Sandberg Crosby and the launch of "Super Project "

Résumé du document

In March 1967, a financial analysis conducted by Crosby Sanberg revealed a significant outcome: the principles that were learnt at business schools need not necessarily work practically all the time. The study was related to incremental analysis. Generally, some costs are considered to be not relevant (sunk costs) for the capital project evaluations, but Sanberg was convinced of the contrary. He decided to illustrate his theory by launching "The Super-Project" to the U.S. and foreign markets. "Super was a new instant dessert, based on flavored, water-soluble, agglomerated powder". This was the essence of the product's description. The capital request for this project was $ 200 000, and $ 80 000 were allotted for modification of the building. There is no cost for the production because it took place in an existing building. In this building Jell-O was produced by using the available space of the pre-existing Jell-O agglomerator.

Extraits

[...] He decided to illustrate his theory by launching Super-Project” to U.S. and foreign markets. “Super was a new instant dessert, based on flavored, water-soluble, agglomerated powder”. The capital request for this project was $ $ for buildings modifications. There is no cost for the production because it took place in an existing building. In this building Jell-O was produced by using the available space of the pre-existing Jell-O agglomerator. - Expected return After the launch of the project, the managers of General Food were expected Super capture 10% share of the total dessert market”. [...]

[...] In this method, we only consider the incremental revenue and the fixed capital investment which is $ Moreover some elements, costs are not being taken in consideration. Because Super project is using the facilities and a pre existing building and production, they represent some opportunity costs which don't appear in the evaluation. They haven't been taken into account and also represents looses if they are not include on the analysis. That is why this method wasn't choosing because it doesn't reflect the reality of the costs repartition. [...]

[...] Crosby Sanberg et le lancement du "Super project" Table of Contents 1. Describe the actual situation 2. Comment on the three alternatives 3. Define WACC, mentioning the assumption you need to make 4. Calculate the NPV 5. Take a decision and justify why? 1. Describe the actual situation - The Super Project In March 1967, a financial analysis Crosby Sanberg realized that what he learned at School doesn't always work. He was talking about incremental analysis. Usually some costs are considered to be not relevant (sunk costs) for the capital project evaluations, but he was convinced of the contrary. [...]

[...] So I am convinced that the studies were reliable, which means that the NVP is positive and our project profitable. Alternative: in order to be sure that our project is going to be profitable. I have the idea of doing two different NVP. In the first case, it will be the lower case. With pessimistic forecast sales and pessimistic discounted rate and in the other hand the highest case, with optimistic sales and discounted rate. It will give us a good view if our project even with the lowest sales and the worse discount rate will be still profitable. [...]

[...] From my point of view, I will accept the project because the NPV is positive. This means in theory that the investment is going to be profitable. But we have to keep in mind that this tool is a forecast one, based on future information. The information is based from studies and sometimes is too predict. For example the gross sales in ten years are not 100% reliable. The major point concerns the discounted rate. In this project, we took 10% for the ten years. [...]