Bergerac Case Analysis

Demand Forecast of Cartridges Capacity per machine (10*24*0.9*3600*250/75) No. of Machines required No. of Machined Planned Option 1 : Acquisition of Geni Tech Total Labour Raw Materials Reagents Costs Overheads Annual Operating Cost Cost Per Unit Deliver Cost/Cartridge Cost Per Unit, Bergeracc Cost per unit, Delivered( purchase from Mkt) Savings Total Savings, Cash inflow Investments, Cash Outflow

Year 1 2010 4687500

Year 2 2011 5484375

1.81 4

2.12 4

1143600 3675000 5390625 1759500

1143600 4299750 6307031.25 1759500

11968725 2.553328 0.15 2.703328 2.96 0.26 1203150 -5750000

13509881.25 2.4633401709 0.15 2.6133401709 2.96 0.35 1901212.5

2592000

Break Even Vol Payback Period ( when Cum Vol>Break Even Vol)

22402131.9037526 46875006323470 -1235542.13 2761784.60 -1235542.13 1526242.47 Option Acquisition of GeniTech as backward integrationwill match the 1. Upto1. 10-11th year supply from Genie tech acquisition

2. Both the Genie Tech acquisition and purchasing new machine as orga 3. Acquiring Genie Tech will pay back in 4.8 years(4.6 m cartridges as c 4. Net Present Value is positive in 4th Year and hence, the decision is att

Option 2. Buying new machine and diversifying organically 1. Funding at $3.6 million does not seem to be an issue even with intern 2. Payback is 1.2 to 1.3 years for tranche of purchasing 4 machines and

It seems that from payback period point of view ,acquiring Genitech is n However from NPV point of view considering both 5 years as well as the

Year 3 2012 6416718.75

Year 4 2013 7507560.9375

Year 5 Year 6 Year 7 Year 8 2014 2015 2016 2017 8783846.297 10277100.17 12024207.2 14068322.42

2.48 4

2.90 4

1143601 5030707.5 7379226.5625 1759500

1143602 5885927.775 8633695.078125 1759500

1143603 1143604 2287210 2287210 6886535.497 8057246.531 9426978.442 11029564.78 10101423.24 11818665.19 13827838.28 16178570.78 1759500 1759500 3519000 3519000

15313035.0625 2.3864276524 0.15 2.5364276524 2.96 0.42 2717944.625

17422724.853125 2.3206904344 0.15 2.4706904344 2.96 0.49 3673521.38125

19891061.74 2.264504759 0.15 2.414504759 2.96 0.55 4791546.356

3.39 4

3.96 4

22779015.72 2.216482797 0.15 2.366482797 2.96 0.59 6099635.747

4.64 8

29061026.72 2.416876742 0.15 2.566876742 2.96 0.39 4726995.504

5.43 8

33014345.56 2.346715164 0.15 2.496715164 2.96 0.46 6517640.439

1658859422402132

1896229.7353024 -1291136.55099904

2273088.63057791 981952.079578873

2629619.68 2968961.717 2040653.815 2495502.409 3611571.76 6580533.476 8621187.291 11116689.7

1087000 4873497.890625 7379226.5625 1073400 90000

1087000 1087000 1087000 2174000 2174000 5701992.53203125 6671331.262 7805457.577 9132385.365 10684890.88 8633695.078125 10101423.24 11818665.19 13827838.28 16178570.78 1073400 1073400 1073400 2146800 2146800 90000 90000 90000 180000 180000

14503124.453125 2.2602088416 0 2.2602088416 2.96 0.70 4490363.046875

16586087.6101562 19023154.5 21874522.77 27461023.64 2.2092511467 2.165697561 2.128472275 2.283811581 0 0 0 0 2.2092511467 2.165697561 2.128472275 2.283811581 2.96 2.96 2.96 2.96 0.75 0.79 0.83 0.68 5636292.76484375 6977030.535 8545693.726 8130629.659 -3607000

31364261.66 2.229424428 0 2.229424428 2.96 0.73 10277972.7

5334312

1.24 3132793.75 4659036.22

-5959100.83 3487605.40 8146641.62

-1.17 3829022.08 4159566.01 1952860.36 3935274.72 11975663.70 16135229.71 18088090.07 22023364.79

ward integrationwill match the demand considering 17% consistent growth in cartridge consumption ch acquisition

rchasing new machine as organic expansion is not expected to have any funding issue ( debt route, debt to equity $3.6m) f purchasing 4 machines and for total purchase of similar capacity of Genitech of 8 machines , the payback of 2.4 -2.6 years.

f view ,acquiring Genitech is not a bad decision considering that payback period of 3 years is close to 2.4 years of acquiring new machin ing both 5 years as well as the 10 years horizon, acquiring new machines is much more attarctive as compared to acquiring Genie Tech

Year 9 Year 10 Year 11 2018 2019 2020 16459937.23 19258126.56 22532008.07 6.35 8

7.43 8

8.69 9

2287210 2287210 2573111.25 12904590.79 15098371.22 17665094.33 18928927.81 22146845.54 25911809.29 3519000 3519000 3958875 37639728.6 2.286748004 0.15 2.436748004 2.96 0.52 8612695.014

43051426.77 2.23549402 0.15 2.38549402 2.96 0.57 11063908.87

50108889.87 2.223898096 1.15 3.373898096 3.96 0.59 13206052.82

2924759.186 3332292.26 3977475.604 14041448.89 17373741.15 21351216.75

2174000 2174000 2445750 12501322.33 14626547.12 17113060.13 18928927.81 22146845.54 25911809.29 2146800 2146800 2415150 180000 180000 202500 35931050.14 41274192.67 48088269.42 2.182939682 2.14320913 2.134220317 0 0 1 2.182939682 2.14320913 3.134220317 2.96 2.96 3.96 0.78 0.82 0.83 12790364.06 15729862 18606474.48

4343441.25 4737611.08 5604005.93 26366806.03 31104417.11 36708423.04

bt to equity investment amount) growing volumes

back of 2.4 -2.6 years.

.4 years of acquiring new machines. The backward intergration strategy will be less risky as the company does not need to develop core mpared to acquiring Genie Tech ( $ 31 m vs $17.4 m). Personally speaking, I do not think that the core competency is complex here exc

Remarks 17% of growth rate Y-O-Y considered

Considering capacity planning strategy of meeting around 5 years demand. Ref. Case data for 4 machines. For 8 machines expenses considered 2 times Ref. Case data for 4 machines. For 8 machines expenses considered 2 times Ref. Case data for 4 machines. For 8 machines expenses considered 2 times Ref. Case data for 4 machines. For 8 machines expenses considered 2 times

at $ 5.75 million debt funding also D/E will still be comfortable at 0.1. However, the same can be funded from internal accrual as the net income is $6.6 m > $ 5.75m 1. Payback period on fixed vol of 4.6 m cartridges = 4.8 years, 2. For growing volumes =2240132/avg(Vol Y10, Y11,Y12)= 4.05 years 3. For growing controbution as well as growing vol=(5750000/avg(0.26+0.35+0.42))/avg(vol Y10,Y11,Y12)= 3.04 Years Weighted Average Cost of Capital: 12.75% taken ( Return on Equity: 6616/51908) for discounting cash flows for PV & NPV Net Present Value is positive in 4th Year and hence, the decision is attractive from 4th year onwards

Ref. Case data for 4 machines. For 8 machines expenses considered 2 times Ref. Case data for 4 machines. For 8 machines expenses considered 2 times Ref. Case data for 4 machines. For 8 machines expenses considered 2 times Ref. Case data for 4 machines. For 8 machines expenses considered 2 times Ref. Case data for 4 machines. For 8 machines expenses considered 2 times

at $ 3.6 million debt funding, D/E will still be comfortable at 0.7. However, the same can be funded from internal accrual as the net income is $6.6 m > $ 3.6m

1. Payback period on fixed vol of 4.6 m cartridges = 1.35 years, 2. For growing volumes =6323470/avg(Vol Y10, Y11)= 1.24 years 3. For growing controbution as well as growing vol=(3607000/avg(0.57+0.64))/avg(vol Y10,Y11,)= 1.17 Years

Weighted Average Cost of Capital: 12.75% taken ( Return on Equity: 6616/51908) for discounting cash flows for PV & NPV Net Present Value is positive in2nd Year and hence, the decision is attractive from 2nd year onwards

asily possible through internal accrual ( net profit>investment amount)

ackward intergration strategy will be less risky as the company does not need to develop core competency in cartridge manufacturing a s $17.4 m). Personally speaking, I do not think that the core competency is complex here except for managing supply chain of raw mate

nting cash flows for PV & NPV

nting cash flows for PV & NPV

cy in cartridge manufacturing and managing its supply chain. aging supply chain of raw material and with so good return on investment, it's worth taking this small risk.

Dear Sir Pl. find appended the Bergerac Case analysis with regard to decision on backward interagtion or diversification in cartridge manufacturing through organic route( buying new machines). The conclusion is as below: Option 1. Acquisition of GeniTech as backward integration 1. Upto 10-11th year supply from Genie tech acquisition will match the demand considering 17% consistent growth in cartridge consumption 2. Both the Genie Tech acquisition and purchasing new machine as organic expansion is not expected to have any funding issue ( debt route, debt to equity investment amount) 3. Acquiring Genie Tech will pay back in 4.8 years(4.6 m cartridges as constant vol) or 3.04 years considering growing contribution margin with growing volumes 4. Net Present Value is positive in 4th Year and hence, the decision is attractive from 4th year onwards Option 2. Buying new machine and diversifying organically 1. Funding at $3.6 million does not seem to be an issue even with internal accrual ( Net profit of $6.6m>$3.6m) 2. Payback is 1.2 to 1.3 years for tranche of purchasing 4 machines and for total purchase of similar capacity of Genitech of 8 machines , the payback of 2.4 -2.6 years.

It seems that from payback period point of view ,acquiring Genitech is not a bad decision considering that payback period of 3 years is close to 2.4 years of acquiring new machines. The backward intergration strategy will be less risky as the company does not need to develop core competency in cartridge manufacturing and managing its supply chain. However from NPV point of view considering both 5 years as well as the 10 years horizon, acquiring new machines is much more attarctive as compared to acquiring Genie Tech ( $ 31 m vs $17.4 m). As a whole, it's our perdsonal view that the core competency is not complex here except for managing supply chain of raw material and with so good return on investment, it's worth taking this small risk. Regret the delay as we were under the impression of submission along with term project. Came to know couple of days before through mates that you expected submission much earlier. Once again regret our error of oversight.

Thanks & Regards, Prakash Kumar Jha ( EPGP1319) Sidhartha Tulsyan( EPGP1324) Sumit Kumar ( EPGP1325) Vikash Jha( EPGP1329)