Super Project Case Analysis Essay example

1156 Words Jan 17th, 2011 5 Pages
Analysis of Super Project Case
Quick Overview
Relevant cash flows analysis

The relatively well posed project with promises of great future pay offs must be examined closely nevertheless to determine its true profitability. As such, the Super Project’s NPV must be calculated, however before we proceed we must acknowledge the relevant cash flows. The project incurred an expense of testing the market. This expense, however, must not be included in our cash flow analysis because it can be considered a sunk cost. This expense is required for ‘taking a temperature’ of the market and will not be recovered. Other sources of cash flow include:

a) Overhead expenses
a. This must undoubtedly be included in our cash flow analysis. The
…show more content…
Crosby
Sanberg, a manager of financial analysis at General Foods presented three different ways of evaluating the return on Super. The first was an incremental basis that was regularly used by General Foods in evaluating projects. It projected that Super would have an attractive return of 63%. The second was a facilities-used basis, which took into account the opportunity cost of using available, pre-existing Jell-O equipment. This method projected that Super would have a return of 34%. The last approach was a fully allocated basis that included the opportunity cost and overhead costs. This method projected that Super would have a return of 25%, just barley meeting the minimum required return of 24% for a project of it's risk. The dilemma for General Foods was to decide what the best method for evaluating the Super project was since each method produced drastically different returns.

c)
Super Project will eat into the Jell-O Sales and this must be taken as a cost for the project when making the final decision.
Super project’s share ($453K) of the building and agglomerator capacity
a. Unlike the previous two cash flows where we considered them based on the direct impact they bring, the super project’s share of the building and agglomerator capacity must not be considered in our cash flow for the following reasons:
i. The expense of the building was

More about Super Project Case Analysis Essay example

Open Document