Goodweek Tires Case Study

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CASE STUDY ON GOODWEEK TIRES, INC. 1.0 INTRODUCTION Capital budgeting is the process of identification of opportunities, estimation of cash flow to be generated by the project, evaluating and selecting from among the alternative courses of actions and implementing the investment project with proper follow-up. Hence, Managers must carefully select those projects which promise the greatest future return. How well managers make these capital budgeting decisions is a critical factor in the long run profitability of the company. The case is about the investment decision for producing SuperTread, a new tire of Goodweek Tires, Inc. The report focuses on the Net Present Value (NPV),…show more content…
3.2 Depreciation Cost: Modified Accelerated Cost Recovery (MACRS) method has been used in calculating the deprecation. The calculation is shown as below: |Year |MACRS % |Depreciation |Ending Book | | | | |Value | |1 |0.143 |$17,160,000 |$102,840,000 | |2 |0.245 |$29,400,000 |$73,440,000 | |3 |0.175 |$21,000,000 |$52,440,000 | |4 |0.125 |$15,000,000 |$37,440,000 | |5 |0.089 |$10,680,000 |$26,760,000 | |6 |0.089 |$10,680,000 |$16,080,000 | |7 |0.089 |$10,680,000 |$5,400,000 | |8 |0.045 |$5,400,000 |$0 | 3.3 Revenues and Variable Cost: SuperTread has two distinct markets. These are the Original Equipment Manufacturer (OEM) market and the replacement market. The selling prices of the tire are $36 and $59 respectively in OEM and replacement

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