Assumptions

            The Lincoln Sports Equipment is looking to make improvements within its industry, which is quite difficult with competition from some of the largest companies around the world such as Adidas, Nike, and Spalding. This is a family-owned business so in order to compete with the best of the best they will have to put out products that exceed expectations and outperform the market competitors. Brian Fitzpatrick, the company’s chief financial officer, came up with an idea of creating new baseball cleats that allow players to give good grip on the playing field and keep it easy on their feet.

 The big push for this was because a lot of other nonprofessional cleats banned metal cleats (similar to how they banned wooden bats in most leagues). Fitzpatricks idea was to create two circular ridges of plastic cleats around the soles of the shoes, and this was distributed to local high school teams and became quite a hit from several of the players. But with such a high demand of cleats that are non professional friendly, a lot of teams will go towards the Nikes of the world instead of them. Therefore, a lot of initial investment and market testing is needed if Lincoln Sports Equipment wants to take the next step in being the next sporting giant success.

➢ Net Working Capital Assumptions:

 The average collection period (ACP) is expected to be 35.9 times, inventory is expected to be 15 percent of sales, and purchases are 80 percent of cost of goods sold. The average payment period is 30 days, and accruals is 2.2 percent of sales with the old net working capital being $49,000.

➢ Base Scenario Assumptions:

 Below are annual projections for the existing cleat, the annual unit sales estimates for limited and full production, and the selected cost estimates for limited and full production:

 7 ➢ Pessimistic Scenario Assumptions:

The full production and limited production are 0.90 of the annual sales estimates of the base case assumptions, and the unit sales of the old cleat at 1.3 times the estimates of the base case assumptions with the probability of the market tests being successful at 0.60. COGS will be 66% of sales for full production, 68% of sales for limited production, and 70% of sales for the old cleat. The price the new cleat will be sold at is $28, with price increasing at 2 percent every year with a discount rate at 20%

. ➢ Best-Guess Scenario Assumptions:

 The full production and limited production are 1.10 of the annual sales estimates of the base case assumptions, and the unit sales of the old cleat at 1.2 times the estimates of the base case assumptions with the probability of the market tests being successful at 0.75. COGS will be 8 64% of sales for full production, 66% of sales for limited production, and 70% of sales for the old cleat. The price the new cleat will be sold at is $28, with price increasing at 4 percent every year with a discount rate at 15%.

➢ Optimistic Scenario Assumptions:

 The full production and limited production are 1.20 of the annual sales estimates of the base case assumptions, and the unit sales of the old cleat at 1.1 times the estimates of the base case assumptions with the probability of the market tests being successful at 0.80. COGS will be 64% of sales for full production, 66% of sales for limited production, and 70% of sales for the old cleat. The price the new cleat will be sold at is $28, with price increasing at 6 percent every year with a discount rate at 15%