...used to evaluate the Super Project. General Foods is a large company with various divisions in both domestic and foreign operations. One account executive states that they want to grow more rapidly than the GDP, and develop projects accordingly. The Super Project will allow them to reach that goal. The NPV in the base is $2,196.30, with an IRR of 25.6%. Even in the worst case scenario, which includes change in net working capital as well as after tax erosion, the NPV is $232.70 with an IRR of 10.3%, far outpacing national GDP growth. General Foods enjoys a significantly large market share in the food business. They face many risks from competitors, and they actively seek the opportunity to fill out their product line whenever possible. As of the moment the company lacks a large share of the dessert market. Super would offer the company a chance to develop a larger share of that market, and even with the serious risk of erosion present, the larger risk is losing leadership throughout the food industry. P.D.C. Consulting highly recommends that management actively seeks to develop the Super Project. QUESTIONS 1. The relevant cash flows for General Foods used in evaluating the Super Project (SP) are overhead expenses, erosion of Jell-O-Contribution margin and the opportunity costs from allocation of charges for the use of excess agglomerator. We can also include the sales, cost of goods sold, capital expenditures, general expenses, income...
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... The list is endless: other similar Jell-O products, dessert products, snacks, and soft drinks are all substitutes. Food manufacturing firms are competing with an endless amount of products with many produced by rival firms carrying strong brand equity. Businesses in the Food Manufacturing Industry are in constant competition with one another where their products are sold right in front of the view of the customer. The competition in the industry is fueled by limited shelf space in retail stores. So, all of the food manufacturing companies must compete with each other to ‘get into’ stores and stay there. In the soft-drink market, for example, this often leads to self-cannibalization of shelf space by the creation of new products. It is better for Coke space to be replaced by Vanilla Coke than for it to be replaced by Pepsi. Threat of buyer power: Medium (5). The buyer power is a product of the industry competition and readily available substitutions. Buyers have a large degree of indirect influence. Everyday people will respond to price changes by simply switching to the many alternatives created by rival firms causing the retail stores to buy less of a product to put on their shelves. In a sense, Food Manufacturers are both business-to-business and business-to-consumer. Also, if a dominant retail store arrives, they will directly negotiate prices down to their liking. Threat of new entrants: Low(3). Anyone can produce food. However, to mass-manufacture it, there is a...
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...Super Project 1.What are the relevant cash flows for General Foods to use in evaluating the Super project? In particular, how should management deal with such issues as: a)Test-market expenses? The test market expense should not be included in the cash flow analysis since it is a sunk cost. Since the cost of the test market have already been made before the Super project had started. So regardless of this project being accepted or rejected, the cost must be taken as a sunk cost. b)Overhead expenses? The overhead expenses will not be taken into account in the FCF because it have been justified earlier in the Jello-O project. In addition to that, the data available in the exhibits does not provide specific information on incremental overhead expenses. OR it can be included if the expansion of super project will require extra capital and labour force to sustain the increasing demand for the product. c)Erosion of Jell-O contribution margin? It should not be included because it is directly related to the rest of the firm. When an economic obstacle happened to Jell -O sales due to erosion, it will leave a significant effect. It can be considered that the erosion might occur due to competition and by judging from Table A, it seems that the erosion due to competition is irrelevant and assumes a very low profitability. However, if we assume that Super project will get into the Jell –O sales and this must be taken as the cost for the project. d)Allocation...
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...The Super Project Case Analysis Dilemma of incremental analysis [Author Name] General Foods is a large corporation organized by Product lines. Corporation was planning to introduce a new product Super – a new instant dessert, based on flavored, water-soluble, agglomerated powder. Super would be offered in four flavors although chocolate was estimated to account for 80% of total sales. The requested capital investment for Super was $200,000, and its production would take place after modifying an existing building, where Jell-O was manufactured and by using available capacity of Jell-O agglomerator. Cost for the key machine was not included in the project. On the basis of test market experience, once the product is introduced, it was expected to capture a 10% of dessert market share, 80% of which would come from growth in total dessert market share and 20% of which would come from erosion of Jell-O sales. There are basically four categories of capital investment project proposals at General Foods corporation: (1) safety and convenience; (2) quality; (3) increase profit; and other. Super project was considered into third category, as a profit-increasing project. Crosby Sanberg, a manager of financial analysis at General Food Corporation calculated return on investment in three different ways of on Super Project. The first technique was Incremental basis, which projected Super project would have an attractive return of 63% in 7 years, which in-turn could directly identify with...
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...The Super Project Tobey Overview • Case Summary • Problem Statement • ROFE & Capital Budgeting • Incredible Incremental • Analysis Options • Cash Flows • Recommendations Case Summary • General Foods is a large corporation organized by Product Lines. • Super is a proposed new instant desert, based on a “flavored, water-soluble, agglomerated powder.” • General Foods has numerous projects with strict criteria to judge worthiness. • There are basically three types of Capital Investment proposals at General Foods: Safety, Quality, Increased Profit • Increased Profit: Cost Reduction, Capacity, New Product • Max 10 years payback: as low as 20% PBT • … if expected to be permanent product addition • … if facilities highly reconfigurable • Three analysis types: Incremental, Facilities-based and Fully Allocated. Problem Statement • Above all, Super’s worthiness as a capital investment must be evaluated according to General Foods’ accepted criteria. • Memos indicate that General Foods’ finance personnel are questioning the same criteria’s ability to accurately reflect the value of the Super project. • This is not an accounting exercise. In accounting, one tries to track and attribute all sources of costs. Also, one alters transaction timings to match expenses with income. • This is a capital budgeting exercise. We’re interested in cash flows to judge the value of a project, and when those cash flows occur. • Therefore, our team must 1) evaluate the pertinence of each of the...
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...Super Project Case • What are the relevant cash flows that General Foods should use in evaluating the Super Project? In particular, how should management deal with such issues as o Test-market expenses? o Overhead Expenses? o Erosion of Jell-O contribution margin? o Allocation of charges for the use of the excess agglomerator? The relevant cash flows that General Foods should use in evaluating the Super Project are considered Incremental cash flows and are “the changes in the firm’s cash flows that occur as a direct consequence of accepting the project”. Incremental cash flows include changes in working capital; cost of project, overhead expenses, erosion of Jell-o margin, opportunity cost (allocation of charges for the use of the excess agglometor), net proceeds and tax savings from the sale of old assets. General Foods Accounting and Financial Manual specified that capital project request be prepared on an incremental basis. Although Super Project incurred an expense of testing the market, this expense must not be included in the cash flow analysis because it can be considered a sunk cost. General Foods expected Super to capture a 10% share of the total desert market. This expense is required for conducting market research and will not be recovered. Sources of cash flow include, Overhead expenses, which must be included in the cash flow analysis. The estimated expansion of the Super Project to capture 80% of the market will require extra capital and...
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...Finance MBA − Cases in Corporate Finance The Super Project (HBS) Instructor: Pål E. Korsvold BI Norwegian School of Management McGraw-Hill/Irwin abc McGraw−Hill Primis ISBN: 0−390−68861−4 Text: Harvard Business School Negotiation Cases This book was printed on recycled paper. Finance http://www.mhhe.com/primis/online/ Copyright ©2006 by The McGraw−Hill Companies, Inc. All rights reserved. Printed in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without prior written permission of the publisher. This McGraw−Hill Primis text may include materials submitted to McGraw−Hill for publication by the instructor of this course. The instructor is solely responsible for the editorial content of such materials. 111 FINAGEN ISBN: 0−390−68861−4 Finance Contents Harvard Business School Negotiation Cases Super Project 1 1 Case iii Harvard Business School Negotiation Cases The Super Project Case © The McGraw−Hill Companies, 2005 1 9-112-034 REV: MAY 27, 2004 The Super Project In March 1967, Crosby Sanberg, manager-financial analysis at General Foods Corporation, told a casewriter, “What I learned about incremental analysis at the Business School doesn’t always work.” He was convinced that under some circumstances sunk costs were relevant to capital...
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...Super Project EXECUTIVE SUMMARY When Crosby Sandberg stated in the opening paragraph of the case, “What I learned about incremental analysis at the Business School doesn’t always work.” He came to the conclusion that sunk costs were relevant to capital project evaluations. In this case though, he could not have been more wrong. The sunk costs are lost once they are spent, and should definitely not be used to evaluate the Super Project. General Foods is a large company with various divisions in both domestic and foreign operations. One account executive states that they want to grow more rapidly than the GDP, and develop projects accordingly. The Super Project will allow them to reach that goal. The NPV in the base is $2,196.30, with an IRR of 25.6%. Even in the worst case scenario, which includes change in net working capital as well as after tax erosion, the NPV is $232.70 with an IRR of 10.3%, far outpacing national GDP growth. General Foods enjoys a significantly large market share in the food business. They face many risks from competitors, and they actively seek the opportunity to fill out their product line whenever possible. As of the moment the company lacks a large share of the dessert market. Super would offer the company a chance to develop a larger share of that market, and even with the serious risk of erosion present, the larger risk is losing leadership throughout the food industry. P.D.C. Consulting highly recommends that management actively seeks...
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...want (Stanton 2007). If we look at the drivers for the evolution of modern supply chains, or ‘’Modern Trade’’ they have been persistent in increase demand for value added consumer products, convenience food, beverage, and frozen confectioneries. ‘’The emergence of supermarkets, urbanization, income increase, high quality retail export markets, high quality bulk procurement, trade agreements, with other countries, increased migration of Sri Lankan citizens and increased female participation in labor force have created a new demand pattern, shifting the focus towards continuous supply of high quality, value added products with improved processing, packaging and labeling’’ (Samarthuga A 2006 15). Sri Lanka is an agriculture base country primarily it has 2 million hectares or 30% agricultural land, and almost 75% of the agricultural land is under small holdings and the balance is under estates. Sri Lanka Imports 65000 MT of diary commodities mainly FCMP and diary therefore seen and instrument to replace, and about 70% of the contribution to the livestock subsector comes from chicken, meat and eggs (MOLARCD 2010). This agricultural and farming industries leading to backward integrations with grocery industry which has influence the above ‘’Mega Stores’’ concept and consumer products FMCG, and convenience food and frozen confectioneries which have shown huge potential in becoming one of the lucrative industries encouraging large corporate players JKH investing in...
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...ELEMENTS OF MODERN FINANCE - MGCR-641 THE SUPER PROJECT EXECUTIVE SUMMARY PROBLEMS 1. Is General Foods using the proper capital budgeting methods in evaluating their potential projects? 2. Should General Foods invest in the Super project? In evaluating the Super Project, what are the relevant cash flows to use? In particular: • Test market Expenses • Overhead Expenses • Erosion of Jell-O contribution margin • Allocation of charges for the use of excess agglomerator capacity OPTIONS • Evaluation Methods – NPV, IRR, Payback, Alternative 1, 2, or 3 o Test Market Expenses – Include or Exclude o Overhead Expenses – Include or Exclude o Erosion of Jell-O contribution margin – Include or Exclude o Allocation of charges for the use of excess capacity – Include or Exclude • Accept or Reject the Super Project RECOMMENDATIONS 1. NPV is the best capital budgeting method for evaluating projects. 2. Do not include test market expenses as they are sunk costs. 3. Include only incremental overhead expenses specific to the project. 4. General Foods should account for erosion of Jell-O margin as this reflects incremental costs of the project. 5. Account for allocation of charges for the use of excess capacity as an opportunity cost. 6. Reject Super Project as it has a negative NPV. ANALYSIS Capital Budgeting Techniques The first issue that General Foods needs to address is their capital budgeting techniques. General Foods currently uses ROFE and payback (depending...
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...Analysis After looking at the Super project of General Food and the alternative evaluations, we concluded that the project should make some changes. First, the agglomerator and building should be included in the project in order to reflect the true cost of the investment (Exhibit 5- page). According to Mr. Samberg’s suggestion, the minimum should be to take 453 million (half of an existing agglomerator and two thirds of an existing building) of agglomerator and the building should be record as an opportunity cost. Second, the cash flow from operation should be change due to the change on overhead expenses, test market expense, adjustment erosion, and depreciation (Exhibit 3- page). Normally, overhead expenses are not included but, due to this case, the project expects a $90 million per year increase in overhead expenses during the last 6 years. The test market expense is the sunk cost so it should not be included in the cash flow. Regardless of who produces the project, adjustment of erosion will always occur because the introduction of the new product in the market. In this case, the change in erosion should be included in the cash flow for operation because the project affects their other sales. Depreciation expense should change due to the change in agglomerate and building (Exhibit 2- page ). We needed to determine the correct allocation of depreciation. We calculated the depreciation rates by dividing the Depreciation Expense by the previous year’s Net Investment (both...
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...OF MODERN FINANCE - MGCR-641 THE SUPER PROJECT Prepared By: Bogdan Enoiu Chris McLachlin J. Alejandro Noboa February 03, 2006 EXECUTIVE SUMMARY PROBLEMS 1. Is General Foods using the proper capital budgeting methods in evaluating their potential projects? 2. Should General Foods invest in the Super project? In evaluating the Super Project, what are the relevant cash flows to use? In particular: • Test market Expenses • Overhead Expenses • Erosion of Jell-O contribution margin • Allocation of charges for the use of excess agglomerator capacity OPTIONS • Evaluation Methods – NPV, IRR, Payback, Alternative 1, 2, or 3 o Test Market Expenses – Include or Exclude o Overhead Expenses – Include or Exclude o Erosion of Jell-O contribution margin – Include or Exclude o Allocation of charges for the use of excess capacity – Include or Exclude • Accept or Reject the Super Project RECOMMENDATIONS 1. NPV is the best capital budgeting method for evaluating projects. 2. Do not include test market expenses as they are sunk costs. 3. Include only incremental overhead expenses specific to the project. 4. General Foods should account for erosion of Jell-O margin as this reflects incremental costs of the project. 5. Account for allocation of charges for the use of excess capacity as an opportunity cost. 6. Reject Super Project as it has a negative NPV. ANALYSIS Capital Budgeting Techniques The first issue that General Foods needs to address is their capital...
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...SUPER-BITE ® Sugar free tension free 2013 Chocolate Coated Cream filled Soya Biscuits with Zero Sugar Kolkata Super-Bite Food Ltd. Project Name: Marketing Plan for Launching Super Bite Presented To: Prof. Arpita Srivastava Company Name: Kolkata Super Bite Food Ltd. Group Members: Group V SMS ID DB13081 DB13019 DB13020 DB13017 DB13075 DB13008 DB13150 DB13154 DB13105 ROLL NO. 2227323 2227248 2227118 2227117 2227271 2227101 2227227 2227037 2227221 NAME Manoj Kumar Amrendra Kumar Srivastava Kaushik Das Surya Khan Rohit Mandal Anamika Singh Hemani Abhishek Bhattacharya Som Sekhar Mishra Somnath Ganguly CONTENT 1. 2. 3. 4. 5. 6. BUSINESS MISSION STATEMENT MARKET RESEARCH SWOT ANALYSIS COMPETITOR ANALYSIS OBJECTIVES MARKETING STRATEGY TARGET MARKET ENVIRONMENT ANALYSIS 1. MICRO 2. MACRO 7. MARKETING MIX PRODUCT PROMOTION DISTRIBUTION PRICE 8. MARKETING IMPLEMENTATION, EVALUATION, and CONTROL 9. ASSUMPTIONS 10. STORYBOARD MISSION STATEMENT “Committed to Enhancing the Quality of Life With Tasteful yet Healthy Camaraderie” MARKET RESEARCH Today the total production of biscuits in India is estimated to be around 30 lakh MT in 2013, the organized sector accounts for 65% and the unorganized sector accounts for 35% of the total industry volume and the organized sector is valued at above Rs. 8000 crores. While the biscuit industry, is estimated to grow over 15-17% in the next few years. The biscuits per capita consumption...
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...EXECUTIVE SUMMARY Type of Business E.S. Food Corporation is a corporation established in 2013 that will offer a new product and made from vegetables and fish. The company’s goal is to endorse the production of healthy patties made from organic ingredients. Management Highlights E.S. Food Corporation chose corporation as our form of organization. It is formed and authorized by law to act as a single person although constituted by one or more persons and legally endowed with various rights and duties including the capacity of succession. The associates are known as shareholders and each of their shares in the ownership, control and profits of the corporation is determined by the portion of shares in the company that they own. Success of the company will depend on the input, perseverance and endeavour that they will be providing. Marketing Highlights The company focus their energies on the food industry, particularly- burger patties, which is made up of horseradish and mongo beans. It is low in cholesterol, rich in protein and fights against cancer. Our product is new to the food business ventures that may capture the attention of those who are food lovers through with the product’s Unique Selling Proposition. We see this as an opportunity and advantage to generate effectual marketing and advertising. Financial Highlights The study of the financial stability of the company will only consider years 2014 to 2018 financial accounts. The figures we have in...
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...oblivious to their addiction to fast food and the health risks that are involved. Fast food companies make it easy for the general public to skip the old fashioned home cooked meal and go out for an inexpensive, fast, and (for the kids) fun meal. Fast food companies are being blamed for their role in contributing to the growing epidemic of obesity in Americans because of high calorie foods, high fat beverages, and super-sized servings. The fast food community does not realize what they are eating and what health problems can arise from eating fast food. According to Andrew Martin of the Washington Bureau, “Hardee’s restaurants recently scrapped almost its entire menu to focus on hefty sandwiches called Thickburgers–including the Double Bacon Cheese Thickburgers, weighing in at two-thirds of a pound and 1,148 calories.” (“Obesity” 1) Fast food companies do not warn fast food eaters of the many calories that are in just one hamburger. In a recent lawsuit against Burger King, McDonald’s, Wendy’s, and KFC, a 56-year-old New York maintenance worker named Caesar Barber argued that “because of eating fast food five times a week the high fat, grease, and salt he became sick with obesity, high-blood pressure, two heart attacks, and diabetes” (“Food” 1). Kelly Brownell, director of Yale University’s Center for Eating and Weight Disorders, says “fast food is in the same league with cigarettes” (“Food“ 2). Meaning that once people start eating fast food, it is hard to stop. On the other...
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