Year 1 Year 2

2010 2011
Demand Forecast of Cartridges 4687500 5484375
Capacity per machine (10*24*0.9*3600*250/75) 2592000
No. of Machines required 1.81 2.12
No. of Machined Planned 4 4
Option 1 : Acquisition of Geni Tech
Total Labour 1143600 1143600
Raw Materials 3675000 4299750
Reagents Costs 5390625 6307031.25
Overheads 1759500 1759500

Annual Operating Cost 11968725 13509881.25

Cost Per Unit 2.553328 2.4633401709
Deliver Cost/Cartridge 0.15 0.15
Cost Per Unit, Bergeracc 2.703328 2.6133401709
Cost per unit, Delivered( purchase from Mkt) 2.96 2.96
Savings 0.26 0.35
Total Savings, Cash inflow 1203150 1901212.5
Investments, Cash Outflow -5750000

Break Even Vol 22402131.9037526

Payback Period ( when Cum Vol>Break Even Vol) 4687500<22402132 10171875<22402132
( 4.8
years=22402131/46
87500)

Present Value of Cash Flow in Each Year -4682904.65631929 1495538.37001785

Net present Value -4682904.65631929 -3187366.28630144

Option 2 : Purchasing New Machine

Total Labour 1087000 1087000
Raw Materials 3560156.25 4165382.8125
Reagents Costs 5390625 6307031.25
Overheads 1073400 1073400
Contingency 90000 90000

Annual Operating Cost 11201181.25 12722814.0625

Cost Per Unit 2.3895853333 2.3198293447
Deliver Cost/Cartridge 0 0
Cost Per Unit, Bergeracc 2.3895853333 2.3198293447
Cost per unit, Delivered( purchase from Mkt) 2.96 2.96
Savings 0.57 0.64
Total Savings, Cash inflow 2673818.75 3510935.9375
Investments, Cash Outflow
-3607000
Break Even Vol 6323469.94350309
Payback Period ( when Cum Vol>Break Even Vol)

4687500< 6323470,
(1.35 Years) 10171875>6323470
Present Value of Cash Flow in Each Year -1235542.13 2761784.60
Net present value -1235542.13 1526242.47

Option
1. Upto1. Acquisition
10-11th of GeniTech
year supply as backward
from Genie integrationwill match the
tech acquisition
Conclusion
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 Year 4 Year 5 Year 6 Year 7 Year 8
2012 2013 2014 2015 2016 2017
6416718.75 7507560.9375 8783846.297 10277100.17 12024207.2 14068322.42

2.48 2.90 3.39 3.96 4.64 5.43

4 4 4 4 8 8

1143601 1143602 1143603 1143604 2287210 2287210

5030707.5 5885927.775 6886535.497 8057246.531 9426978.442 11029564.78
7379226.5625 8633695.078125 10101423.24 11818665.19 13827838.28 16178570.78
1759500 1759500 1759500 1759500 3519000 3519000

15313035.0625 17422724.853125 19891061.74 22779015.72 29061026.72 33014345.56

2.3864276524 2.3206904344 2.264504759 2.216482797 2.416876742 2.346715164
0.15 0.15 0.15 0.15 0.15 0.15
2.5364276524 2.4706904344 2.414504759 2.366482797 2.566876742 2.496715164
2.96 2.96 2.96 2.96 2.96 2.96
0.42 0.49 0.55 0.59 0.39 0.46
2717944.625 3673521.38125 4791546.356 6099635.747 4726995.504 6517640.439

16588594<22402132 24096155>22402132

1896229.7353024 2273088.63057791 2629619.68 2968961.717 2040653.815 2495502.409

-1291136.55099904 981952.079578873 3611571.76 6580533.476 8621187.291 11116689.7

1087000 1087000 1087000 1087000 2174000 2174000

4873497.890625 5701992.53203125 6671331.262 7805457.577 9132385.365 10684890.88
7379226.5625 8633695.078125 10101423.24 11818665.19 13827838.28 16178570.78
1073400 1073400 1073400 1073400 2146800 2146800
90000 90000 90000 90000 180000 180000

14503124.453125 16586087.6101562 19023154.5 21874522.77 27461023.64 31364261.66

2.2602088416 2.2092511467 2.165697561 2.128472275 2.283811581 2.229424428
0 0 0 0 0 0
2.2602088416 2.2092511467 2.165697561 2.128472275 2.283811581 2.229424428
2.96 2.96 2.96 2.96 2.96 2.96
0.70 0.75 0.79 0.83 0.68 0.73
4490363.046875 5636292.76484375 6977030.535 8545693.726 8130629.659 10277972.7

-3607000
 5334312

1.24 -5959100.83 -1.17

3132793.75 3487605.40 3829022.08 4159566.01 1952860.36 3935274.72
4659036.22 8146641.62 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 <=0.1) and the fundin
.8 years(4.6 m cartridges as constant vol) or 3.04 years considering growing contribution margin with growing volumes
and hence, the decision is attractive from 4th year onwards

fying organically
o be an issue even with internal accrual ( Net profit of $6.6m>$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 7.43 8.69

8 8 9

2287210 2287210 2573111.25

12904590.79 15098371.22 17665094.33
18928927.81 22146845.54 25911809.29
3519000 3519000 3958875

37639728.6 43051426.77 50108889.87

2.286748004 2.23549402 2.223898096
0.15 0.15 1.15
2.436748004 2.38549402 3.373898096
2.96 2.96 3.96
0.52 0.57 0.59
8612695.014 11063908.87 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 <=0.1) and the funding is also easily possible through internal accrual ( net profit>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 <=0.1) and the funding is also easily possible
through internal accrual ( net profit>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)