Jacobs Division Essay

3153 Words Aug 5th, 2010 13 Pages
1. Should the Silicone-X project be undertaken? Why/why not?

After completing the analysis and reviewing the NPVs and IRRs for each option, labor intensive and capital intensive, Soderberg should recommend that the Jacobs division move forward with production of Silicon-X using the labor-intensive option. The NPV and IRR methods make the same decisions if used for independent projects however, since these projects are mutually exclusive, the best NPV option should be used. In this case the NPV for the labor-intensive option is positive at twelve percent, sixteen percent and twenty percent while the capital option is only positive at twelve percent and sixteen percent. The labor-intensive option meets the expectations
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There is little risk with moving forward with this project as the equipment could be used elsewhere within the division if this project should fail. Additionally, competition would not be an issues as the break even point for the labor-intensive option will occur in year one and competition will likely take an additional year to prepare a plant for production, two years if they use a capital intensive plant. The labor-intensive plant meets the NPV expectations set by the MacFadden Company guidelines and the expectations laid forth by the head of the Jacobs Division, Mr. Reynolds. Since the labor-intensive option meets both of these expectations, Soderberg should move forward with the recommendation for the labor-intensive option.

2. If the project goes forward, should the labor-or capital- intensive plant be used to produce it?

Now assuming that the project goes forward, one of two choices must be made regarding the plans for the plant. Either the company designs the labor-intensive or the capital-intensive plant. Both have positive and negative aspects, but the labor-intensive plant seems to be the better of the two choices. This is not an obvious choice, so it is necessary to compare the pros and cons of both plants in order to come to a legitimate conclusion. First, it is important to look at what types of products are currently being manufactured within the Jacobs Division. Jacobs Division

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