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The value chain and strategic cost analysis. Sustainable Products raises trees, cuts the trees into logs, and processes the logs into paper.
The value chain and strategic cost analysis. Sustainable Products raises trees, cuts the trees into logs, and processes the logs into paper. Sustainable Products sells the paper to a distributor, who then sells the to printers. Assume that a -average cost of capital of percent is appropriate for timber and paper processing. Here are the costs and revenues of each stage of the value chain. All data are for the production of enough timber to produce 20,000 tons of paper. Timber. The estimated market value of timber assets at the beginning of the year is $5,100,000 and at the end of the year is $4,800,000. Revenues, if the timber were sold in the market, would equal $2,100,000. Operating costs total $1,500,000, excluding depreciation. Paper Processing. The estimated market value of paper-processing assets at the beginning of the year is $15,000,000 and at the end of the year is $13,000,000. Revenues, if the paper were sold in the market, would be $12,000,000. Operating costs total $9,000,000, including all costs of materials excluding depreciation. Distributor. The distributor sells the paper for $800 per ton. The cost of the paper to the distributor (cost of goods sold) can be found by reviewing the sales from paper processing. In addition to the cost of paper, the operating costs total $135 per, excluding depreciation. The cost of capital for the distributor is $50 per ton. Retailer. The retailer sells the paper for $850 per ton. The of the paper to the retailer (costs of goods sold) can be found by the sales from the distributor. Operating costs total $25 per ton, including economic depression. The cost of capital for the retailer is $18 per ton. a. Compute the profits of each stage of value chain. Show amounts in total (for $20,000 tons) and per ton. b. Assume you are advising a loan approval committee in a bank. Write a short memo to the loan approval committee in which you evaluate the profitability of each part of the value chain.
