IIBMS DMS CASE STUDY SOLUTIONS – Smoothdrive Tyre Ltd manufacturers tyres under the brand name “Super Tread’ for the domestic car market. It is presently using 7 machines acquired 3 years ago at a cost
IIBMS DMS CASE STUDY SOLUTIONS – Smoothdrive Tyre Ltd manufacturers tyres under the brand name “Super Tread’ for the domestic car market. It is presently using 7 machines acquired 3 years ago at a cost
www.answersheets.in
info.answersheets@gmail.com
+91 95030-94040
Finance Management
CASE : 3
SMOOTHDRIVE TYRE LTD
Smoothdrive Tyre Ltd manufacturers tyres under the brand name “Super Tread’ for the domestic car market. It is presently using 7 machines acquired 3 years ago at a cost of Rs. 15 lakh each having a useful life of 7 years, with no salvage value.
After extensive research and development, Smoothdrive Tyre Ltd has recently developed a new tyre, the ‘Hyper Tread’ and must decide whether to make the investments necessary to produce and market the Hyper Tread. The Hyper Tread would be ideal for drivers doing a large amount of wet weather and off road driving in addition to normal highway usage. The research and development costs so far total Rs. 1,00,00,000. The Hyper Tread would be put on the market beginning this year and Smoothdrive Tyrs expects it to stay on the market for a total of three years. Test marketing costing Rs. 50,00,000, shows that there is significant market for a Hyper Tread type tyre.
As a financial analyst at Smoothdrive Tyre, Mr. Mani asked by the Chief Financial Officer (CFO), Mr. Tyrewala to evaluate the Hyper-Tread project and to provide a recommendation or whether or not to proceed with the investment. He has been informed that all previous investments in the Hyper Tread project are sunk costs are only future cash flows should be considered. Except for the initial investments, which occur immediately, assume all cash flows occur at the year-end.
Smoothedrive Tyre must initially invest Rs. 72,00,00,000 in production equipments to make the Hyper Tread. They would be depreciated at a rate of 25 per cent as per the written down value (WDV) method for tax purposes. The new production equipments will allow the company to follow flexible manufacturing technique, that is both the brands of tyres can be produced using the same equipments. The equipments is expected to have a 7-year useful life and can be sold for Rs. 10,00,000 during the fourth year. The company does not have any other machines in the block of 25 per cent depreciation. The existing machines can be sold off at Rs. 8 lakh per machine with an estimated removal cost of one machine for Rs. 50,000
Operating Requirements
The operating requirements of the existing machines and the new quipment are detailed in Exhibits 11.1 and 11.2 respectively.
Exhibit 11.1 Existing Machines
-
Labour costs (expected to increase 10 per cent annually to account for inflation) :
-
20 unskilled labour @ Rs. 4,000 per month
-
20 skilled personnel @ Rs. 6,000 per month.
-
2 supervising executives @ Rs. 7,000 per month.
-
2 maintenance personnel @ Rs. 5,000 per month.
-
Maintenance cost :
-
Years 1-5 : Rs. 25 lakh
Years 6-7 : Rs. 65 lakh
-
Operating expenses : Rs. 50 lakh expected to increase at 5 per cent annually.
-
Insurance cost / premium :
Year 1 : 2 per cent of the original cost of machine
After year 1 : Discounted by 10 per cent.
Exhibit 11.2 New production Equipment
-
Savings in cost of utilities : Rs. 2.5 lakh
-
Maintenance costs :
Year 1 – 2 : Rs. 8 lakh
Year 3 – 4 : Rs. 30 lakh
-
Labour costs :
9 skilled personnel @ Rs. 7,000 per month
1 maintenance personnel @ Rs. 7,000 per month.
-
Cost of retrenchment of 34 personnel : (20 unskilled, 11 skilled, 2 supervisors and 1 maintenance personnel) : Rs. 9,90,000, that is equivalent to six months salary.
-
Insurance premium
Year 1 : 2 per cent of the purchase cost of machine
After year 1 : Discounted by 10 per cent.
The opening expenses do not change to any considerable extent for the new equipment and the difference is negligible compared to the scale of operations.
![](https://answersheets.in/wp-content/uploads/2019/02/Screenshot_7-300x153.png)
Smoothdrive Tyre intends to sell Hyper Tread of two distinct markets :
-
The original equipment manufacturer (OEM) market : The OEM market consists primarily of the large automobile companies who buy tyres for new cars. In the OEM market, the Hyper Tread is expected to sell for Rs. 1,200 per tyre. The variable cost to produce each Hyper Tread is Rs. 600.
-
The replacement market : The replacement market consists of all tyres purchased after the automobile has left the factory. This markets allows higher margins and Smoothdrive Tyre expects to sell the Hyper Tread for Rs. 1.500 per tyre. The variable costs are the same as in the OEM market.
Smoothdrive Tyre expects to raise prices by 1 percent above the inflation rate. The variable costs will also increase by 1 per cent above the inflation rate. In addition, the Hyper Tread project will incur Rs. 2,50,000 in marketing and general administration cost in the first year which are expected to increase at the inflation rate in subsequent years.
Smoothdrive Tyre’s corporate tax rate is 35 per cent. Annual inflation is expected to remain constant at 3.25 per cent. Smoothdrive Tyre uses a 15 per cent discount rate to evaluate new product decisions.
The Tyre Market
Automotive industry analysts expect automobile manufacturers to have a production of 4,00,000 new cars this year and growth in production at 2.5 per year onwards. Each new car needs four new tyres (the spare tyres are undersized and fall in a different category) Smoothdrive Tyre expects the Hyper Tread to capture an 11 per cent share of the OEM market.
The industry analysts estimate that the replacement tyre market size will be one crore this year and that it would grow at 2 per cent annually. Smoothdrive Tyre expects the Hyper Tread to capture an 8 per cent market share.
You also decide to consider net working capital (NWC) requirements in this scenario. The net working capital requirement will be 15 per cent of sales. Assume that the level of working capital is adjusted at the beginning of the year in relation to the expected sales for the year. The working capital is to be liquidated at par, barring an estimated loss of Rs. 1.5 crore on account of bad debt. The bad debt will be a tax-deductible expenses.
As a finance analyst, prepare a report for submission to the CFO and the Board of Directors, explaining to them the feasibility of the new investment.
Welcome to Answer sheets
We at Answer sheets offer all types of online academic assistance, be it homework help, coursework help, case study help, Assignment help, Project Reports, Thesis, Research paper writing help.
And for each service, each subject and each topic, we dedicate an expert writer who has knowledge in that specific field of study. Experience impeccable academic writing service like never before.
Our experts understand that the time of the customers is very precious. The professors of universities and colleges are very rigorous about the submission deadlines of projects or assignments. Hence, the key objective of our case study help service is to deliver the assignments to the customers even before the promised submission deadlines.
We keep the quality measures for all papers which mean we will provide best essays. Our editing services are also excellent. Before submitting any essays, we will check whether the papers writer well or not. The high standards of academic writing will exceed your expectations. With our quality service, we have satisfied more number of people across the world and also work with different universities in Australia, UK, USA, Dubai, Oman, etc.
At our Answer sheets services, our experts are familiar about the formatting styles that are followed in the academic world. Our experts have a great knowledge about the formatting styles such as MLA, Harvard, APA, Turabian, and many others. All types of formats for the case study help are available at our case study help services. In addition, our experts can solve the case studies as per the instructions of the customers.
The experts of our Answer sheets services are highly qualified and professional. We have CAs CFAs & PhD on our panel who have years of experience in the writing of case study / Assignments.
At our Answer sheets services, our experts never plagiarize the content from the other sources for the solutions of case studies. We have strict policies regarding plagiarism at our organization. We have never faced any complaint so far regarding plagiarism from our customers. We use new technologies and modern plagiarism checking software’s to detect plagiarism from our papers.
Case Study Solutions, Assignments done by MIB, CA, PhD, & CFA
The experts of our Answer sheets services are highly qualified and professional. We have CAs CFAs & PhD on our panel who have years of experience in the writing of case study. In addition, our experts have the expertise of how a case study should be done by using the information that is mentioned in the case study. All the experts of case study help services are competent and they have all the skills that are required in order to solve a case study. A case study that is solved by our experts looks professional and will surely fetch great grades.
O % Plagiarism
At our Answer sheets services, our experts never plagiarize the content from the other sources for the solutions of case studies. We have strict policies regarding plagiarism at our organization. We have never faced any complaint so far regarding plagiarism from our customers. We use new technologies and modern plagiarism checking software’s to detect plagiarism from our papers.
Best Price Guarantee
You get premium service at the best market price. Our best price guarantee ensures that the features we offer cannot be matched by any of the competitors, in case they do – “We will beat the price”.
Confidentiality
We keep our clients’ personal data confidential. In addition to this payment, info is protected, so you no need to worry about any factors. Feel free to refer to the support team for more information and get some essential details related to the payment methods. Our company aims to keep all your details safe; our advanced security standards will exceed your expectations.
Benefits:
Quality Control and Simplicity
We only focus on the quality and offer best quality essays for all time. So you will receive well-crafted and 100% unique content. Need some alterations? You have great chances to get the essays for free.
Direct Communication and Support:
You can easily control the writing process based on your needs; we help you a lot. You can approach our writers directly and requesting drafts. Our dedicated team of experts is available to offer responsive support for 24/7. So just contact us, we ready to help you.
IIBMS MBA CASE STUDY ANSWER SHEETS,
IIBMS MBA CASE STUDY SOLUTIONS,
IIBMS EMBA CASE STUDY ANSWER SHEETS,
IIBMS EMBA CASE STUDY SOLUTIONS,
IIBMS DMS CASE STUDY ANSWER SHEETS,
IIBMS DMS CASE STUDY SOLUTIONS,
IIBMS MMS CASE STUDY ANSWER SHEETS,
IIBMS MIB CASE STUDY SOLUTIONS,
EMBA IIBMS CASE STUDY SOLUTIONS.