What the Plant Can Build and What the Line Must Earn: Lakemont Marine's Internal Position and the Electric Line's Economics From One Set of Figures
Student Name
American College of Education
MGMT5091: MBA Capstone Experience
Module 3 Assignment
Instructor Name
October 4, 2027
Capabilities the Line Would Draw On
Grant (1991) distinguished a firm's resources, the assets it owns, from its capabilities, what teams of those resources can reliably do, and argued that strategy should be built on capabilities while also identifying the resource gaps a strategy would expose. Lakemont Marine has three capabilities an electric line would use directly. Its aluminum fabrication and pontoon tube welding are consistent enough that warranty claims on hulls run well below the level its dealers report for competing brands. Its furniture and upholstery shop, which builds seating in-house rather than buying it, lets it change layouts quickly, useful for a boat that needs space for battery compartments. And its dealer relationships are strong: its on-time delivery rate last year was 94 percent, and 88 of its 118 dealers have carried the brand for more than ten years.
These capabilities make Lakemont a credible builder of the boat around an electric system. They do not make it a credible builder of the electric system itself, and the analysis should say so plainly.
The Resource Gap
Lakemont's electrical work today consists of low-voltage wiring for lights, gauges, stereos and bilge pumps, done by a team of 14 technicians supervised by two electrical engineers. An electric pontoon carries a battery system operating at several hundred volts, with thermal management, charging electronics and safety systems that must meet marine standards. Lakemont has no one on staff who has designed or tested such a system, and no test equipment for it. The line's success depends less on the capabilities Lakemont has than on how it fills the one it lacks.
Three ways to fill the gap are available. Lakemont could hire an electrical engineering team, which would take a year to recruit and cost more than the $2.1 million of added fixed costs in the register (A7) allows. It could buy a complete propulsion and battery package from one supplier, which the register already assumes in its $27,000 package cost (A4), and train its technicians to install it. Or it could partner with a supplier for engineering support during integration. The second route, combined with a paid engineering-support agreement with the supplier for the first two model years, fits the register's cost assumptions and keeps Lakemont's investment in capabilities it will own: installation, testing and dealer training. The cost of that agreement, about $350,000 a year, is already inside A7.
The Financial Baseline
Lakemont's revenue last year was about $142 million, with gross profit of about $27.0 million and operating income of about $9.2 million. Depreciation and amortization were about $3.2 million, giving operating cash earnings of about $12.4 million. The firm carries $11 million of term debt, holds about $6 million of cash and has an undrawn $15 million revolving credit line. Normal capital spending on the gasoline line runs about $3.5 million a year.
The electric line's $6.4 million investment (A6) could be funded from one year of cash flow after normal capital spending, supplemented by a modest draw on the credit line. Net debt would rise from about 0.4 times operating cash earnings to about 0.8 times at its peak, well within the family's stated limit of 2.0 times. Working capital needs are small because, as with most boat builders, dealers finance their inventory through floor-plan lenders who pay the manufacturer at shipment. The investment is affordable. Whether it is worth making depends on the line's own economics.
The Line's Economics
The projection uses the register directly: volumes of 140, 300, 470, 541 and 622 boats in years one to five (A2, version 2); a wholesale price of $76,000 (A3); variable cost of $61,500 in the first year (A4), with the battery package portion falling 5 percent a year (A9); added fixed costs of $2.1 million (A7); and capital of $6.4 million (A6). Three assumptions are added to the register here: A11, lost gasoline sales from year three of about 62 boats a year at about $8,700 of gross profit each, the maximum A10 allows; A12, a 25 percent tax rate; and A13, straight-line depreciation of the investment over seven years.
On those assumptions, the line's free cash flow is about $0.2 million in the first year, $2.2 million in the second, $4.3 million in the third, $5.7 million in the fourth and $7.4 million in the fifth. Discounted at the 11 percent cost of capital (A8), the net present value over five years is about $6.8 million. The first-year volume of 140 boats sits well below the accounting break-even of about 208 boats, which includes depreciation, and just under the cash break-even of about 145 boats before taxes, so the first year roughly covers its own cash costs and no more, which is normal for a new line.
The five-year window excludes any value beyond model year 2034. Koller et al. (2020) note that value beyond the explicit forecast period often makes up a large share of a project's total value, so excluding it is conservative. The capstone keeps the exclusion deliberately: if the line is worth doing only because of years the analysis cannot see, the case for it is weaker than it looks.
Sensitivity: Price Is the Hinge
Module 2 found that a $76,000 wholesale price implies a retail premium of about $38,000 over a gasoline model, while dealers reported that buyers had typically accepted about $25,000. The projection was therefore rerun at lower prices. At $72,000, the net present value falls to about $2.5 million; at $70,000, which implies a retail premium near $30,000, it falls to about $0.3 million; and at $68,000 it turns negative, at about minus $1.8 million. The break-even price, holding volume at the register's figures, is just under $70,000.
Volume matters too. If sales followed the low end of Module 2's demand range, starting at 120 boats and reaching 450 in year five, the net present value would be about $1.9 million at $76,000 and about minus $2.9 million at $70,000. In the survey by Graham and Harvey (2001), a majority of the corporate finance chiefs who responded said they use discounted cash flow methods as their main capital budgeting tools while many also look at payback and at how results change under different assumptions, and the sensitivity here matters more than the headline. The line pays only if Lakemont can hold a price near $76,000, which means selling mainly to buyers who have no gasoline alternative or who value quiet enough to pay for it.
What Module 4 Must Resolve
The internal and financial analysis leaves two tasks for the marketing and operations plan. First, it must identify a customer group large enough to reach the register's volumes at a price close to $76,000, or show how costs could fall enough to justify a lower price. Second, it must build the dealer training, testing and installation capability the resource gap requires within the $2.1 million of fixed costs in A7. If either proves impossible, the register must change, and the net present value must be recalculated before Module 6 recommends anything.
References
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/s0304-405x(01)00044-7
Grant, R. M. (1991). The resource-based theory of competitive advantage: Implications for strategy formulation. California Management Review, 33(3), 114-135. https://doi.org/10.2307/41166664
Koller, T., Goedhart, M., & Wessels, D. (2020). Valuation: Measuring and managing the value of companies (7th ed.). Wiley.
How this MGMT 5091 Module 3 example is structured
MGMT 5091 Module 3 in many sections builds internal and financial position from the same figures; your classroom's instructions decide the depth of the financial model. This example moves from capabilities to the gap the line would expose, then to the firm's ability to fund the investment, and then to the line's own economics. Every projection draws its inputs from the assumptions register by number, so a reader can trace each result to its source, and the sensitivity analysis tests the assumption Module 2 identified as weakest.
MGMT5091 Module 3 questions, answered
What does MGMT5091 Module 3 usually ask for?
MGMT5091 Module 3 often asks for the internal analysis and financial position of the capstone firm, frequently including projections for the proposed strategy. Many sections expect both to be built from the same figures. Your classroom's instructions decide the depth of the financial model.
Does a capstone financial model need a terminal value?
Not always. Including one is standard in valuation, but a capstone can exclude it deliberately if it says why and shows that the decision does not depend on years the analysis cannot see.
Which assumption should the sensitivity analysis test?
The one your earlier analysis identified as weakest or most uncertain. Testing the assumption the external section already questioned connects the financial section to the rest of the argument.
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