GDelaneyWhen people take that tone its normally a reminder for...

GDelaney

When people take that tone its normally a reminder for me to check my last post for unnecessary arrogance. Fair enough, i should not have said you were wrong without thinking it thorugh properly. Apologies. Here's a more thoughtful post. What do you think?

You are right, its a strange way to do this. But i have dont it this way for two reasons one, to follow the example set by pete and two, to avoid using a per unit price. Note, to calculate earnings using the unit price for production costs you need to know the cost per unit all the way along the production/cost curve. We dont know that. So I just used the one imperfect model in preference for another.

But ok, lets look at the earnigns when using the unit cost of production. Its a good idea and pretty interesting.

I think the per unit cost of production is about 19.50USD where we take 35% market share (which is 2m units) at a 20% discount (ie equal to 42% costs in that example). This is also where we strike commonality between the two models.

That doesnt mean the cost of production is going to be 19.50USD for every unit we produce. Thats the cost when producing 2m units only.

The normal cost curve applies here. If we increase production beyond 2m units the cost for producing each unit will drop. This is because the 'washed' costs have a fixed value and dont increase with production.

Below is what happens to earnings at different unit costs for production. But the question is, whats the per cost of production when producing 3.2m units? Thats what makes this model hard to use with confidence. But certainly the cost per unit will decrease with the increase in units produced or sold.

When i compare these results with the original spreadsheet they are ballpark of a 15-16USD cost per unit price. Not bad. Though i did note i made a mistake in my previous post that you copied from. I said i used the 340m market cap numbers but i see now i used the 370m market cap numbers, ie with 10% growth. Here is what they should have been:
- 35% market share, 20% discount, 27.5m earnings
- 55% market share, 40% discount, 32.5m earnings

Still looks pretty good to me.

PS i have not discussed the cost curve with anyone from management and this is simply based on my understanding of the world.