1. Copyright 2010 © michael.roberson@eStudy.us, All rights reserved eStudy.us Harley-Davidson Income Statement Harley-Davidson – an American motorcycle manufacture based in Milwaukee, WI In 1903 William S. Harley and Arthur Davidson make available to the public the first production Harley-Davidson motorcycle. Current details 10.3% market share 686 dealers in U.S.A 267.4 thousand unit sales in 2008 9,700 employees $25 Stock Price (NYSE) Public in 1987 (NYSE) Nearly zero debt Revenue2008 H-D / Buell Motorcycle$4,278,400 Parts & Accessories$858,748 General Merchandise$313,835 Buell Motorcycle$123,086 Defense and Other$20,397 Total Revenue$5,594,466 Cost of Product$3,663,488 Gross Profit$1,930,978 Expense Operating Expense$664,429 Advertising Expense$300,000 Finance Operating Income$82,765 Corporate Expense$20,131 Total Operating Income$1,029,183 Investment Income$9,495 Interest Expense$4,542 Income Before Taxes$1,034,136 Income Taxes$379,259 Net Income$654,877

2. Copyright 2010 © michael.roberson@eStudy.us, All rights reserved eStudy.us New Harley-Davidson demand equation quantity demand for new Harley-Davidson motorcycles price of new Harley-Davidson motorcycles average price of other new street motorcycles average price of used Harley-Davidson motorcycles Harley-Davidson advertising expense (millions) average income of street motorcycle riders average price of gasoline average purchase value of Harley-Davidson parts and accessories average age of street motorcycle riders $16,000 $13,000 $10,000 $300 (millions) $45,000 $2.64 $500 42 years Possible Improvements Harley Davidson product line prices and quantities (multiple simultaneous demand functions) Specific competitor prices (Honda, Suzuki, Yamaha, Kawasaki, BWM, etc…) Insurance Price Automobile Price Index

3. Copyright 2010 © michael.roberson@eStudy.us, All rights reserved eStudy.us New Harley-Davidson demand equation inverse demand function

4. Copyright 2010 © michael.roberson@eStudy.us, All rights reserved eStudy.us New Harley-Davidson demand elasticities Own price Substitute price (Competition) Gasoline Income

5. Copyright 2010 © michael.roberson@eStudy.us, All rights reserved eStudy.us New Harley-Davidson cost equations

6. Copyright 2010 © michael.roberson@eStudy.us, All rights reserved eStudy.us Harley-Davidson Income Statement Demand Function Var.Coef.Elast. Inter-933.884 H-D Price-0.022$16,000-1.32 Comp. Price0.0038$13,0000.18 Used H-D Price143.2$10,0000.33 H-D Adv. Exp.0.16$300 Rider Income0.029$45,0004.88 Gas Price35.6$2.640.35 Parts / Mer Price-0.46$500-0.86 Rider Age4.742 Motorcycle Sales267.4 Total Cost Function Exp1 3 Coef1 0.12 Exp2 2 Coef2 76.5 Coef3 20,000 Coef4 1,491,069 PQ Revenue2008 H-D / Buell Motorcycle$4,278,400 Parts & Accessories$858,748 General Merchandise$313,835 Buell Motorcycle$123,086 Defense and Other$20,397 Total Revenue$5,594,466 Cost of Product$3,663,488 Gross Profit$1,930,978 Expense Operating Expense$664,429 Advertising Expense$300,000 Finance Operating Income$82,765 Corporate Expense$20,131 Total Operating Income$1,029,183 Investment Income$9,495 Interest Expense$4,542 Income Before Taxes$1,034,136 Income Taxes$379,259 Net Income$654,877

7. Copyright 2010 © michael.roberson@eStudy.us, All rights reserved eStudy.us Harley-Davidson Income Statement ABCDEFGHIJ 1 Revenue2008 Demand 2 H-D / Buell Motorcycle$4,278,400 Var.Coef.LevelVariablesElast. 3 Parts & Accessories$858,748 Inter-933.8841 4 General Merchandise$313,835 H-D Price-0.022$16,000 -1.32 5 Buell Motorcycle$123,086 Comp. Price0.0038$13,000 0.18 6 Defense and Other$20,397 Used H-D Price143.20.625$10,0000.33 7 Total Revenue$5,594,466 H-D Adv. Exp.0.16$300 8 Cost of Product$3,663,488 Rider Income0.029$45,000 4.88 9 Gross Profit$1,930,978 Gas Price35.6$2.64 0.35 10 Expense Parts / Mer Price-0.46$500 -0.86 11 Operating Expense$664,429 Rider Age4.742 12 Advertising Expense$300,000 13 Finance Operating Income$82,765 Motorcycle Sales267.4 14 Corporate Expense$20,131 15 Total Operating Income$1,029,183 Total Cost 16 Exp13 17 Investment Income$9,495 Coef10.12 18 Interest Expense$4,542 Exp22 19 Income Before Taxes$1,334,136 Coef276.5 20 Income Taxes$379259 0.37 Tax Rate Coef320,000 21 Net Income$654,877 Coef41,491,069 =G17*G13^G16-G19*G13^G18+G20*G13+G21 =G13*H4 =SUMPRODUCT(G3:G11,H3:H11)

8. Copyright 2010 © michael.roberson@eStudy.us, All rights reserved eStudy.us Statistical Error and Financial Relevance 95% confident that the true coefficient is between -0.0222352 and -0.0217648 Demand Function VariableCoef.Std. ErrorLowHigh Intercept-933.884 H-D Price-0.022-0.00012-0.02224-0.02176 Comp. Price0.00380.0000810.0036410.003959 Used H-D Price143.21.54140.1816146.2184 H-D Adv. Exp.0.160.00220.1556880.164312 Rider Income0.0290.000450.0281180.029882 Gas Price35.61.1133.424437.7756 Parts / Mer Price-0.46-0.005-0.4698-0.4502 Rider Age4.70.24.3085.092

9. Copyright 2010 © michael.roberson@eStudy.us, All rights reserved eStudy.us Statistical Error and Financial Relevance RevenueConf. LowPoint Est.Conf. HighDemand Sales191.6267.4343.2VariableCoef.LowHigh H-D / Buell Motorcycle$3,065,524$4,278,400$5,491,276Inter-933.884 Parts & Accessories$858,748 H-D Price-0.022-0.02224-0.02176 General Merchandise$313,835 Comp. Price0.00380.0036410.003959 Buell Motorcycle$123,086 Used H-D Price143.2140.1816146.2184 Defense and Other$20,397 H-D Adv. Exp.0.160.1556880.164312 Total Revenue$4,381,590$5,594,466$6,807,342Rider Income0.0290.0281180.029882 Cost of Product$3,358,742$3,663,488$4,195,377Gas Price35.633.424437.7756 Gross Profit$1,022,848$1,930,978$2,611,965Parts / Mer Price-0.46-0.4698-0.4502 ExpenseRider Age4.74.3085.092 Operating Expense$664,429 Advertising Expense$300,000 Motorcycle Sales267.4 Finance Operating Income$82,765 Corporate Expense$20,131 Total Operating Income$121,053$1,029,183$1,710,170Critical-t=1.96 Investment Income$9,495 Interest Expense$4,542 Income Before Taxes$126,006$1,034,136$1,715,123 Income Taxes$46,211$379,259$629,004 Net Income$79,795$654,877$1,086,119

10. Copyright 2010 © michael.roberson@eStudy.us, All rights reserved eStudy.us Profit Maximizing level of Harley-Davidson production

11. Copyright 2010 © michael.roberson@eStudy.us, All rights reserved eStudy.us Profit Maximizing level of Harley-Davidson production QTCTFCTVCMCAVCAFCATCPriceMRTRProfit 250$3,584,819$1,491,069$2,093,750$4,250$8,375$5,964$14,339$16,791$5,427$4,197,727$612,908 251$3,589,083$1,491,069$2,098,014$4,277$8,359$5,941$14,299$16,745$5,336$4,203,109$614,026 252$3,593,374$1,491,069$2,102,305$4,305$8,342$5,917$14,259$16,700$5,245$4,208,400$615,026 253$3,597,694$1,491,069$2,106,625$4,334$8,327$5,894$14,220$16,655$5,155$4,213,600$615,906 254$3,602,043$1,491,069$2,110,974$4,364$8,311$5,870$14,181$16,609$5,064$4,218,709$616,666 255$3,606,422$1,491,069$2,115,353$4,394$8,296$5,847$14,143$16,564$4,973$4,223,727$617,306 256$3,610,831$1,491,069$2,119,762$4,425$8,280$5,824$14,105$16,518$4,882$4,228,655$617,824 257$3,615,272$1,491,069$2,124,203$4,457$8,265$5,802$14,067$16,473$4,791$4,233,491$618,219 258$3,619,744$1,491,069$2,128,675$4,489$8,251$5,779$14,030$16,427$4,700$4,238,236$618,492 259$3,624,250$1,491,069$2,133,181$4,522$8,236$5,757$13,993$16,382$4,609$4,242,891$618,641 260$3,628,789$1,491,069$2,137,720$4,556$8,222$5,735$13,957$16,336$4,518$4,247,455$618,666 261$3,633,362$1,491,069$2,142,293$4,591$8,208$5,713$13,921$16,291$4,427$4,251,927$618,565 262$3,637,970$1,491,069$2,146,901$4,626$8,194$5,691$13,885$16,245$4,336$4,256,309$618,339 263$3,642,614$1,491,069$2,151,545$4,662$8,181$5,669$13,850$16,200$4,245$4,260,600$617,986 264$3,647,294$1,491,069$2,156,225$4,699$8,168$5,648$13,816$16,155$4,155$4,264,800$617,506 265$3,652,012$1,491,069$2,160,943$4,736$8,155$5,627$13,781$16,109$4,064$4,268,909$616,898 266$3,656,767$1,491,069$2,165,698$4,774$8,142$5,606$13,747$16,064$3,973$4,272,927$616,161 267.4$3,663,488$1,491,069$2,172,419$4,829$8,124$5,576$13,700$16,000$3,845$4,278,400$614,912 268$3,666,393$1,491,069$2,175,324$4,853$8,117$5,564$13,681$15,973$3,791$4,280,691$614,298 269$3,671,266$1,491,069$2,180,197$4,893$8,105$5,543$13,648$15,927$3,700$4,284,436$613,171 270$3,676,179$1,491,069$2,185,110$4,934$8,093$5,522$13,615$15,882$3,609$4,288,091$611,912 271$3,681,134$1,491,069$2,190,065$4,976$8,081$5,502$13,584$15,836$3,518$4,291,655$610,521 272$3,686,131$1,491,069$2,195,062$5,018$8,070$5,482$13,552$15,791$3,427$4,295,127$608,997 273$3,691,171$1,491,069$2,200,102$5,061$8,059$5,462$13,521$15,745$3,336$4,298,509$607,339 274$3,696,254$1,491,069$2,205,185$5,105$8,048$5,442$13,490$15,700$3,245$4,301,800$605,546 275$3,701,382$1,491,069$2,210,313$5,150$8,038$5,422$13,460$15,655$3,155$4,305,000$603,619