...was considering introducing a new product called the Super product. This product was “a new instant dessert based on flavored, water soluble, agglomerated powder” to both the United States and foreign markets. The capital investment was projected to be $200,000, and it would leverage the existing facilities used by the Jell-O manufacturing unit that had an available under-utilized capacity of its Jell-O agglomerate. A Nielsen market survey was done that showed a powered desert which would contribute to a significant growth market. The results projected that the product would capture 10% of the market share; 8% percent would be from new growth while 2% would come from the cannibalization of the current Jell-O-sales. The evaluation process to determine the investment opportunity for the Super Project was based on the incremental cash flow analysis. Crosby Samberg, a manager and financial analyst for General Food Corporation felt that this model was flawed and that a new more “accurate” model had to be used to examine the returns on the Super Project. The first assessment model was using the General Food acceptable practice of incremental analysis. The incremental anlaysis determined that Super Project have an attractive return of 63%. The second mythology was to add the facilities' costs, which examine the opportunity costs of leveraging the available pre-existing Jell-O equipment. This model determined that the Super Project would return 34%. The last approach was to allocate...
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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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...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 to develop the Super Project. QUESTIONS 1. ...
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...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 on the type of project) and both...
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...ELEMENTS 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...
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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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...Bidding, Analysis of Companies, Select a Company Introduction of Client Company (Super Bank) Client Company is a financial institute named as Super Bank which serves their customers on daily basis via several nationwide branches and their ATMs accordingly. As discussed in last assignment, the current data service provider’s poor performance is badly affecting the company business and so an initiative has been taken to introduce a new service provider for smooth and seamless operation of Super Bank. Super bank has currently 100 nationwide branches and 50 ATMs and their Head office is located in Lahore. Following are some of the departments which are included in the completion of their new project, as they have to search a service provider that has to satisfy their specifications. 1. Network Support Department (NSD) This department includes the professional network Engineers which are monitoring the network of all the branches with Head Office. Link of each branch is monitored via NMS (Network Management System) ORION. Department contains a Head of Department, Manager Networks, an Assistant Manager Networks and Network engineers. So this team has to be familiar with the new data services provided by a provider and their devices which will be placed in each branch. 2. System Support Department (SSD) System engineers in this department are responsible for overall maintenance of the internal network of each branch i.e LAN side. They are divided among regions and...
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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 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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...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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...Being one the biggest events of a year, Super Bowl is an American football championship game organized by National Football League (NFL). The location of the game is designated by NFL in advance, generally three to five years ago. Although it was one of the days that many Americans had looked forward to, Super Bowl XLV played in Cowboys Stadium Arlington, Texas was a frustration for many people. While 850 people were accommodated in different places, 400 people had to give up their seats. Today, any kinds of institutions are increasingly utilizing benefits of project management, especially for the projects that involve hundreds of people. Therefore, it would not be wrong to say Super Bowl XLV was one of the events that could have benefited from project management. As known, project management starts with planning. It sets the goal of the project, emphasizes critical points and provides opportunity to be ready for possible negative outcomes while project proceeds. It works like guidance throughout the project. However, it should be open to revisions because problems faced as project proceeds might require modifications. Also, it should be capable of answering a long list of what-if questions. Essentially, it is the most important step because most of the time failures during the project stem from mistakes made in planning phase. For sure, the mistakes made in Super Bowl XVL case go back to planning stage. It was known that Super Bowl XLV would be played at stadium of Dallas...
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...Nagornov Alexander (5812437) Lvov Sergey (5758637) Sohail Ahmed (5813018) Super Project Case 1. The relevant cash flows for General Foods are the following: sales and cost of goods sold for the Super project, erosion of Jell-O contribution margin, selling expenses, income tax, capital expenditures, opportunity costs for using excess agglomerator capacity, and increases in the net working capital. a. Test-market expenses, which were included in the first period, are sunk costs because they had been already expensed for feasibility of the Super project. Therefore, the management should not include the test-market expenses into calculation of the cash flows. b. The management did not include the overhead costs into the calculations, but the managerfinancial analysis proposed to embrace the costs in Alternative 3. However, the management should not include overhead expenses because overhead expenses affect many areas of the business and are not attributable to a particular business activity. Only additional overhead expenses that arise of the decision to take a project should be added. c. As sales of the Super project displace sales of Jell-O, the management should add, and it actually added, the erosion of Jell-O contribution margin to the cash flows. d. As the firm plans to use the existing facilities for launching the Super project, it should deduct from the cash flows the opportunity cost of using the facilities because the management might have used the facilities in a best...
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...launch a super jumbo plane known as the A380 at a launch cost of $13 billion. Prior to and after Airbus’ commitment, Boeing started and canceled several initiatives aimed at developing a “stretch jumbo” with capacity in between its existing jumbo (the 747) and Airbus’ planned super jumbo. In addition to making the super jumbo one of the largest product launch decisions in corporate history, this figure represented 26% of total industry revenues in 2000 ($45.6 billion) and more than 70% of Airbus’ total revenues in 2000. The inherent risk associated with this major strategic commitment is magnified by the fact that Airbus must spend the entire amount before it delivers the first plane. History has shown that many firms including General Dynamics, and, more recently, Lockheed, have failed as a result of attempting such bet-the-company product development efforts. If, however, the launch effort does succeed, Airbus is expected to dislodge Boeing as the market leader in commercial aircraft after more than 50 years of market dominance by the latter. We can write a custom term paper on Airbus for you! This term paper presents an analysis of this new product commitment and, more generally, of competition in very large aircraft (VLA is defined as planes capable of seating more than 400 passengers). CASE BACKGROUND In the early 1990s, Airbus and Boeing independently began to study the feasibility of launching a super jumbo. Both agreed there was a growing need for a super jumbo...
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...talking about one of science fictions classic conspiracy theories, Super Soldiers. When I say Super Soldiers, I mean the kinds that were genetically enhance. I have found that when someone hears “super soldiers’ their minds automatically go to Captain America or Master Chief from the Halo game series. Captain America started as a small lanky soldier that gotten injected with some type of serum that turns him in to the perfect solider. Master Chief taken from his family as a child and was train for eight years before scientist started their genetic testing. Is the military trying to make their own Captain America and Master Chief with a few extra abilities? If so, who is leading the testing and what types of powers are they trying to give to our soldiers? To try to answer these questions I had to start with where did this conspiracy stemmed from. The Beginning of the End by Micheal T. Snyder has led me to the DARPA (the defense advanced research projects agency). Let us have a quick insight into this agency. The DARPA is an agency of the United States Department of Defense that is responsible for the development of new technologies for military use. Established in 1958 their original mission was to prevent technological surprises for example the launch of Sputnik. Over the years, the mission has expanded from preventing surprises to making technological surprises of our own. Could they be talking about super soldiers? Is it possible that this agency is not just working on...
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...researchandmarkets.com/reports/2212819/ Project Management. Case Studies. 4th Edition Description: A new edition of the most popular book of project management case studies, expanded to include more than 100 cases plus a "super case" on the Iridium Project Case studies are an important part of project management education and training. This Fourth Edition of Harold Kerzner's Project Management Case Studies features a number of new cases covering value measurement in project management. Also included is the well-received "super case," which covers all aspects of project management and may be used as a capstone for a course. This new edition: - Contains 100-plus case studies drawn from real companies to illustrate both successful and poor implementation of project management - Represents a wide range of industries, including medical and pharmaceutical, aerospace, manufacturing, automotive, finance and banking, and telecommunications - Covers cutting-edge areas of construction and international project management plus a "super case" on the Iridium Project, covering all aspects of project management - Follows and supports preparation for the Project Management Professional (PMP®) Certification Exam Project Management Case Studies, Fourth Edition is a valuable resource for students, as well as practicing engineers and managers, and can be used on its own or with the new Eleventh Edition of Harold Kerzner's landmark reference, Project Management: A Systems Approach to...
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