well-structured set of performance measures. Existing outsourced manufacturers need to be audited and a list of improvements, both urgent and other less urgent actions, should be agreed with each outsourced manufacturer. Notice needs to be given to all outsourced manufacturers to take action on the points raised in the audit and that failure to take action will result in a termination of their manufacturing contracts. On-going audit and dialogue with manufacturers needs to continue so that Jot establishes long-term close links with its supply chain and that its outsourced manufacturers conform to the standards expected by Jot. Tender to be sent out to outsourced manufacturers for product in readiness for early next year.

2.2. Near-shoring proposal to Voldania

Discussion: We intend to consider the proposal of switching Jots production gradually from China to Voldania from different viewpoints: a. Financial viewpoint b. Strategic viewpoint c. Operational view point

Jot case study - 2013 Group 12

a. Financial viewpoint: (Appendix E NPV Calculation) If based in Voldania, Jot will have the Net Present Value for five-year investment of approximately 2,746,607.293. If based in China, Jot will have the Net Present Value for five-year investment of roughly 2,857,551.109. Due to high rates of labor and machine in Voldania, it is expensive to produce in Voldania and cheaper to manufacture in China because of the lower rates of labour and machine hours. Distribution costs are higher in China than in Voldania, making Voldania the cheapest place to manufacture from. b. Strategic viewpoint: On the one hand, China is famous for currently producing 86% of the worlds toy with low labor and material cost. However, their production cost is increasingly high together with unreliable supply concern. On the other hand, working in Voldania requires the ability to make some cunning maneuvers concerning personal donation to influential parties in order not to be delayed in the bureaucracy, which might breach the code of ethics. Even though it is said that the Voldanian policy encourages companies to manufacture in Voldania, all the decision must be based on the financial data. c. Operational View point: Jots market is mostly in Europe and the USA whereas China is a country in the Asia which is relatively distant from the current market of Jot. Switching Jots production in Voldania made the delivery of products more responsive to their warehouse or directly to customers as well as making logistics to gain favorable efficiency. Therefore, not only late delivery could be reduced but Jot can have their products all available easily. Moreover, most of the outsourced manufactures manufacture for not only one distributor, and it is indicated that the US market represents two third of its revenues and other distributors. Recently they prioritise the production to higher margin orders, which makes them unable to meet orders for the other companies like Jot. Currently the rising cost of labour and raw materials is making manufacturing in China increasingly expensive.

Jot case study - 2013 Group 12

Recommendation: o Voldania vs China: China is no longer an ideal production location. Studies have shown rising labor costs, increased congestion in getting product through the ports, much higher transportation cost and growing concern over toxic toys where the paint used contains carcinogens or lead. China also has a poor reputation for respecting the Intellectual Property Rights (IPR) of outside firms. Near-shoring to Voldania would help Jot to develop a more flexible, just-intime supply chain. Orders can be fulfilled and supply in four to six weeks rather than three months with consequent benefits for adjusting supply to demand and reducing inventory as well as transport costs. Actions to be taken: Tani Grun must begin processing applications with the Voldanian officials to starts works in the country Michael Werner should start analysing manufacturing companies Jot could possibly work with. 2.3. Launch of new range of toy for 9-11 age group We assess this proposal in three aspects:

Discussion: a.

Suitability: Even though Jot is quite strong technologically, but mobile application is an arena where Jot is inexperienced and lacks expertise. Though it can be lucrative, there is also higher level of risks involved since major change in human resources will have to be brought about in a very short time and entering a new market will make them face stronger competitors. b. Acceptability: There has been a tremendous growth in use of smartphone all around the world. Children now-a-days have access to such gadgets and the margin for such a product is much higher. c. Feasibility: The age group of 9-11 offers the highest margin and will also retain customers who have been using Jots products all their life whereby increasing the chance of repeat buying. The projects estimated cost of 30,000 is easily affordable considering the fact that average design and development cost per year is 1.2 million with each project receiving anything between 0.1 to 0.25 million. 8

Jot case study - 2013 Group 12

Recommendation: The market is untapped and this is high time for Jot to enter the market so long as it is financially viable since this segment has a promise to grow as fast as ever and will help Jot continue the tremendous level of growth it has been experiencing. Everything still depends upon the cost benefit analysis. Actions to be taken:

Alana Lotz should conduct this plan quickly to complete the design of the product. Jot should use a specialised company to manufacture and test all prototype products. The design and management team should check for the IPRs for the product design. Alana Lotz should prepare the prototype products to be ready for the toy fairs in January. Michael Werner should select and appoint the outsourced manufacturers. He should select some other suppliers (i.e those in Voldania) to reduce costs and prevent risks.

2.4.

Fault in new flying spaceship

Dicussion: A major fault in the toy has been found that has seen complaints of overheating and in some cases smoke was seen by customers. Joy has three options: Option 1: To spend additional 10 per unit on improved insulation for the already produced units at hand that includes any additional distribution costs. Jot already has 3200 inventory and so if they sell these to the retailers they can make a profit of 19200 {3200*(40-24-10)}. Option 2: To sell the product at the discount market where toys of inferior quality are sold at 50% less than the conventional market price. As such the loss occurring would be 12800 {3200*(40*.05-24)} but might have a negative effect on the brand image. Option 3: To dispose of the product at hand and completely write off the product. Here they will account the loss of 76,800 (24*3200). 9

Jot case study - 2013 Group 12

Recommendation: Here, Jot option 2 and 3 will lead to loss and considering the fixed cost obligation like interest and debts payments. Option 2 cannot be chosen since this will affect the brand image. Option 3 on the other hand will save the company from further damage to reputation but it will also show their incompetency to produce a functioning product. Considering all options, option 1 would be the best choice. Actions to be taken:

Michael Werner should suspend shipment of the product to its customers for now, and work on improving its insulation. Alana Lotz and Indy Kapilia should find a way to improve the insulation of the spaceship toy. Tani Gruns must work out the extra expense of improving the toy, and determine how much the toy will have to sold at afterwards. Alana Lotz should give a time frame in which to do this, and inform its customers when exactly to expect the product back on the market.

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Jot case study - 2013 Group 12

III. ETHICAL ISSUES DETECTION

1. Range of ethical issues facing Jot
There are two ethical issues facing Jot: Responsibility for the fault on new spaceship product Personal donation to Grot an official of Voldanian government

2. Responsibility for fault in new flying spaceship toy

Explanation There is a dilemma as to whether Jot should tell customers about the fault found in the new spaceship toy, or whether it should just blame it on the customers for taking to leaving the toy plugged in to charge whilst theyre out. In fact, Indy Kaplia a new designer made the error that made the insulation not to be sufficiently fire and heat resistant for the length of time to recharge. However, the ethical aspect of this case concerns duty of care for the customers safety, integrity and professional behaviour.

Recommendations It is recommended that Jot should contact the customers that have been suffered by the fault (in this case, 12 reported incidents) and sympathize for the incidents, and explain the reason why they experienced that. Jot should have some special care for those customers to ease their upset. Futhermore, Jot should contact the rest of the customers, re-emphasize on how long the toy needs to be charged, and caution on the results if instruction is not followed.

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Jot case study - 2013 Group 12 3. Personal donation to Grot

Explanation Grot is an offical in the inward investment division. With Jots activity in Voladina he asked for a bribe of 25,000 so that its application would not get into trouble. In this case, if Jot accept the request from Grot, the firm can be charged of corruption as not following application procedures. Jot would be held responsible for its integrity and lack of professionalism in control. Whereas, Jot need to take developing and maintaining good relationships with the Voldanian officials in consideration for its overseas expansion in the future.

Recommendations Jot should not consider the Grots request, which related to a personal donation of 25000. But it should follow approriate application procedures that complied with law, not through a person with a donation.

It is also recommended that Jot should not work with Grot and not let him join and have any relation with the project in Voldania. Instead of that, it should find a different official to work with on the proper application process.

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Jot case study - 2013 Group 12

IV. CONCLUSION

Jots management team has been very successful since Jot was established in 1998 and the business has grown considerably. It has continued to be innovative and create new toys and has expanded its geographical markets substantially. There is every reason to consider that Jot will continue to be successful and profitable but it needs to urgently address those issues above. We hope that our report will help the Board to make the best decision over each issue and take the most effive actions so that Jot will maintain its sustainable growth and also reach higher business targets.

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Jot case study - 2013 Group 12

V. APPENDICES

This report aims to settle the issues facing Jot, however, it is neccessary to have throrough knowledge about the current situation of our company in order to find out the best solution to the problems and make the best decision to each proposals. This is the reason why we spend time doing financial and strategic analysis. The result is attached here in form of appendices which enhance our recommendations for the issues mentioned at the previous part of the report.

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Jot case study - 2013 Group 12

Appendix A: Industry research

In this part, we intend to look into the industry background to uncover some information which can be used to support our recommendation to the issues facing our company. From the facts and firgures provided, we sum up some key ponits that must be taken into consideration:
Currently 86% of the world's toys are This figure will affect our manufactured in China, only low decision on the near-shoring volumes of products manufactured in proposal in Voldania. Europe and the USA.

Toy sold in the market to children aged We have to take this figure between 9 and 11 tend to be more when decide whether to sophisticated. Some of the games need launch a new range of toys for access to the Internet and most involve children aged 9 and 11. complex gramming. This figure is also important if we accept the plan of introducing new toys for 9-11 year-old children.

The current trend in toy sales is toward electronic toys and computer assisted learning.

The toy market is highly seasonal and is dominated by the pre-Christmas sales period.

It is neccessary to take this figure into account when solving the problem of late delivery of Christmas product.

There is a large discount market for This figure may give us an option toys where toys of inferior quality are to settle the new flying sold. The retail prices in this market are spaceship toy which has fault. often 50% less than the conventional markets

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Jot case study - 2013 Group 12

Appendix B: PEST analysis

Political
The supports from Voldania Government for overseas company The problem with Gull one of Jots suppliers for not fulfiling the contract (against the Civil law, the Economic law) in late delivering products for customers on Christmas The importance of legal protection of IPRs in todays global markets Requirement of CE marking product safety standards according to EU Law

Economical
The new trend of near-shoring investment Increased crude oil prices and distribution costs resulting in higher cost Increased wage rates in China resulting in higher outsourced manufacturers price Current economic conditions resulting in restricted finance being available from Jots bankers Low level of asset turnover due to the overdue repayments of retailers Much dependence on orders of 7 large retailers The contribution for the success of each new product through toy fairs

Social
The Jot brand being highly appreciated across Europe and America for quality electronic toys as well as inovative products Change in customer tastes and high market quality requirements which could result in lower or higher sales for new products and encouragement of inovation Difficulties in predicting toy trends which could lead to a large volumes of unsold inventories Responsibility to have product safety especially in EU countries (CE marking) Increased appreciation in CSR nowadays

Technological
Increased cost of new technology electronic chip components Risk of faults on key electronic components New IT systems to help Jots management team but some lacks of the ideal The ownership of design team and wide ranges of licenced products Oportunities and threats of developing new range of technological product a smartphone apps

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Jot case study - 2013 Group 12

Appendix C: Financial analysis

Based on the extract from Jot s financial statement in two years ended 31 Dec, 2011 and 31, Dec 2010, we have calculated financial ratios in different sections as below: 2011 Profitability ratio Gross profit margin Operating profit margin Net profit margin Return on Assets Return on Equity 2010

3147/9866= 31.9% 551/9866= 5.58% 246/9866=2.49% 246/5378=4.57% 246/932=26.40%

Liquidity ratios

2756/8371= 32.92% 453/8371= 5.41% 185/8371=2.21% 185/4393=4.21% 185/686=26.97%

Current ratio Quick ratio Cash ratio

4628/2846=1.63 (4065+21)/2846=1.44 21/2846=0.0074

Asset Turnover ratios

3672/2107=1.74 (3173+29)/2107=1.52 29/2107=0.0138

Inventory turnover Inventory turnover period Average collection period (unit: times) Fixed assets turnover Asset turnover ratio

6719/542=12.4 365/12.40=29.44 days 1 150.4 13.15 9866/(932+1600)= 3.90

Debt ratios

5615/470=11.9 365/11.90= 30.67 days 138.35 11.6 8371/(686+1600)= 3.66

Debt ratio Time interest earned ratio (Unit: times The Debt to equity ratio Gearing ratio

(1600+2846)/5378=82.67% (1600+2107)/4393=84.38% 551/213=2.59 453/201=2.25 477% 1600/(932+1600)=63.19% 540.4% 1600/(686+1600)=70%

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1. Profitability ratios
33.00% 32.80% 32.60% Gross Profit Margin 32.40% 32.20% 32.00% 31.80% 31.60% 31.40% 31.20% 2010 2011 2.55% 2.50% 2.45% 2.40% Net Profit Margin 2.35% 2.30% 2.25% 2.20% 2.15% 2.10% 2.05% Gross profit margin Net profit margin

The Gross Profit margin of Jot is quite good but due to the higher distribution and administration costs, including development costs of the toys; the operating profit is quite low. The net profit margin has risen a bit compared to the former year but still it is very low due to the high finance expenses of the debt capital.
27.10% 27.00% 26.90% 26.80% 26.70% ROA ROE 26.60% 26.50% 26.40% 26.30% 26.20% 26.10% 2010 2011 4.00% 4.20% 4.10% 4.30% ROE ROA 4.50% 4.40% 4.60%

ROA shows that management has failed to effectively generate adequate amount of profit while ROE is higher than ROA due to higher debt capital

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Jot case study - 2013 Group 12

2. Liquidity Ratios
1.76 1.74 1.72 1.70 Current ratio 1.68 1.66 1.64 1.62 1.60 1.58 1.56 2010 2011 1.46 1.44 1.42 1.40 1.54 1.52 1.50 1.48 Quick ratio Current ratio Quick ratio

The Quick Ratio is quite high due to the higher amount of trade receivables and is also lower than that of 2010. The receivable are high as toy market is highly seasonal and around 30%-55% of the sales occurs in the fourth quarter of the year from October to December and over 68% of Jots sales are dependent on 7 large retailers and they often dont pay until at least 60 days after the invoice date. Though the Current and Quick ratios are pretty good but Jot may face problems in meeting its short term obligations as the cash ratio is too much low and already the company has taken an overdraft of 960,000 with the charged interest rate of 12% per year.

3. Asset Turnover Ratios The inventory turnover of Jot has risen than that of 2010 resulting a lower inventory turnover period which means the average number of days the items of inventory are held for has reduced. The asset turnover ratio has also risen, meaning that the management of Jot was able to manage the assets more effectively and efficiently than that of 2010 in generating the sales. The firms ACP ratios show that Jot did too many credit sale transactions, which leaded to high amount of account receivables. Jot had better change its credit sale policy. The fixed assets were made used of effectively, it increasingly contributed to the sale. 19

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4. Debt Ratios
85.00% 84.50% 84.00% Debt ratio 83.50% 83.00% 82.50% 82.00% 81.50% 1 2 550.00% 540.00% 530.00% 510.00% 500.00% 490.00% 480.00% 470.00% 460.00% 450.00% 440.00% Debt to Equity ratio 520.00%

Debt ratio Debt to Equity ratio

The debt ratio and the gearing ratio in comparison to that of 2010 has fallen but still is very high which means that a significant portion of the firms total asset has been financed through debt by the creditors. The same thing happens to the firms greater degree of indebtedness and higher degree of financial leverage. As the interest cover ratio is higher than one, Jot can meet up its interest expenses from the loans and overdrafts

Conclusion after Financial analysis: Assets turnover ratios show that the company sold many products (so the inventories were not left much in stock) but Jots credit sales policy were not good, thus, the account receivables were too high. Capital structure ratios show a serious situation of Jot as for debt. This situation can be improved by better controlling credit sale. Liquidity ratios are the best thing that Jot possessed. Their current assets were substantially higher than their current liabilities, which means they are able to cover present liabilities on time, but the point is that the resource does not come from cash or cash equivalents but mostly from trade receivables. Profitability ratios are reasonable. However, to gain more profit, Jot should reduce their administrative expense because it occupied a large part in total cost.

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Appendix D: SWOT analysis

Strengths
Successful and growing company Good product designs Profitable company High growth in sales revenue

Weaknesses
Working capital completely dependent on over draft Dependent on Jots senior management team and a loss of any member would have serious consequences Reliant on outsourced manufacturers Seasonal business with peak sales in quarter 4 Dependent on just 7 customers for 68% of sales revenue Highly dependent on customers changing preference

(almost 18%) Expanding geographical market Experienced and committed

management team Management control very strong as majority of shares are held by management Own-in-house team of designers designing toys that are unique

Opportunities
Establishment of links and promotion of the Jot brand in new graphical markets as well as further market penetration in Europe and the competitive USA market. Unexplored market segments Near-shoring business processes of sourcing work in a nearby country Introduction of products for other age groups which are yet to be addressed

Threats
Rising prices of oil and raw materials in China Potential loss of sales for new flying spaceship, unless it can be improved in time Safety issue with new flying spaceship toy Losing key customers due to late delivery Competitorsaction and price competition

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Appendix E: Calculation of NPV for manufacture in Voldania and in China

Voldania
Year 0 25000 Year 1 60000 27000 Year 2 100000 45000 Year 3 140000 63000 Year 4 180000 81000 Year 5 220000 99000

Donation Production unit Labour hours (=0.6*25%=0 .45 hours per unit) Labour cost per hour Total labour cost Machine cost per unit Total machine cost Distribution cost per unit Total distribution cost Value for the 25000 year Discount rate 1 (=12% per year) 25000 PV NPV

5 135000 1.96 117600 1.2 72000

5.1 229500 1.96 196000 1.272 127200

5.202 327726 1.96 274400 1.348 188720

5.306 429786 1.96 352800 1.429 257220

5.412 535788 1.96 431200 1.515 333300

324600 1.12

552700 1.254

790846 1.405

1039806 1.574

1300288 1.763

289821.4 29

440749.6 01

562879.7 15

660613.7 23

767542.8 25

2746607.2 93

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Year 1 60000 36000 Year 2 100000 60000 Year 3 140000 84000 Year 4 180000 108000 Year 5 220000 132000

Production unit Labour hours (0.6 hours per unit) Labour cost per hour Total labour cost Machine cost per unit Total machine cost Distribution cost per unit Total distribution cost Value for the year Discount rate (=12% per year) PV NPV

1.75 63000 1.4

1.96 117600 1.4

2.195 184380 1.4

2.458 265464 1.4.

2.753 363396 1.4

84000

140000

196000

252000

308000

3.18

3.371

3.573

3.787

180000

318000

471940

500200

833140

327000 1.12

575600 1.254

852320 1.405

1017664 1.574

1504536 1.763

291964.286 459011.643 606633.452 646546.379 853395.349 2857551.109

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REFERENCE

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