1.0 Impact on Clothes Dryer Business 

An important consideration regarding new efficiency standards that came to light during 

the course of Arthur D. Little's interviews with manufacturers, was the pull-through 

effect of clothes washers on the clothes dryer market. The majority of manufacturers 

indicated that stringent standards on clothes washers would have an effect on dryers since 

dryer sales are highly correlated to washer sales as people frequently buy these 

appliances as a set. From the manufacturers' data, it is estimated that approximately 45 to 

55% of washers are sold in pairs with dryers. Therefore, any change in washer volumes 

will impact a significant portion of the dryer business. A separate GRIM (referred to as 

the Dryer GRIM) was prepared in an effort to model the financial impact of these 

considerations on the dryer business. 

In conducting the cash flow analysis, the Dryer GRIM assumes that 50% of clothes 

washers are sold as pairs with dryers and that the purchase of these paired dryers will be 

directly impacted by changes in washer volumes. The Dryer GRIM estimates the net 

present value (NPV) of the clothes dryer business both in the absence and in presence of 

a standard. If a new standard results in a decrease in clothes washer sales, this negatively 

impacts the sales of dryers, thereby reducing the NPV of the dryer business. 

ADL used industry-average values of manufacturer prices, shipments, manufacturing 

costs and financial information to perform the dryer cash flow analysis. Industry-average 

manufacturer prices were obtained from the Current Industrial Reports (CIR). The 

shipment weighted price is obtained by dividing the dollar value of all dryers (both gas 

and electric) shipped from factories by the quantity of shipments. Clothes dryer 

shipments, including those exported and imported were obtained from the AHAM Fact 

Book. Table 1 provides the shipment weighted manufacturer price and shipments of 

clothes dryers from 1990 through 1997. 

Table 1. Shipment-weighted manufacturer price o1f dryers from 1990 through 1997 

in 'OOOs 

Industry unit 4717 5074 5339 5225 5528 

shi ments* 

Ex ort 105.9 169.2 201.6 181.6 217.4 207.5 368.8 

57.4 76.1 140.4 190.1 191.4 324.9 446.4 

Dryer produced 4262.6 4236.9 4576.6 4883.9 5147.6 4900.1 5081.7 

by U.S. 

manufacturers 

* Includes shipments for the U.S. market whether imported or domestically produced, and export 

shipments. 
The Dryer GRIM considers the impact of clothes dryers produced by U.S. 

manufacturers. The 1996 dryer shipments of 5.08 million are used to develop the 

Base Case shipment forecasts. Future Base Case dryer sales are forecasted using the 

growth rate projections from the Base Case clothes washer shipment forecasts. 

Standard Case dryer shipments are calculated assuming that 50% of clothes washers 

are sold as pairs with dryers. Hence, for each standard level analyzed, a drop in 

clothes washer shipments results in a drop in the dryers that are bought as pairs. Any 

drop in dryer sales resulting from a standard will result in a negative financial impact 

on the dryer business. 

Disaggregated manufacturing costs, namely material, labor and overhead, and 

financial information, including tax rate, working capital, depreciation, cost of capital, 

etc., were obtained from a top-down analysis of the appliance industry. These inputs 

are similar to those used for the clothes washer GRIM. Table 2 presents the cost and 

financial information used in the Dryer GRIM. 

Table 2. Cost and financial information used in the Dryer GRIM 

·+•Ddt1f•.•· ' ::,;;;;;:•:,;:;}'' ~··· 

•· .,.···· .Ai·dJ:'.'.. . .• .. mir £• v,,, ~. 

Manufacturer Price 100% $220.4 

Manufacturing Costs 

Material 52% $114.6 

Labor 10.2% $22.5 

Overhead (excluding 8.2% $18.3 

depreciation) 

Depreciation 3.5% $7.7 

Financial Information 

Tax Rate 42.8% 

Discount Rate for NPV 6.65% 

Working Capital 10.5% 

Standard SG&A 18.0% 

R&D 1.8% 

Ordinary Capital 3.9% 

Expenditure 

Net Profit Before Tax 6.2% 

Using the above inputs, the GRIM spreadsheet was used to analyze the financial 

impact at each standard level. The Base Case NPV of the clothes dryer business is 

estimated at $636.3 million. Table 3 presents the Standard Case NPV for each of 

these levels, along with the change in NPV. 
Table 3. Standard Case NPV for dryer business 

. :Emcien,~y. ·· 

Improvem~nt · .... ·· 

5% 

10% 

15% 

20% 

25% 

35% 

40% 

45% 

50% 

636.3 

636.2 

636.1 

632.6 

623.0 

595.6 

595.6 

576.3 

574.3 

0 0% 

0 0% 

-0.2 ~0% 

-3.7 -0.6% 

-B.3 -2.1% 

-40.7 -6.4% 

-40.7 -6.4% 

-60.0 -9.4% 

-62.0 -9.8% 

At more stringent standard levels, manufacturers expt~ct that they will need to 

substantially redesign and retool their clothes washer platforms and these changes 

could dictate a change to the dryer platform as well. Manufacturers stated that small 

changes in dryer manufacturing lines typically cost approximately $25 million for the 

whole industry, whereas, complete retooling costs could be as high as $200 million. 

The Dryer GRIM does not consider any conversion costs (capital and design) that 

might be required to upgrade the dryer platforms at the more stringent standard levels. 

Any such investments will increase the negative impact on the NPV of the dryer 

industry over and above those presented in Table 3. Furthermore, the GRIM analysis 

does not account for any negative impact on profit margins that may result from 

manufacturing overcapacity and any other competitive dynamics. 
1.0 Overview of GRIM spreadsheet 

The Government Regulatory Impact Model (GRIM) was used to evaluate the cash flow 

impacts of regulations on the clothes washer industry. The basic structure of the GRIM, 

illustrated in Figure 1, is a standard annual cash flow analysis that uses manufacturer 

price, manufacturing costs, shipments and industry financial information as an input, and 

accepts a set of regulatory conditions as changes in costs, investments and associated 

margms. 

Price o1111 Manufacturing Costs 

Quantity ~ Financial Information 

Cash Flow 

Figure 1. Using GRIM to conduct the cash flow analysis 

The GRIM spreadsheet uses a number of factors-annual expected revenues, cost of 

sales, selling and administration costs, taxes, changes in working capital, and capital 

expenditures related to new standards-to arrive at a series of annual cash flows, 

beginning from the base year of the analysis and continuing explicitly for several years 

after the implementation of the standard. The measure of industry net present value 

(NPV) is calculated by discounting the stream of annual cash flows. 

The GRIM calculates cash flows by year and then detc~rmines the present value of these 

cash flows, both without regulations (Base Case) and with regulations (Standard Case), 

using the appropriate discount rate. For the purpose of this analysis, the Base Case 

scenario represents the business scenario in the absence of a standard. In case a new 

clothes washer standard comes into effect, it will change the product mix of clothes 

washers being sold in the market and their associated prices, costs and shipments. Such a 

scenario is called the Standard Case scenario. Hence, Base Case NPV implies the present 

value of cash flows in the absence of a standard. Similarly, Standard Case NPV implies 

the present value of cash flows in the scenario where a standard comes into effect. To 

project future cash flows, the clothes washer GRIM analysis assumes 2000 as the 

announcement year of the standard, and 2003 as the year when the new standard will 

come into effect. 

1 
2.0 Preliminary cash flow analysis presented at the December 1998 workshop 

A preliminary version of the GRIM (GRIM_lph.xls) accompanied the Preliminary TSD. 

The preliminary GRIM was used to develop a preliminary Base Case industry NPV. For 

the preliminary Base Case analysis, presented at the December 1998 workshop, 

information was obtained from the following sources: 

• Manufacturer's prices were obtained from the AHAM Fact Book and Current 

Industrial Reports. 

• Manufacturing costs were estimated using an industry cost structure developed from 

manufacturers' 10-K statements and the 1992 Census of Manufacturers. 

• Financial information was obtained from manufacturers' 10-K statements and other 

publicly available industry statistics such as Standards and Poor's Reports and 

Moody's Company Reports. 

• Preliminary future shipments were obtained using current industry shipment statistics 

and projecting a historical annual growth rate of2.3%. 

3.0 GRIM spreadsheet for the NOPR Manufacturer Impact Analysis 

The version of the GRIM distributed with the Preliminary TSD assumed that clothes 

washer shipments remained the same under both the Base Case and Standard Case 

scenarios. Furthermore, the Base Case shipments were assumed to be entirely baseline V -

axis models. It was stated at the December 1998 clothes washer rulemaking workshop 

that shipment scenarios would be modified once the clothes washer shipment information 

was updated for the National Energy Savings Spreadsheet (NES). 

ADL received the shipment forecasts for the NOPR analysis in April 1999, and made 

modifications to the GRIM in order to accommodate the new shipment forecasts. The 

modified GRIM spreadsheet models the market segm~nts representing V-axis and H-axis 

washers in separate worksheets in both the Base Case and the Standard Case. 

Furthermore, additional information provided by AHAM enabled ADL to separate total 

incremental fixed costs into the two categories used in GRIM: capital conversion costs 

consisting of equipment and tooling costs; and design conversion costs consisting of 

R&D and marketing costs. 

The modified GRIM spreadsheet along with the preliminary Base Case information was 

then sent to all the manufacturers in advance of the scheduled interview dates. 

The following subsections present the shipment forecasts and describe the modifications 

made to the GRIM. 

2 
3.1 Shipments Forecasts 

Prior to beginning the manufacturer visits, AOL updated the GRIM with shipment 

forecasts developed for the NES. These forecasts included shipments for both 

Y-axis and H-axis clothes washers. Tables 1 and 2 present the Base Case and Standard 

Case shipment forecasts, for the years 1996 through 2012. The methodology used to 

derive these forecasts is described in the DOE document entitled "Shipments Write-up." 

Table 1. Clothes washer shipment forecasts for the Base Case and the V-axis 

standard levels (i.e., 0 to 25% efficienc·y improvement levels) 

Baseline Efficiencv Level 1 Efficiencv Level 2 Efflcienrv Level 3 Efficienrv Level 4 Efflciencv Level 5 

f:ff. bnnrovement = 5~ 'ff. bnnrovement =JO tn.: I~rovement = 15 tff; I~rovement = 20' 'ff. /mnrovement = 25 

Base Case Standard Case Standard Case Standard Case Standard Case Standard Case 

Year V-Axif H-Axif V-Axif H-Axif V-Axif H-Axif V-Axif H-Axif V-Axif H-Axif V-Axif 

Shipment Shipment Shipment Shipment Shipment Shipment Shipment Shipment Shipment Shipment Shipment 

million million million million million million million million million million million 

1996 6.00 0.12 6.00 0.12 6.00 0.12 6.00 0.12 6.00 0.12 6.00 

1997 6.05 0.25 6.05 0.25 6.05 0.25 6.05 0.25 6.05 0.25 6.05 

1998 6.02 0.40 6.02 0.40 6.02 0.40 6.02 0.40 6.02 0.40 6.02 

1999 6.08 0.44 6.08 0.44 6.08 0.44 6.08 0.44 6.08 0.44 6.08 

2000 6.18 0.48 6.18 0.48 6.18 0.48 6.18 0.48 6.18 0.48 6.18 

2001 6.24 0.52 6.24 0.52 6.24 0.52 6.24 0.52 6.24 0.52 6.24 

2002 6.28 0.56 6.28 0.56 6.28 0.56 6.28 0.56 6.28 0.56 6.28 

2003 6.28 0.60 6.27 0.60 6.27 0.60 6.27 0.60 6.14 0.59 5.81 

2004 6.27 0.64 6.26 0.64 6.26 0.64 6.25 0.64 6.14 0.63 5.83 

2005 6.27 0.68 6.27 0.68 6.26 0.68 6.26 0.68 6.16 0.66 5.87 

2006 6.32 0.72 6.31 0.72 6.31 0.72 6.30 0.72 6.20 0.71 5.93 

2007 6.39 0.77 6.38 0.77 6.38 0.77 6.37 0.77 6.28 0.76 6.02 

2008 6.43 0.82 6.43 0.81 6.42 0.81 6.41 0.81 6.33 0.80 6.10 

2009 6.46 0.86 6.45 0.86 6.45 0.86 6.44 0.86 6.36 0.85 6.16 

2010 6.50 0.91 6.49 0.91 6.49 0.91 6.48 0.90 6.41 0.90 6.24 

2011 6.53 0.95 6.53 0.95 6.52 0.95 6.51 0.95 6.46 0.94 6.30 

2012 6.57 1.00 6.57 1.00 6.56 1.00 6.55 1.00 6.50 0.99 6.36 

At Y-axis standard levels, the post-standard product mix includes both the Y-axis and Haxis machines, whereas at the H-axis levels (35% or above) Standard Case shipments 

include H-axis washers only. 

H-Axif 

Shipment 

million 

0.12 

0.25 

0.40 

0.44 

0.48 

0.52 

0.56 

0.56 

0.59 

0.63 

0.68 

0.73 

0.77 

0.82 

0.87 

0.92 

0.97 

3 
Table 2. Clothes washer shipment forecasts for the Base Case and the H-axis 

standard levels (i.e., 35% to 50% efficiency improvement levels) 

Baseline 35 % Elf. 40 % Elf. 45 % Elf. 50 % Elf. 

Inwrovement lnwrovement Inwrovement lmnrovement 

Base Case Standard Standard Standard Standard 

Year V-Axis H-Axis Case Case Case Case 

Shipment Shipment Shipment Shipment Shipment Shipment 

million million million million million million 

1996 6.00 0.12 6.12 6.12 6.12 6.12 

1997 6.05 0.25 6.30 6.30 6.30 6.30 

1998 6.02 0.40 6.42 6.42 6.42 6.42 

1999 6.08 0.44 6.52 6.52 6.52 6.52 

2000 6.18 0.48 6.66 6.66 6.66 6.66 

2001 6.24 0.52 6.76 6.76 6.76 6.76 

2002 6.28 0.56 6.84 6.84 6.84 6.84 

2003 6.28 0.60 5.41 5.41 4.81 4.75 

2004 6.27 0.64 5.52 5.52 4.92 4.86 

2005 6.27 0.68 5.63 5.63 5.04 4.98 

2006 6.32 0.72 5.76 5.76 5.19 5.13 

2007 6.39 0.77 5.94 5.94 5.38 5.32 

2008 6.43 0.82 6.12 6.12 5.59 5.53 

2009 6.46 0.86 6.31 6.31 5.81 5.76 

2010 6.50 0.91 6.51 6.51 6.06 6.01 

2011 6.53 0.95 6.69 6.69 6.27 6.23 

2012 6.57 1.00 6.85 6.85 6.46 6.42 

Figure 2 illustrates the shipment forecasts graphically. It shows a drop in shipments 

beginning at the standard year (2003) for most efficiency levels, with the negative impact 

on sales highest at more stringent standard levels. The percentage drop in shipments in 

the years 2003 and five years thereafter (2008) are outlined in Table 3. 

4 
8.50 

8.00 

7.50 

.. 7.00 c 

~ 

1 

J!I 6.50 c 

.. 

&. 

~ 6.00 

5.50 

5.00 

4.50 CIO "' "' 

~ "' ~ 

0 0 N (') '¢ Lt) <D .... CIO "' 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 N N N N N N N N N N 

Shipments by Standard Level 

0 N (') '¢ Lt) <D .... CIO "' 0 ~ N (') '¢ Lt) <D .... CIO 

0 0 0 0 0 0 0 0 0 0 "' N N N N N N N N N N 0 0 0 0 0 0 0 0 0 0 N N N N N N N N N N N N N N N N N N N N 

Year 

Figure 2. Clothes washer shipment forecasts for Base Case and the nine potential 

standard levels. 

Table 3. Percentage decrease in shipments in 2003 and 2008 

5% 6.88 6.87 0.06% 7.25 7.24 

10% 6.88 6.87 0.09% 7.25 7.24 

15% 6.88 6.87 0.15% 7.25 7.23 

20% 6.88 6.73 2.09% 7.25 7.13 

25% 6.88 6.37 7.40% 7.25 6.87 

35% 6.88 5.41 21.26% 7.25 6.12 

40% 6.88 5.41 21.26% 7.25 6.12 

45% 6.88 4.81 30.07% 7.25 5.59 

50% 6.88 4.75 30.96% 7.25 5.53 

0 

(') 

0 

N 

-+-base 

--•fflevel1 

eff level 2 

, :•,--- eff level 3 

-lll-efflevel4 

-.-eff level 5 

-t-efflevel6 

-efflevel7 

~efflevel8 

--0-eff level 9 

0.06% 

0.15% 

0.29% 

1.58% 

5.19% 

15.54% 

15.54% 

22.90% 

23.67% 

5 
3.1.1 Impact of new energy efficiency standards for clothes washers on export 

sales 

Export sales are not included in the shipment forecasts shown in Tables 1 and 2. The 

shipment forecasts developed for the NES include only clothes washers that are being 

used domestically. The NES spreadsheet calculates the national energy savings· and hence 

the shipments used in this spreadsheet include: 

• clothes washers that are manufactured in the U.S. for the domestic market, and 

o clothes washers that are imported for use in the domestic market. 

Export and import statistics for the U.S. clothes wash1;:r industry, obtained from the 

Association of Home Appliance Manufacturers' (AHAM) Fact Book, are presented in 

Table 4. The AHAM Fact Book reports shipments under three categories: (1) Industry 

unit shipments (including shipments for the U.S. market whether imported or 

domestically produced, and export shipments); (2) Exports, and (3) Imports. (Export and 

import data in the AHAM Fact Book is obtained from the Department of Commerce's 

EM545 and IM145 reports, respectively.) 

Table 4. Annual shipments of clothes washers from 1990 through 1996 obtained 

from the AHAM Fact Book 

Industry unit 

shi ments 

6.192 

0.601 

0.044 

6.197 6.515 

0.690 0.756 

0.035 0.077 

6.793 7.035 6.901 7.129 

0.764 0.868 0.801 0.884 

0.132 0.100 0.105 0.145 

As can be observed in Table 4, export sales accounted for approximately 12.5% of 

industry unit shipments in the year 1996. 

In order to account for the impact on both domestic and export sales, ADL adjusted the 

shipment forecasts from the NES spreadsheet for the MIA. The shipment information for 

the year 1996 was used for calibration. The calibration process is summarized in Table 5. 

6 
Table 5. Annual shipments of clothes washers from 1990 through 1996 obtained 

from the AHAM Fact Book 

Industry unit 

shi ments* 

Export 

Import 

Clothes washers used 

domesticall 

Clothes washers 

produced by U.S. 

manufacturers 

(domestic+ ex ort) 

7.129 

0.884 

0.145 

6.245 

6.984 

6.120 

1.141 

(=6.984/6.120) 

* Includes shipments for the U.S. market whether imported or domestically produced, and export 

shipments. 

3.2 Manufacturing Costs and Manufacturer Price 

3.2.1 Baseline V-axis and H-axis costs and prices 

The GRIM developed for the Notice of Proposed Rukmaking (NOPR) MIA analysis 

considers V-axis and H-axis clothes washer segments separately. The baseline cost of an 

H-axis washer was characterized using the incremental cost data at the 3 5% efficiency 

improvement level as submitted by AHAM, i.e., the Base Case H-Axis washer is 

assumed to be an H-Axis machine representing a 35% efficiency improvement over the 

baseline V-Axis machine (EF=0.817). H-axis costs are equal to the Base Case V-axis 

costs plus incremental costs for a 35% efficiency improvement level. 

Baseline H-Axis cost assumptions used in the GRIM analysis 

Baseline V-Axis material cost + Incremental material cost 

for the 35% efficienc level 

Baseline V-Axis labor cost+ Incremental labor cost for the 

3 5% efficienc level 

Baseline V-Axis overhead cost + Incremental overhead cost 

for the 35% efficienc level 

Baseline V-Axis depreciation cost + (Incremental capital 

conversion cost per unit for the 35% efficiency level I useful 

life of the fixed investment) 

Publicly available information suggests that currently sold H-axis washers are, on 

average, more profitable than the baseline V-axis washers characterized in GRIM. To 

7 
reflect this the GRIM assumes a profit of 10% before tax for the H-axis segment 

compared to 6.2% for the V-axis market. This profit level likely understates the current 

profitability of H-axis models but accounts for the expected increased competition in this 

segment in future years. 

The baseline H-axis washer price was estimated using the baseline H-axis washer costs 

and applying the markup needed to arrive at a 10% profit before tax value. This 

corresponds to a markup of 1.5 over the incremental full production cost at the 35% 

efficiency level. Adding this amount to the baseline V-axis price of $285.90 results in a 

Base Case H-axis washer price of $478.20. 

Baseline H-Axis price assumption used in GRIM analysis 

Baseline V-Axis manufacturer price + Mark-up 

x (Incremental full production cost per unit)* 

Incremental material + incremental labor + incremental 

overhead + ca ital conversion + desi conversion 

Table 6 summarizes the revised cost structures for baseline V-axis and H-axis washers. 

Table 6. Industry average baseline cost structur'e 

As a% of $per unit Iner. Cost over $per unit 

V-axis baseline V-axis 

Manufacturer Price 100% $285.90 $478.20 

Markup 1.35 1.50 

Manufacturing Costs 

Material 52.0% $148.67 $86.73 $235.43 

Labor 10.2% $29.16 $10.94 $40.24 

Overhead 8.3% $23.73 $7.78 $31.23 

Depreciation 3.5% $10.01 $22.72 $27.70 

SG&A 18.0% $51.46 $86.07 

R&D 1.8% $5.15 $8.61 

Profit before Tax 6.2% $17.73 $48.88 

Tax Rate 42.8% 

Profit after Tax 3.6% $10.14 $27.96 

3.2.2 Standards Case Costs and Prices 

8 
Once a standard level is selected, GRIM obtains the incremental costs of meeting the standards 

level from the AHAM cost submittal in the "AHAM _DATA" worksheet. The costs to upgrade the 

Y-axis baseline for the standard level selected are shown on the major assumptions page under the 

column entitled Y/H-axis. The title reflects the fact that the: Y-axis baseline may be converted to Y 

or H axis depending on the level selected. The base-case H-axis clothes washers (35% efficiency 

level) will need to be upgraded as well ifthe standards level selected is above 35%. For example, 

the cost of upgrading an H-axis clothes washer from 35% to 50% is calculated as the cost of 

upgrading from a baseline Y-axis to 50% less the cost of upgrading from a baseline Y-axis to 35%. 

Table 7. Standards Case Costs for the 50% standard level 

Standard Case Incremental Costs 

Materials I Unit 

Labor /Unit 

Overhead I Unit (excl. Depreciation) 

Industry Mark-up (over full production costs) 

Standard Year Unit Price 

The standards case prices are obtained as: 

Standards Case manufacturer price = 

V/H -Axis 

(over Base Case 

H-Axis 

Baseline manufacturer price+ Mark-up x (incremental full production cost per unit) 

3.2.3 Standards Case Conversion Costs 

AHAM provided the lump sum capital conversion costs necessary to upgrade tooling and 

production facilities based on an annual production rate of 7 .068 million clothes washers. AHAM 

also provided separate one time product conversion costs associated with standards related R&D 

and marketing. These lump sums are converted in per unit costs on the worksheet titled 

AHAM _DAT A. Total Conversion costs to upgrade the baseline Y-axis equal per unit conversion 

costs times Base Case shipments in standards year (2003). Total conversion costs to upgrade the 

base case H-axis are based on the H-axis Base Case shipments in the standard year (2003) 

multiplied by the difference in conversion costs at the standard level and 35% level. 

9 
Table 8. Conversion Costs at the 50% standard level 

Conversion Costs V/H-Axis ff-Axis 

Base Case Shipments in Standard Year (2003) (000,000) 

Capital Expenditures . ($000, 000) 

Useful Life 

Per unit capital conversion cost 

Design & Marketing Expenses (Product Conversion) 

Per unit product conversion costs 

5 years 

($)per unit 

($000,000) 

($)per unit 

ASSUMPTION: DOE's shipment forecasts suggest significant drops in clothes washer sales 

after a standard due to price elasticity effects. It is impossible to predict exactly the new shipment 

numbers after a standard, yet it will be necessary to make an investment decision as to the 

capacity of the plant far in advance of the standard. The current assumption in GRIM is that 

manufacturers will build capacity based on their Base Case shipment forecast for the standard 

year. A drop in shipments will result in over capacity and will be captured in GRIM as an 

increase in unit conversion costs. 

Conversion Expenditure Factors 

The conversion expenditure factors in the 'Conversion Factors' worksheet have been modified 

based on comments received. These factors determine the timing of capital conversion 

investments. 

3.2.4 Assumptions used for calculating Variable and Fixed Overhead Costs 

One of the challenges posed by a sudden drop in shipments in the standards case consists of 

reducing overhead in proportion to lost revenue. The new GRIM allows the user to specify what 

proportion of overhead is variable in the period that shipments adjust from their pre-standard to 

post standard levels. (this assumption is applicable to one ye:ar before and three years after the 

Standard year, in the V-Axis-Standard Case). 

Short-term Variable Overhead 

as% of Total 

60% (this assumption is applicable to one year before and '--------' 

Three years after the Standard, in the V-Axis-Standard Cas·e) 

3.2.5 Ordinary Capital Expenditures 

The Base Case ordinary capital expenditures as a percentage of revenue has been changed in order 

to reflect the lower shipment growth forecast compared to the earlier GRIM. (Capital expenditures 

of -3.90% instead of-4.43%.) 

!ordinary Capital Expenditures -3.90%lofRevenue 

10 
3.2.6 Discount Rate 

Based on comments received at the December 1998 clothes washer workshop, the real cost of debt 

calculation was revised by taking the nominal cost of debt, adjusting for taxes, and then correcting 

for inflation. As a result of this revision, the discount rate for NPV changed from 7.25% to 6.65%. 

3.3 Cash Flow Results 

3.3.1 Base Case NPV 

GRIM was used to develop the Base Case cash flow estimates for the U.S. clothes 

washer industry. The baseline manufacturer price and cost structure developed in the 

preliminary TSD (Chapter 6, pg. 6-10 and 6-11) and Section 3.2.1, and summarized in 

Table 6 was used to develop cash flow estimates and hence the value of the V-axis and 

the H-axis washer segments. The values of these two segments were then summed to 

arrive at the overall industry value in the Base Case. The cash flow results are 

summarized in Table 9. 

Table 9. Base Case industry value (NPV) 

V-Axis 1040.7 

H-axis 276.3 

Total 1317.0 

11