COMM 203 - F18 - C22 - Cred Inv Mgmt.pptx

Variable cost 374215 default rate 187 orders required

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Variable Cost: $374,215 Default Rate: 1/87 orders Required Return: 12.72% Vehicle 3: Pickup Truck Credit Price: $319,225 Variable Cost: $215,350 Default Rate: 1/56 orders Required Return: 14.58% SKAC intends to maximize value generation with luxury! The net NPV of the vehicles is as follows Good! Economic Downturn Vehicle 1: Default rate doubles Vehicle 2: Default rate increases by 50% Vehicle 3: No change in default rate No change! The CEO of SKAC insists that an economic downturn should be considered in the credit analysis. In particular, she intends to know the new NPVs for each affected vehicle Net Present Value: One-Time Sale We continue vehicle NPV NPV i i SKAC Repeat Business NPV 3,848,153.78 958,052.95 484,376.26 SKAC Repeat Business NPV $5,290,582.99 ' NPV (1 ) (1 ) P v R   Vehicle1, Downturn One-Time Sale 2 1,315,255 NPV 915,230 1 145 (1 0.0834)   Vehicle1, Downturn One-Time Sale NPV $282,031.91 per unit
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Net Present Value: One-Time Sale Credit Analysis One-Time Sale and Repeat Business Saskatchewan Automobile Co (SKAC) Line of Vehicles Vehicle 1: Sports Car Credit Price: $1,315,255 Variable Cost: $915,230 Default Rate: 1/145 orders Required Return: 8.34% Vehicle 2: SUV Credit Price: $545,650 Variable Cost: $374,215 Default Rate: 1/87 orders Required Return: 12.72% Vehicle 3: Pickup Truck Credit Price: $319,225 Variable Cost: $215,350 Default Rate: 1/56 orders Required Return: 14.58% SKAC intends to maximize value generation with luxury! Economic Downturn Vehicle 1: Default rate doubles Vehicle 2: Default rate increases by 50% Vehicle 3: No change in default rate No change! We turn our attention to Vehicle 2. We have The new net NPV of the vehicles is Net Present Value: Repeat Business Context We can turn our attention to a repeat business context. As a result, we have ' NPV (1 ) (1 ) P v R   Vehicle2, Downturn One-Time Sale 3 1 545,650 NPV 374,215 1 2 87 (1 0.1272)   Vehicle2, Downturn One-Time Sale NPV $101,514.45 per unit vehicle NPV NPV i i SKAC, Downturn One-Time Sale NPV 282,031.91 101,514.45 58,279.39 SKAC, Downturn One-Time Sale NPV $441,825.75 per set of one unit of each NPV (1 ) P v v R  
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Credit Analysis One-Time Sale and Repeat Business Saskatchewan Automobile Co (SKAC) Line of Vehicles Vehicle 1: Sports Car Credit Price: $1,315,255 Variable Cost: $915,230 Default Rate: 1/145 orders Required Return: 8.34% Vehicle 2: SUV Credit Price: $545,650 Variable Cost: $374,215 Default Rate: 1/87 orders Required Return: 12.72% Vehicle 3: Pickup Truck Credit Price: $319,225 Variable Cost: $215,350 Default Rate: 1/56 orders Required Return: 14.58% SKAC intends to maximize value generation with luxury! Economic Downturn Vehicle 1: Default rate doubles Vehicle 2: Default rate increases by 50% Vehicle 3: No change in default rate No change! Net Present Value: Repeat Business Context We study Vehicle 2 very closely. As a result, we have The new net NPV of the vehicles is Luxury is good!
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