Sneaker 2013 Case Study Questions Hints: Variable Costs means COGS in this case

1. Should the following be included in your cash flow estimation for capital budgeting analysis? Why/why not?

a. Building the factory

b. Research and Development costs

c. Cannibalization of other sneaker sales

d. Interest costs

e. Changes in Net Working Capital

f. Taxes

g. Cost of Goods Sold

h. Advertising and Promotion expenses

i. Depreciation

2. Using the Excel template I provided, produce a projected capital budgeting cash flow analysis for Sneaker 2013. Consider the following:

a. What is the projects year zero cash flow?

b. What are the 2013-2018 net operating cash flows?

c. What is the projects 2018 terminal non-operating cash flow?

d. Does Sneaker 2013 appear viable from a quantitative standpoint? Consider the NPV, IRR and Payback.

(Note: this is not an easy case, and part of the work youll need to do is to consider how to build your projections. Dont worry about trying to get the correct answer, this is meant to mimic real life, where theres a lot of ambiguity.)

Excel File:

	Sneaker 2013
	Assumptions
	Sometimes in spreadsheets you'll want to put your assumptions at the top, so I'm leaving space here if you'd like to set your up that way
	Year	0	1	2	3	4	5	6
		2012	2013	2014	2015	2016	2017	2018
	Revenue
	(Note: put relevant costs in this line and the ones below)
	EBIT
	Taxes (40%)
	Net Income (ignoring interest)
	Factory
	Equipment
	NWC Changes