The Super Project Case Study

FIN 3717

Braden Eddy, Lauren Gear and Dakota Conravey

The Super Project Case Study

FIN 3717

Braden Eddy, Lauren Gear and Dakota Conravey

Statement of Facts

General Foods is a large corporation organized by product lines. They are evaluating Super Project, the manufacture of a new powdered dessert. Crosby Sanberg, a financial analysis manager, must determine the value in accepting the proposal, along with J.C. Kresslin, the Corporate Controller. The Super Project will increase profit with a payback period of less than ten years. The proposed capital investment for the project is $200,000 ($80,000 for building modifications and $120,000 for machinery and equipment) and production would take place*…show more content…*

| 4.55 years |

The accounting for erosion of Jell-O sales yielded the following results: Exhibit 3 | Net Present Value | $182.33 | Internal Rate of Return | 14.63% | Average Rate of Return | 125.62% | Payback Period. | 6.39 years |

The accounting for including the excess capacity expense yields the following results: Exhibit 4 | Net Present Value | $375.35 | Internal Rate of Return | 16.11% | Average Rate of Return | 71.55% | Payback Period. | 5.80 years |

After review of the independent costs, we found that each one produces a positive NPV, an IRR above the discount rate and a payback period within the required ten years. However, it is unrealistic to consider these on an independent basis. For our realistic case, we included overhead expenses and the excess cost of capacity for the agglomerator. We did not include the erosion of Jell-O sales and the test market expense, as this is a sunk cost. Under these circumstances we produced the following results: Exhibit 6 | Net Present Value | $350.32 | Internal Rate of Return | 15.98% | Average Rate of Return | 58.91% | Payback Period. | 5.74 years |

In this analysis, we included the overhead expense for 1972-1977 because as the project begins to gain a foothold in the market it will acquire a larger market share and will become a larger portion of General Foods’ overall dessert sales. Also, the agglomerator and excess capacity was charged

FIN 3717

Braden Eddy, Lauren Gear and Dakota Conravey

The Super Project Case Study

FIN 3717

Braden Eddy, Lauren Gear and Dakota Conravey

Statement of Facts

General Foods is a large corporation organized by product lines. They are evaluating Super Project, the manufacture of a new powdered dessert. Crosby Sanberg, a financial analysis manager, must determine the value in accepting the proposal, along with J.C. Kresslin, the Corporate Controller. The Super Project will increase profit with a payback period of less than ten years. The proposed capital investment for the project is $200,000 ($80,000 for building modifications and $120,000 for machinery and equipment) and production would take place

| 4.55 years |

The accounting for erosion of Jell-O sales yielded the following results: Exhibit 3 | Net Present Value | $182.33 | Internal Rate of Return | 14.63% | Average Rate of Return | 125.62% | Payback Period. | 6.39 years |

The accounting for including the excess capacity expense yields the following results: Exhibit 4 | Net Present Value | $375.35 | Internal Rate of Return | 16.11% | Average Rate of Return | 71.55% | Payback Period. | 5.80 years |

After review of the independent costs, we found that each one produces a positive NPV, an IRR above the discount rate and a payback period within the required ten years. However, it is unrealistic to consider these on an independent basis. For our realistic case, we included overhead expenses and the excess cost of capacity for the agglomerator. We did not include the erosion of Jell-O sales and the test market expense, as this is a sunk cost. Under these circumstances we produced the following results: Exhibit 6 | Net Present Value | $350.32 | Internal Rate of Return | 15.98% | Average Rate of Return | 58.91% | Payback Period. | 5.74 years |

In this analysis, we included the overhead expense for 1972-1977 because as the project begins to gain a foothold in the market it will acquire a larger market share and will become a larger portion of General Foods’ overall dessert sales. Also, the agglomerator and excess capacity was charged

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