Good Week Tires Case Study Spreadsheets

The data given is Equipment Cost 120,000,000 Useful life 7 Salvage Value of Equipment 51,000,000 at the end of 4 years SuperTread price/unit - OEM market (year 1) 36 SuperTread price/unit - Replacement market (year 1) 59 SuperTread variable cost/unit (year 1) 18 Marketing and Gen. Admin costs (year 1) 25,000,000 Annual inflation rate 3.25% Tax rate 40.00% Discounting Rate 15.90% Total units in OEM Market (year 1) 8,000,000 2 million cars X 4 tires per car OEM Market growth rate 2.50% SuperTread share of OEM market 11.00% Total units in Replacement Market (year 1) 14,000,000 Replacement Market growth rate 2.00% SuperTread share of Replacement market 8.00% Depreciation Schedule (7 year MACRS) Ending Book Year MACRS % Depreciation Value 1 14.29% 17,148,000 102,852,000 2 24.49% 29,388,000 73,464,000 3 17.49% 20,988,000 52,476,000 4 12.49% 14,988,000 37,488,000 After Tax Salvage Value Book Value at the end of year 4 37,488,000 Sale Price 51,000,000 Gain on Sale 13,512,000 Tax on Gain 5,404,800



The calculations of various components of the cash flows and basic assumptions are given below:

3.1 Equipment Cost:

Goodweek has invested $120,000,000 initially in the productionequipment for making the SuperTread.

3.2 Depreciation Cost

: Modified Accelerated Cost Recovery (MACRS) method has been used in calculating the deprecation. The calculation is shown as below:


MACRS %DepreciationEnding Book Value


3.3 Revenues and Variable Cost:

SuperTread has two distinct markets. These are theOriginal Equipment Manufacturer (OEM) market and the replacement market. Theselling prices of the tire are $36 and $59 respectively in OEM and replacement market.For both the market, the variable cost is $18. Both selling price and the variable cost willincrease at the rate of 4.25% (1% above the inflation rate).There will be 2 million newcars in the market. This will grow at the rate of 2.5% in the subsequent years. It isassumed that, SuperTread will capture 11% of the OEM market at the first year. It is alsoestimated that, the replacement market size will be 14 million in the first year. This willgrow at the rate of 2% at the subsequent years. It is expected that, SuperTread willcapture 8% of the replacement market at the first year. The detail calculation of revenueand expenditure for the two markets is shown below:

3.3.1 OEM Market

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