MM5007 – Financial Management

Oh, Nuts! And Exxon

Valdez Case
Lecturer: Krishna Ariyanto, ST., MT.*

By:
Adhrio F. Balaw (29117086)
Aldina Fatwa (29117078)
Fajar Wahyudi (29117186)
Ian Danarko (29117125)
M Helmi Faisal (29117161)
Muhammad Nadif (29116122)

MBA ITB YP 57-C 2018

 Outline
• Oh Nuts Case:
• Exxon Valdez Case:
• Problem Solving Analysis
Oh Nuts Case

3
Case Review
● The Nuts n Boltz Auto Part
Company manufactures and
distributes auto parts
throughout the United States
have been receiving a large
number of complaints about
corroded bolts from consumers
● Has 4 major distributions:
○ Atlanta
○ Phoenix
○ Denver
○ Houston
Issue
● All complaints were received
between June and August
● All complaints came from
shipment from the regions in
Houston and Atlanta
● No complaints from Denver and
Phoenix
4
“ Timing
PROBLEM SOLVING ANALYSIS

Trend Impact Process

Corroded Bolts
Overcharging
Suppliers
Decrease
Quality of steel

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Exxon
ValdezCase
6
“
Secon tanker
Timing

HIGH
PROBLEM SOLVING ANALYSIS

Trend

HIGH
Impact

HIGH
Process

DA
be dispatched
to remove the
remaining oil
Use Chemical HIGH HIGH HIGH DA
Dispersants
Use Floatable HIGH HIGH HIGH DA
Boom

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“
Secon tanker
Timing

HIGH
DECISION ANALYSIS

Trend

HIGH
Impact

HIGH
Process

DA
be dispatched
to remove the
remaining oil
Use Chemical HIGH HIGH HIGH DA
Dispersants
Use Floatable HIGH HIGH HIGH DA
Boom

8
Analysis
1
The Financial Condition of Avantjet
Using leverage ratio analysis to calculate how much leverage from Avantjet.

Avantjet has a very large leverage ratio seen from debt to equity and debt to asset ratio and
that's why Avantjet will have difficulty in doing its operational activities viewed from leveragenya
aspect and will impact into income statement and balance sheet from Avantjet

Primus offers leasing options to Avantjet so they can minimize the leverage aspect and
maximize their operational activities

Avantjet itself has considered leasing from other companies such as Faulhaber Gmbh and
Honshu Heavy Industries.
10
The Comparison of Lease and Buy-and-Borrow through Four
Option of Leasing Payment and Four Scenario

11
Scenario Analysis
• Scenario A: option 2 is the best
because it has a higher NPV and will
generate good revenue for Primus
and lease advantage is within
tolerable limits. If Avantjet bargain
option 1 can be selected.
• Scenario B: option 4 is the best
option because it has a larger NPV
and generates good revenue for
Primus and generates a positive
lease advantage for Avantjet. If
Avantjet bargain then it can be
moved to option 3,2, and 1
depending on the agreement
between both parties and can benefit
both.

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Scenario Analysis
• Scenario C: option 1 is the best
choice because it produces positive
lease advantage when compared
with other option that have negative
lease advantage.
• Scenario D: option 4 is the best
option because it has a larger NPV
and generates good revenue for
Primus and generates a positive
lease advantage for Avantjet. If
Avantjet bargain then it can be
moved to option 3,2, and 1
depending on the agreement
between both parties and can benefit
both.

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The Comparison of Primus, Faulhaber Gmbh of
Germany and Honshu Heavy Industries of Japan
through Four Scenario

14
Scenario Analysis
• If scenario C is chosen by looking at
the competitors then option 1 is the
best choice because it has a positive
lease advantage compared to 2
other competitors who have negative
lease advantage.
• If scenario D is chosen by looking at
a competitor then option 3 is the best
option because it has a positive
lease advantage greater than that of
the Gmh Faulhaber competitors and
and will be more profitable for
Advantjet.

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Scenario Analysis
• If scenario A is chosen by looking at
a competitor then option 2 is the best
choice because it has a positive
lease advantage and will be
advantageous for Advantjet
compared to other competitors who
have negative lease advantage.
• If scenario B is chosen by looking at
a competitor then option 3 is the best
option because it has a positive
lease advantage greater than that of
the Gmh Faulhaber competitors and
and will be more profitable for
Advantjet.

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The Correlation between
Pretax Interest and Tax Rate
2
in Leasing
Notes:
The greater tax rate with the same Pretax Interest value = increase of Lease
advantage value,
Pretax Interest & Tax Rate in Leasing
Lease Advantage Analysis for Leasing Option 1
Pretax Interest
Tax
9.50% 10% 10.50% 11% 11.50% 12% 12.50% 13%
40% $ 14,375.84 $ 20,378.79 $ 26,413.32 $ 32,479.17 $ 38,576.05 $ 44,703.69 $ 50,861.81 $ 57,050.13
34% $ 14,555.69 $ 21,077.29 $ 27,632.99 $ 34,222.48 $ 40,845.48 $ 47,501.67 $ 54,190.76 $ 60,912.45
25% $ 14,449.51 $ 21,724.92 $ 29,037.99 $ 36,388.41 $ 43,775.83 $ 51,199.94 $ 58,660.39 $ 66,156.86
15% $ 13,823.83 $ 21,904.24 $ 30,026.05 $ 38,188.90 $ 46,392.41 $ 54,636.23 $ 62,919.98 $ 71,243.30
0% $ 11,937.11 $ 21,164.55 $ 30,438.52 $ 39,758.62 $ 49,124.42 $ 58,535.51 $ 67,991.48 $ 77,491.92

Option 1 , the Lessor can suggest the value of any Tax

Rate an Pretax Interest, since the lease advantage
value is quite attractive to the lessee.
Lease Advantage Analysis for Leasing Option 2
Pretax Interest
Tax
9.50% 10% 10.50% 11% 11.50% 12% 12.50% 13%
40% $ 1,008.37 $ 7,011.32 $ 13,045.85 $ 19,111.70 $ 25,208.58 $ 31,336.21 $ 37,494.33 $ 43,682.66
34% $ -0.30 $ 6,521.30 $ 13,077.00 $ 19,666.50 $ 26,289.49 $ 32,945.68 $ 39,634.77 $ 46,356.47
25% $ -1,845.29 $ 5,430.12 $ 12,743.19 $ 20,093.61 $ 27,481.03 $ 34,905.14 $ 42,365.59 $ 49,862.06
15% $ -4,343.80 $ 3,736.61 $ 11,858.43 $ 20,021.27 $ 28,224.79 $ 36,468.60 $ 44,752.35 $ 53,075.68
0% $ -8,929.73 $ 297.71 $ 9,571.68 $ 18,891.78 $ 28,257.58 $ 37,668.67 $ 47,124.64 $ 56,625.08

Option 2, the Lessor can suggest any pretax interest value (9.5% - 13%) with
the value of Tax rate 40%, but for the value of the tax rate 34%, 25%, 15%
and 0% is advised the Lessor offers the loan at the Pretax interest rate of at
least 10%,
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Lease Advantage Analysis for Leasing Option 3
Pretax Interest
Tax
9.50% 10% 10.50% 11% 11.50% 12% 12.50% 13%
40% $ -5,313.10 $ 689.85 $ 6,724.38 $ 12,790.23 $ 18,887.11 $ 25,014.74 $31,172.86 $ 37,361.19
34% $ -6,883.82 $ -362.21 $ 6,193.48 $ 12,782.98 $ 19,405.97 $ 26,062.16 $ 32,751.25 $ 39,472.95
25% $ -9,551.09 $ -2,275.69 $ 5,037.39 $ 12,387.81 $ 19,775.23 $ 27,199.34 $ 34,659.79 $ 42,156.26
15% $-12,935.26 $ -4,854.85 $ 3,266.96 $ 11,429.81 $ 19,633.32 $ 27,877.14 $ 36,160.89 $ 44,484.21
0% $-18,797.64 $ -9,570.21 $ -296.23 $ 9,023.86 $ 18,389.66 $ 27,800.75 $ 37,256.73 $ 46,757.17

option table 3, With the Tax rate on 40%, the Lessor can suggest the value of pretax
interest from 10% - 13%, then the value of Tax rate 34%, 25%, 15%, it is recommended
that Lessor offer a loan at the Pretax interest rate of at least 10.5%, and for the Tax rate of
10%, it is recommended that the Lessor offer a loan at the Pretax interest rate of at least
11 %.
Lease Advantage Analysis for Leasing Option 4
Pretax Interest
Tax
9.50% 10% 10.50% 11% 11.50% 12% 12.50% 13%
40% $-11,804.26 $ -5,801.31 $ 233.23 $ 6,299.07 $ 12,395.95 $ 18,523.59 $ 24,681.71 $ 30,870.04
34% $-13,952.11 $ -7,430.51 $ -874.81 $ 5,714.69 $ 12,337.68 $ 18,993.87 $ 25,682.96 $ 32,404.66
25% $-17,463.73 $-10,188.33 $ -2,875.26 $ 4,475.16 $ 11,862.58 $ 19,286.69 $ 26,747.14 $ 34,243.61
15% $-21,757.34 $-13,676.93 $ -5,555.12 $ 2,607.73 $ 10,811.24 $ 19,055.06 $ 27,338.81 $ 35,662.13
0% $-28,930.44 $-19,703.01 $-10,429.03 $ -1,108.94 $ 8,256.86 $ 17,667.95 $ 27,123.93 $ 36,624.37

option table 4, With the Tax rate of 40%, the Lessor can suggest pretax interest values
​ranging from 10.5% - 13%, then the Tax rate of 34%, 25%, 15%, it is recommended that
Lessor offer a loan at Pretax interest rate of at least 11% , and for a 10% Tax rate, it is
recommended that Lessor offer a loan at a Pretax interest rate of at least 11.5%.
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Lease Advantage Analysis for Faulhaber Gmbh
Pretax Interest
Tax
9.50% 10% 10.50% 11% 11.50% 12% 12.50% 13%
40% $-12,199.76 $ -5,827.40 $ 578.49 $ 7,017.62 $ 13,489.69 $ 19,994.41 $ 26,531.49 $ 33,100.64
34% $-14,217.56 $ -7,294.63 $ -335.51 $ 6,659.50 $ 13,690.06 $ 20,755.86 $ 27,856.59 $ 34,991.92
25% $-17,492.53 $ -9,769.42 $ -2,006.31 $ 5,796.44 $ 13,638.48 $ 21,519.45 $ 29,439.01 $ 37,396.80
15% $-21,470.80 $-12,893.14 $ -4,271.52 $ 4,393.66 $ 13,102.00 $ 21,853.13 $ 30,646.65 $ 39,482.18
0% $-28,082.46 $-18,287.18 $ -8,442.50 $ 1,451.14 $ 11,393.29 $ 21,383.53 $ 31,421.41 $ 41,506.49

Faulhaber Gmbh, With the Tax rate of 40%, the Lessor can suggest
pretax interest values ​ranging from 10.5% - 13%, then the Tax rate of
34%, 25%, 15% and 0%, it is recommended that the Lessor offer a loan at
the rate Pretax interest of at least 11%.
Lease Advantage Analysis for Honshu Heavy Industries
Pretax Interest
Tax
9.50% 10% 10.50% 11% 11.50% 12% 12.50% 13%
40% $-36,427.94 $-30,240.28 $-24,020.07 $ -17,767.58 $ -11,483.11 $ -5,166.93 $ 1,180.67 $ 7,559.41
34% $-40,026.98 $-33,304.71 $-26,547.30 $ -19,755.05 $ -12,928.28 $ -6,067.28 $ 827.63 $ 7,756.14
25% $-45,443.90 $-37,944.64 $-30,406.55 $ -22,829.96 $ -15,215.23 $ -7,562.69 $ 127.31 $ 7,854.44
15% $-51,500.63 $-43,171.59 $-34,799.88 $ -26,385.87 $ -17,929.94 $ -9,432.47 $ -893.83 $ 7,685.59
0% $-60,689.49 $-51,178.14 $-41,618.81 $ -32,011.94 $ -22,357.96 $ -12,657.30 $ -2,910.37 $ 6,882.39

Honshu Heavy Industries, With the Tax rate of 40%, 34% and 25%, the Lessor can suggest the
value of pretax interest ranging from 12.5% ​- 13%, then the Tax rate of 15% and 0%, it is
recommended that Lessor offer loans in Pretax interest rate is at least 13%.

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 3
Conclusion &
Recommendation
Conclusion
● Primus should consider the NPV and IRR value in its Avantjet
lease offer, because if Primus prioritizes large NPV and IRR
values, it is feared that Avantjet or Lessee parties are not
interested in the offer Lessor, because the Lease Advantage
value for the Lessee is not large and unprofitable.

22
Recommendation
● If scenario A is selected, option 2 is the best because it has a higher NPV and
will generate good revenue for Primus and lease advantage is within tolerable
limits.
● If scenario B is selected then option 4 is the best option because it has a
larger NPV and generates good revenue for Primus and generates a positive
lease advantage for Avantjet.
● If Avantjet bargain then it can be moved to option 3,2, and 1 depending on the
agreement between both parties and can benefit both. If scenario C is chosen
then option 1 is the best choice because it produces positive lease advantage
when compared with other option that have negative lease advantage.

23
Recommendation
● If scenario D is chosen then then option 4 is the best option because it has a
larger NPV and generates good revenue for Primus and generates a positive
lease advantage for Avantjet.
● If Avantjet bargain then it can be moved to option 3,2, and 1 depending on the
agreement between both parties and can benefit both.
● Product quality is also one of the determinants of the deal, because if Primus
has a good product quality compared to its competitors, it is possible for
Primus to install a high lease price.

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Thanks!
Any questions?

25
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