Diamond Chemicals plc (A): The Merseyside ProjectJatin Jain
The controller at Diamond Chemicals wants to pass a 9 million pound project to increase production capacity, but there are issues with the discount rate used, treatment of engineering costs, including costs of a related EPC project and parent company's investment, temporary loss of customers during the shutdown, and concerns about sales projections due to the recession. A treasury analyst and various managers provide feedback on these issues and suggest adjustments to the assumptions and calculations to provide a more accurate analysis of the project's costs and potential returns.
Lucy Morris is recommending a £9 million project to renovate a production line. Frank Greystock's initial DCF analysis of the project contains errors. Lucy should ask Frank to:
1) Change the discount rate to 7% to be consistent with the cash flows.
2) Remove the annual pretax overhead charge as the project is expected to reduce overhead.
3) Remove the £0.5M sunk engineering cost as sunk costs are not relevant.
4) Include the £2M transportation investment and 10-year depreciation as it is necessary for the project.
5) Include the impact of potential lost customers not immediately returning.
Classic pen company activity based costingHarish B
Classic Pen Company is analyzing its cost accounting system using activity-based costing to better understand profitability. Previously, all overhead costs were allocated based on direct labor, but ABC analysis identified drivers like setup time and production runs. This showed that red and purple pens have higher costs than indicated previously due to more setups. ABC cost per unit for red and purple exceeds their selling price, suggesting price increases are needed to improve profitability for those products.
Completed Winter 2002 as part of the Managerial Accounting requirements for the MBA programme at McMaster University, Hamilton, Canada. http://RobinCheung.ca/
Relevant cost analysis revealed that the Challenger deal could be a lucrative
source of incremental revenues, since the 25,000 additional units could be
produced during plant slack time; however, as a discount value line, the
Challenger program does not align strategically with BBC’s best-cost provider
strategy (Porter, 1980). Further, the initial capital outlay of $787,000 for the
project exceed BBC’s available resources.
It is recommended that BBC pursue a short-term agreement with Hi-Valu or a
competing discount retailer to produce the bicycles on more favourable credit
terms, or to seek distribution of BBC’s normal product line through alternative
retail chains.
Midland Energy Resources, Inc. Cost of CapitalKivanc Ozuolmez
The document provides information to calculate the weighted average cost of capital (WACC) for various divisions within Midland corporation. It discusses how Mortensen's estimates of Midland's cost of capital are used for various purposes. It then calculates the overall corporate WACC of 8.548% and explains why Midland's choice of equity market risk premium (EMRP) of 5% is appropriate. It also recommends calculating separate WACCs for different divisions given their varying risk profiles. Separate WACCs are computed for the Exploration & Production and Marketing & Refining divisions, and a proposed method is provided for calculating the Petrochemical division's WACC.
The document discusses Enager Industries' shift from using divisions as profit centers to investment centers after 1992. It provides financial details and performance metrics for three divisions - Consumer, Industrial, and Professional Services. Questions are asked about specific divisions' performance and inferences that can be drawn from their financial statements. The effectiveness of using return on investment to measure divisional performance is also discussed.
Winfield Refuse Management Inc.Raising Debt vs. Equitysubhash kalal
Winfield Refuse Management is considering financing options for a $125M acquisition of Mott-Pliese Integrated Solutions. The options considered are: 1) Debt with fixed principal repayments, 2) Debt only, 3) Equity, 4) Debt and equity. Debt only has the lowest NPV cost of financing, while equity has the highest. Debt options provide the highest expected earnings per share and return on equity under likely earnings scenarios. Monte Carlo simulations show Winfield can meet debt obligations and dividend payments under varying earnings outcomes for all financing alternatives. Winfield should finance through issuing bonds with no principal repayments.
The receiving plant faces issues with long truck wait times, high overtime costs, and inaccurate berry grading. To address these problems:
1) Plant operations should start at 7 AM instead of 11 AM on peak days to reduce truck wait time from 511 to 127 hours and limit overtime costs.
2) Installing a berry grader would save the cooperative $112,500 annually by properly grading berries, though it may reduce farmer incomes.
3) The storage bins hold berries between processes. Since more berries will be water-harvested, 8 additional bins need converting to wet bins to reach the needed total of 19 wet bins.
Diamond Chemicals plc (A): The Merseyside ProjectJatin Jain
The controller at Diamond Chemicals wants to pass a 9 million pound project to increase production capacity, but there are issues with the discount rate used, treatment of engineering costs, including costs of a related EPC project and parent company's investment, temporary loss of customers during the shutdown, and concerns about sales projections due to the recession. A treasury analyst and various managers provide feedback on these issues and suggest adjustments to the assumptions and calculations to provide a more accurate analysis of the project's costs and potential returns.
Lucy Morris is recommending a £9 million project to renovate a production line. Frank Greystock's initial DCF analysis of the project contains errors. Lucy should ask Frank to:
1) Change the discount rate to 7% to be consistent with the cash flows.
2) Remove the annual pretax overhead charge as the project is expected to reduce overhead.
3) Remove the £0.5M sunk engineering cost as sunk costs are not relevant.
4) Include the £2M transportation investment and 10-year depreciation as it is necessary for the project.
5) Include the impact of potential lost customers not immediately returning.
Classic pen company activity based costingHarish B
Classic Pen Company is analyzing its cost accounting system using activity-based costing to better understand profitability. Previously, all overhead costs were allocated based on direct labor, but ABC analysis identified drivers like setup time and production runs. This showed that red and purple pens have higher costs than indicated previously due to more setups. ABC cost per unit for red and purple exceeds their selling price, suggesting price increases are needed to improve profitability for those products.
Completed Winter 2002 as part of the Managerial Accounting requirements for the MBA programme at McMaster University, Hamilton, Canada. http://RobinCheung.ca/
Relevant cost analysis revealed that the Challenger deal could be a lucrative
source of incremental revenues, since the 25,000 additional units could be
produced during plant slack time; however, as a discount value line, the
Challenger program does not align strategically with BBC’s best-cost provider
strategy (Porter, 1980). Further, the initial capital outlay of $787,000 for the
project exceed BBC’s available resources.
It is recommended that BBC pursue a short-term agreement with Hi-Valu or a
competing discount retailer to produce the bicycles on more favourable credit
terms, or to seek distribution of BBC’s normal product line through alternative
retail chains.
Midland Energy Resources, Inc. Cost of CapitalKivanc Ozuolmez
The document provides information to calculate the weighted average cost of capital (WACC) for various divisions within Midland corporation. It discusses how Mortensen's estimates of Midland's cost of capital are used for various purposes. It then calculates the overall corporate WACC of 8.548% and explains why Midland's choice of equity market risk premium (EMRP) of 5% is appropriate. It also recommends calculating separate WACCs for different divisions given their varying risk profiles. Separate WACCs are computed for the Exploration & Production and Marketing & Refining divisions, and a proposed method is provided for calculating the Petrochemical division's WACC.
The document discusses Enager Industries' shift from using divisions as profit centers to investment centers after 1992. It provides financial details and performance metrics for three divisions - Consumer, Industrial, and Professional Services. Questions are asked about specific divisions' performance and inferences that can be drawn from their financial statements. The effectiveness of using return on investment to measure divisional performance is also discussed.
Winfield Refuse Management Inc.Raising Debt vs. Equitysubhash kalal
Winfield Refuse Management is considering financing options for a $125M acquisition of Mott-Pliese Integrated Solutions. The options considered are: 1) Debt with fixed principal repayments, 2) Debt only, 3) Equity, 4) Debt and equity. Debt only has the lowest NPV cost of financing, while equity has the highest. Debt options provide the highest expected earnings per share and return on equity under likely earnings scenarios. Monte Carlo simulations show Winfield can meet debt obligations and dividend payments under varying earnings outcomes for all financing alternatives. Winfield should finance through issuing bonds with no principal repayments.
The receiving plant faces issues with long truck wait times, high overtime costs, and inaccurate berry grading. To address these problems:
1) Plant operations should start at 7 AM instead of 11 AM on peak days to reduce truck wait time from 511 to 127 hours and limit overtime costs.
2) Installing a berry grader would save the cooperative $112,500 annually by properly grading berries, though it may reduce farmer incomes.
3) The storage bins hold berries between processes. Since more berries will be water-harvested, 8 additional bins need converting to wet bins to reach the needed total of 19 wet bins.
Linear programming production strategy body plus 100, 200Prabhat Taneja
BFI manufactures two machines, the BodyPlus 100 and BodyPlus 200. Each machine requires different activities with varying time requirements. Using a linear programming model, the optimal production quantities were determined to be 50 BodyPlus 100 machines and 16.67 BodyPlus 200 machines to maximize profit of $26,233. Without the constraint that BodyPlus 200 production be at least 25% of total, the optimal solution is 60 BodyPlus 100 and 10 BodyPlus 200 machines for a profit of $26,870. Efforts to increase profits should focus on increasing machine and welding time as it is fully utilized under the constrained optimal solution.
Interco case by deepak gupta & gruop.deepak gupta
The document provides an analysis of Interco's financial performance in 1987-1988 and reasons for a hostile takeover attempt. Key points include:
- Interco had strong current and quick ratios, indicating good short-term financial health.
- Returns on equity were around 10-11%, showing decent returns for shareholders.
- Two of Interco's business divisions were unprofitable, weighing down overall performance.
- The hostile takeover by City Capital aims to divest these weak units and make Interco profitable again.
AIC Systems is a Taiwanese electronics manufacturer that began producing printed circuit boards and has expanded into consumer electronics. They were facing problems with low productivity on their netbook assembly lines due to inconsistent operations, bottlenecks, and a spike in production demands. To address this, they implemented several solutions including adopting a batch manufacturing process with gravity feed shelves to reduce re-stocking times, assigning dedicated floaters to each line, and improving material, machine, and capital productivity metrics to better utilize existing resources and boost output.
This document summarizes a case study about Boston Creamery, an ice cream company that installed a new financial planning and control system to compare budgeted and actual results. The summary focuses on 4 key characters - the President, VP of Sales and Marketing, VP of Operations, and Controller. It provides background on the company and system, and describes how the VP of Operations and Controller analyze variances in areas like market growth, manufacturing costs, and product mix to identify issues and recommendations. The summary is intended to highlight the essential information about the case study in 3 sentences or less.
The document describes a queuing system of an online legal service that receives customer emails and has lawyers respond to them. Key details:
- Emails arrive at a rate of 10 per hour with a coefficient of variation of 1.
- One lawyer responds to emails, taking on average 5 minutes with a standard deviation of 4 minutes.
- The average customer wait time is calculated to be 20.5 minutes.
- With a 10 hour work day, a lawyer would receive about 100 emails.
- The lawyer would have 1.66 hours for other work when not responding to emails.
- Reducing the standard deviation of response times to 0.5 minutes would not change average wait or lawyer work time.
AIC Netbooks was facing problems with increasing production demands for their QuiN 816 Netbook. They considered two options: 1) increasing shifts to 10-12 hours which was not sustainable, or 2) installing a new production line which would increase capacity with only one-time expenses. The new production line was determined to be the better solution as it provided higher production output while keeping recurring costs like salaries and training lower compared to increasing shifts.
The document discusses Dore Dore, a manufacturer of knitted products. It had two divisions: hosiery and knitwear. The hosiery division faced problems with uncertain forecasts leading to high inventory costs and unsold items. It wanted to implement a cellular design process to improve production. Testing this in the knitwear division showed lower WIP inventory and fewer bins per worker. In the hosiery division, designing the process layout as per work tasks identified two work stations needed. However, the factory machine utilization was only 58%, indicating heavy depreciation costs due to idle machines. Alternatives were needed to improve efficiency.
BP Amoco was formed through the merger of British Petroleum and Amoco in 1998. Both companies had highly centralized finance functions that preferred corporate financing over project financing. After the merger, BP Amoco's finance executives were tasked with developing a new financing policy for the combined entity. They examined the advantages and disadvantages of both project finance and corporate finance models before recommending scenarios where each could be applied within BP Amoco.
The document discusses sales forecasting techniques for Harmon Foods' breakfast cereal product Treat. It describes wide variability in past sales forecasts, ranging from 50-200% of actual sales. Various factors that influence demand are examined, including seasonality, promotions, and competitor strategies. The case study develops a regression model to forecast sales based on time trends, seasonality, consumer packs, and dealer allowances. Recommendations focus on timing promotions during high seasonal periods and emphasizing more effective dealer allowances over consumer packs.
Airbus A3XX: Developing the World’s Largest Commercial Jet Rishi Bajaj
Airbus A3XX: Developing the World’s Largest Commercial Jet (A) (9-201-028 HBR)
Contents:
Introduction to the Case, Industry
• Why is Airbus interested in building the A3XX?
• What are the objectives?
• What are the basic economies of large projects?
• Limited optionality
Done by-
111 Rakshit Jhunjunwala
115 Ankitesh Mathur
211 Manu Shrivastava
301 Balagopal Padmakumar
402 Rishi Bajaj
This document outlines the process flow for a cranberry operation and identifies bottlenecks. It analyzes adding additional equipment like dryers and dumpers to increase throughput. The key constraints are the destoning and drying capacities. Adding one new dryer initially and two more later could increase drying capacity to 1200 bbls/hr and reduce processing time. Investing in a dumper previously did not address the bottleneck and was a mistake.
The document discusses waiting line management and queuing theory. It defines key concepts such as:
- Queuing systems have three main components: the source population where customers arrive from, the service system, and how customers exit the system.
- Customer arrivals can come from a finite or infinite population. Their distribution over time is usually exponential, while the number arriving in a time period follows a Poisson distribution.
- The central problem is balancing the costs of providing faster service against the inherent costs of waiting. Proper management of queues can help reduce customer frustration while waiting.
CSX offered to acquire Conrail in a two-tier deal. In the front-end, CSX would acquire 40% of Conrail's shares through two cash tender offers at $92.50 per share, totaling $3.348 billion. In the back-end, CSX would exchange shares for the remaining 60% at a ratio of 1.85619 CSX shares for each Conrail share, valued at $46.75 per CSX share or $4.712 billion. The total value of the deal was $89.06 per Conrail share, representing a 24.5% premium over Conrail's estimated fair price. Conrail shareholders had to decide by November 15th whether to tender
Grand Jean Company is a large clothing manufacturer that owns 25 plants and contracts with 20 others. Its goals are to increase profits, improve efficiency, and boost production capacity. Strengths include its long history and reliable production network, but weaknesses include a lack of incentive for plants to exceed quotas and an unfair reward system. Plant managers are evaluated based on production and cost targets set by marketing forecasts. The company aims to achieve these goals by adjusting product lines and using a sales commission compensation structure for its marketing departments. Suggested solutions include improving production budget planning and compensation policies.
The document analyzes two proposed projects for New Heritage Doll Company: Design My Doll and Match My Doll Clothing. It conducts financial analyses including discounted cash flow calculations and net present value analyses for both projects. Based on the analyses, Design My Doll has a higher NPV of $1323.95 and IRR of 5.17%, compared to NPV of $1085.09 and IRR of 3.8% for Match My Doll Clothing. Therefore, the document recommends that the Budgeting Committee accept the Design My Doll project proposal.
CSX has offered to acquire Conrail through a two-tier merger agreement. The front-end offer is for 40% of shares at $92.50 per share, while the back-end offer values each Conrail share at $86.78 through an exchange of CSX stock. This values Conrail at an effective price of $89.06 per share. Analysts value Conrail using multiples and DCF valuations to compare to CSX's offer price. The multiples valuation ranges from $90.48 to $126.98 per share based on comparable railroad transactions. The DCF valuation ranges from $93.24 to $93.54 per share when incorporating the estimated synergies of $370 million
The document analyzes the stock market reaction and strategic options for Kraft Foods and Philip Morris following Philip Morris' bid to acquire Kraft. It shows that Kraft's share price doubled on the acquisition announcement but fell when a management buyout of Nabisco was announced, raising doubts. The price rebounded when Kraft announced a restructuring plan and KKR bid on Nabisco. The document models the financial viability of the acquisition for Philip Morris and valuations of Kraft under different ownership scenarios and assumptions. It considers negotiation tactics and strategies for both companies to increase or maintain the deal price.
The document analyzes 3 potential investment projects for ABC Company using capital budgeting tools. Project A involves a $10 million equipment purchase with an NPV of $44 million and IRR of 79.79%. Project B is a $7 million expansion with an NPV of $22 million and IRR of 91.48%. Project C is a $2 million marketing campaign with an NPV of $33 million and IRR of 90.36%. All projects have positive NPVs and IRRs above required rates of return, making them worthwhile. The recommended order of projects from best to worst is Project A, Project C, then Project B.
This document defines the key deliverables and tasks for quantifying the value of a project. Deliverable 3D involves quantifying the project value by determining the benefits to customers and the organization. This includes calculating the cost of poor quality using baseline data and estimating savings. Project benefits are documented in the project benefit document and summarized in the project charter and final presentation.
Linear programming production strategy body plus 100, 200Prabhat Taneja
BFI manufactures two machines, the BodyPlus 100 and BodyPlus 200. Each machine requires different activities with varying time requirements. Using a linear programming model, the optimal production quantities were determined to be 50 BodyPlus 100 machines and 16.67 BodyPlus 200 machines to maximize profit of $26,233. Without the constraint that BodyPlus 200 production be at least 25% of total, the optimal solution is 60 BodyPlus 100 and 10 BodyPlus 200 machines for a profit of $26,870. Efforts to increase profits should focus on increasing machine and welding time as it is fully utilized under the constrained optimal solution.
Interco case by deepak gupta & gruop.deepak gupta
The document provides an analysis of Interco's financial performance in 1987-1988 and reasons for a hostile takeover attempt. Key points include:
- Interco had strong current and quick ratios, indicating good short-term financial health.
- Returns on equity were around 10-11%, showing decent returns for shareholders.
- Two of Interco's business divisions were unprofitable, weighing down overall performance.
- The hostile takeover by City Capital aims to divest these weak units and make Interco profitable again.
AIC Systems is a Taiwanese electronics manufacturer that began producing printed circuit boards and has expanded into consumer electronics. They were facing problems with low productivity on their netbook assembly lines due to inconsistent operations, bottlenecks, and a spike in production demands. To address this, they implemented several solutions including adopting a batch manufacturing process with gravity feed shelves to reduce re-stocking times, assigning dedicated floaters to each line, and improving material, machine, and capital productivity metrics to better utilize existing resources and boost output.
This document summarizes a case study about Boston Creamery, an ice cream company that installed a new financial planning and control system to compare budgeted and actual results. The summary focuses on 4 key characters - the President, VP of Sales and Marketing, VP of Operations, and Controller. It provides background on the company and system, and describes how the VP of Operations and Controller analyze variances in areas like market growth, manufacturing costs, and product mix to identify issues and recommendations. The summary is intended to highlight the essential information about the case study in 3 sentences or less.
The document describes a queuing system of an online legal service that receives customer emails and has lawyers respond to them. Key details:
- Emails arrive at a rate of 10 per hour with a coefficient of variation of 1.
- One lawyer responds to emails, taking on average 5 minutes with a standard deviation of 4 minutes.
- The average customer wait time is calculated to be 20.5 minutes.
- With a 10 hour work day, a lawyer would receive about 100 emails.
- The lawyer would have 1.66 hours for other work when not responding to emails.
- Reducing the standard deviation of response times to 0.5 minutes would not change average wait or lawyer work time.
AIC Netbooks was facing problems with increasing production demands for their QuiN 816 Netbook. They considered two options: 1) increasing shifts to 10-12 hours which was not sustainable, or 2) installing a new production line which would increase capacity with only one-time expenses. The new production line was determined to be the better solution as it provided higher production output while keeping recurring costs like salaries and training lower compared to increasing shifts.
The document discusses Dore Dore, a manufacturer of knitted products. It had two divisions: hosiery and knitwear. The hosiery division faced problems with uncertain forecasts leading to high inventory costs and unsold items. It wanted to implement a cellular design process to improve production. Testing this in the knitwear division showed lower WIP inventory and fewer bins per worker. In the hosiery division, designing the process layout as per work tasks identified two work stations needed. However, the factory machine utilization was only 58%, indicating heavy depreciation costs due to idle machines. Alternatives were needed to improve efficiency.
BP Amoco was formed through the merger of British Petroleum and Amoco in 1998. Both companies had highly centralized finance functions that preferred corporate financing over project financing. After the merger, BP Amoco's finance executives were tasked with developing a new financing policy for the combined entity. They examined the advantages and disadvantages of both project finance and corporate finance models before recommending scenarios where each could be applied within BP Amoco.
The document discusses sales forecasting techniques for Harmon Foods' breakfast cereal product Treat. It describes wide variability in past sales forecasts, ranging from 50-200% of actual sales. Various factors that influence demand are examined, including seasonality, promotions, and competitor strategies. The case study develops a regression model to forecast sales based on time trends, seasonality, consumer packs, and dealer allowances. Recommendations focus on timing promotions during high seasonal periods and emphasizing more effective dealer allowances over consumer packs.
Airbus A3XX: Developing the World’s Largest Commercial Jet Rishi Bajaj
Airbus A3XX: Developing the World’s Largest Commercial Jet (A) (9-201-028 HBR)
Contents:
Introduction to the Case, Industry
• Why is Airbus interested in building the A3XX?
• What are the objectives?
• What are the basic economies of large projects?
• Limited optionality
Done by-
111 Rakshit Jhunjunwala
115 Ankitesh Mathur
211 Manu Shrivastava
301 Balagopal Padmakumar
402 Rishi Bajaj
This document outlines the process flow for a cranberry operation and identifies bottlenecks. It analyzes adding additional equipment like dryers and dumpers to increase throughput. The key constraints are the destoning and drying capacities. Adding one new dryer initially and two more later could increase drying capacity to 1200 bbls/hr and reduce processing time. Investing in a dumper previously did not address the bottleneck and was a mistake.
The document discusses waiting line management and queuing theory. It defines key concepts such as:
- Queuing systems have three main components: the source population where customers arrive from, the service system, and how customers exit the system.
- Customer arrivals can come from a finite or infinite population. Their distribution over time is usually exponential, while the number arriving in a time period follows a Poisson distribution.
- The central problem is balancing the costs of providing faster service against the inherent costs of waiting. Proper management of queues can help reduce customer frustration while waiting.
CSX offered to acquire Conrail in a two-tier deal. In the front-end, CSX would acquire 40% of Conrail's shares through two cash tender offers at $92.50 per share, totaling $3.348 billion. In the back-end, CSX would exchange shares for the remaining 60% at a ratio of 1.85619 CSX shares for each Conrail share, valued at $46.75 per CSX share or $4.712 billion. The total value of the deal was $89.06 per Conrail share, representing a 24.5% premium over Conrail's estimated fair price. Conrail shareholders had to decide by November 15th whether to tender
Grand Jean Company is a large clothing manufacturer that owns 25 plants and contracts with 20 others. Its goals are to increase profits, improve efficiency, and boost production capacity. Strengths include its long history and reliable production network, but weaknesses include a lack of incentive for plants to exceed quotas and an unfair reward system. Plant managers are evaluated based on production and cost targets set by marketing forecasts. The company aims to achieve these goals by adjusting product lines and using a sales commission compensation structure for its marketing departments. Suggested solutions include improving production budget planning and compensation policies.
The document analyzes two proposed projects for New Heritage Doll Company: Design My Doll and Match My Doll Clothing. It conducts financial analyses including discounted cash flow calculations and net present value analyses for both projects. Based on the analyses, Design My Doll has a higher NPV of $1323.95 and IRR of 5.17%, compared to NPV of $1085.09 and IRR of 3.8% for Match My Doll Clothing. Therefore, the document recommends that the Budgeting Committee accept the Design My Doll project proposal.
CSX has offered to acquire Conrail through a two-tier merger agreement. The front-end offer is for 40% of shares at $92.50 per share, while the back-end offer values each Conrail share at $86.78 through an exchange of CSX stock. This values Conrail at an effective price of $89.06 per share. Analysts value Conrail using multiples and DCF valuations to compare to CSX's offer price. The multiples valuation ranges from $90.48 to $126.98 per share based on comparable railroad transactions. The DCF valuation ranges from $93.24 to $93.54 per share when incorporating the estimated synergies of $370 million
The document analyzes the stock market reaction and strategic options for Kraft Foods and Philip Morris following Philip Morris' bid to acquire Kraft. It shows that Kraft's share price doubled on the acquisition announcement but fell when a management buyout of Nabisco was announced, raising doubts. The price rebounded when Kraft announced a restructuring plan and KKR bid on Nabisco. The document models the financial viability of the acquisition for Philip Morris and valuations of Kraft under different ownership scenarios and assumptions. It considers negotiation tactics and strategies for both companies to increase or maintain the deal price.
The document analyzes 3 potential investment projects for ABC Company using capital budgeting tools. Project A involves a $10 million equipment purchase with an NPV of $44 million and IRR of 79.79%. Project B is a $7 million expansion with an NPV of $22 million and IRR of 91.48%. Project C is a $2 million marketing campaign with an NPV of $33 million and IRR of 90.36%. All projects have positive NPVs and IRRs above required rates of return, making them worthwhile. The recommended order of projects from best to worst is Project A, Project C, then Project B.
This document defines the key deliverables and tasks for quantifying the value of a project. Deliverable 3D involves quantifying the project value by determining the benefits to customers and the organization. This includes calculating the cost of poor quality using baseline data and estimating savings. Project benefits are documented in the project benefit document and summarized in the project charter and final presentation.
This document outlines the steps to quantify the value of a project in Deliverable 3D. It defines cost of poor quality (COPQ) and explains how to calculate savings from a project, including hard savings from expense reductions and revenue growth, and soft savings from increased capacity or avoided costs. Benefits should be documented in the project charter, presentation, and final report to complete Deliverable 3D. Quantifying value helps prioritize projects and shows expected returns from improvements.
SnoPUD is developing an Energy Savings Purchasing Program that would invest in comprehensive energy efficiency projects for commercial customers. This would allow customers to upgrade facilities with no upfront capital costs, as the projects would pay for themselves through utility bill savings over 10 years. A third party would provide financing and guarantee savings. The goal is for customer's annual payments from savings to be equal to or less than their current utility costs. This program aims to help customers maximize energy efficiency by removing barriers like upfront costs.
This document provides an overview and financial update of JP Energy Partners. In Q3 2015, Adjusted EBITDA was $10.4 million, an 8% increase over Q3 2014. Distribution coverage was approximately 0.7x for common units. Recent projects like the Reagan Lateral expansion and Magellan interconnect were completed on time and under budget. Cost reduction initiatives are expected to provide $2-2.5 million in savings in 2016. The company is focused on growing fee-based cash flows through organic projects and potential drop-downs in its core Permian Basin footprint.
The document provides answers to questions about investment projects being considered by Pan-Europa Foods. It conducts financial analyses of 11 projects using NPV and lists them in order of ranking. It then discusses adjusting the analysis for risk, time value of money, project lifetimes, and size. Based on strategic fit, mandatory status, IRR, payback period, risk level, and other qualitative factors, the recommended projects are: Effluent Treatment, Eastward Expansion, Southward Expansion, Snack Foods, and Inventory Control.
Project management involves four key components: selection, planning, implementation, and completion. Project appraisal examines technical, financial, market, economic, and ecological aspects to determine a project's viability. It assesses factors like technology, costs, profits, demand, and environmental impacts. Financial appraisal focuses on costs, financing, income/expenditure, profitability, and pricing. Key financial metrics include net present value, internal rate of return, payback period, and debt service coverage ratio. The document analyzes and compares these metrics across projects A, B, and C to determine that Project C is the best investment option.
This document contains a 20 question multiple choice quiz on cash flow estimation and risk analysis for a Financial Management course. The questions cover topics such as sensitivity analysis, estimating cash flows, adjusting discount rates for risk, including vs excluding certain costs in cash flow analysis, and scenario analysis. Sample calculations are provided for some questions.
This document discusses various capital budgeting techniques including:
- NPV, payback period, IRR, profitability index, and linear programming. It provides examples of how to calculate and properly apply each technique. It also discusses potential pitfalls of some techniques like multiple IRRs. Capital rationing constraints can require using the profitability index approach. A post audit reviews actual vs predicted results to improve future forecasts and operations.
This document provides a project charter for a project aimed at reducing consumer centric quality faults at British American Tobacco. The project will design and implement an improved operating procedure methodology to address the top quality issues identified from customer surveys and complaints. The project objectives are to develop and test the new methodology within 9 days, implement it across all shifts within 12 days, and reduce damages by 10% in the first year. The project is expected to save on costs from reduced damages and complaints while improving customer satisfaction.
The document provides guidance for SandRidge Energy's 2015 operations including:
- Capital expenditures of $700 million focused on drilling and production in key areas.
- Production guidance of 28-30.5 million barrels of oil equivalent.
- Plans to reduce rig count from 19 to 7 while expanding use of multilaterals.
- Focus on capital discipline, cost reductions, and preserving drilling locations and returns.
1) The refinery needs major overhauling to increase efficiency and reduce downtime as equipment is utilized continuously to meet high demand.
2) Shutdown during the winter season when demand is historically low provides an opportunity to complete overhauling within 15 days at an estimated cost of Rs. 33.1 million.
3) Benefits include reduced costs, improved efficiency, consistent product quality, and uninterrupted operations going forward.
Larsen & Toubro - Outthink 2017 (Strategy Case Competition) - Grand FinaleAnupreet Choudhary
As Sanjay Sharma (Strategy Consultant from Corn & Cherry, Abu Dhabi), we were asked to make a presentation to Corn & Cherry panel. We had to make a 10 slide presentation highlighting the 10-year strategic roadmap for LTHE (referred as DGHE in the case).
Capital budgeting is the process of evaluating long-term investments to maximize shareholder wealth. It involves assessing projects that require fixed assets operating for over one year. The key evaluation techniques are payback period, net present value (NPV), and internal rate of return (IRR), with NPV preferred as it considers total cash flows over time. NPV accepts projects when the present value of inflows exceeds outflows, while IRR accepts projects when the rate of return exceeds the cost of capital.
The document discusses various capital budgeting techniques used to evaluate long-term investment projects, including accounting rate of return, payback period, net present value (NPV), internal rate of return (IRR), and profitability index. It provides an example of using these methods to analyze potential expansion projects for a wireless company. While NPV is theoretically the best method, other techniques like IRR are also commonly used, but they may conflict with NPV in some cases due to problems related to project scale and timing.
Presentation by Bikash Pandey, Deputy Chief of Party – USAID and the Director Clean Energy and Environment, Winrock International providing consultancy to Worldbank at a forum organized by Avanceon titled Financing Energy Optimization Projects with guaranteed IRR
Uop fin 486 week 4 individual assignment newHaashimm
This document contains instructions and information for multiple assignments related to finance topics including risk assessment, capital budgeting, breakeven analysis, impact of inflation, real options, and capital rationing. It provides details on 5 different practice problems (P12-1, P12-3, P12-6, P12-17, P12-19) involving calculation of NPV, risk assessment, consideration of inflation and real options. The document directs the user to evaluate risks and complete capital budgeting analyses for various investment projects under different conditions.
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Capital Budgeting Techniques (Investment Decision Rules) (Measuring Return on Investment)
This document discusses various capital budgeting techniques used to evaluate long-term investment projects, including net present value (NPV), internal rate of return (IRR), payback period (PP), discounted payback period (DPP), and profitability index (PI). It provides examples of how to calculate these metrics and compares their strengths and weaknesses in accepting or rejecting investment projects.
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This PowerPoint compilation offers a comprehensive overview of 20 leading innovation management frameworks and methodologies, selected for their broad applicability across various industries and organizational contexts. These frameworks are valuable resources for a wide range of users, including business professionals, educators, and consultants.
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The Strategy Implementation System offers a structured approach to translating stakeholder needs into actionable strategies using high-level and low-level scorecards. It involves stakeholder analysis, strategy decomposition, adoption of strategic frameworks like Balanced Scorecard or OKR, and alignment of goals, initiatives, and KPIs.
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2. Introduction
Summary of the Case:
Major competitor in worldwide chemicals industry &
a leading producer of polypropylene
Morris (plant manager at Diamond Chemicals) is recommending a 9
million project;
- Renovate and rationalize a production line at merseyside
- To make up for deferred maintenance and increase production efficiency
Several objectives to the project have been raised at the corporate, and
the initial analysis from Frank greystock(Controller of Diamond Chemicals
plant) contains errors that needs to be fixed.
3. Regarding the Case
The project shows a highly positive NPV and meets all the
investments criteria, there are some issues:
i. The production line is being to shut down for 45 days during
which customers would buy from competitors.
ii. The project requires the parent company’s Transport Division
to invest 2 mn pounds which the controller refuses to add in
her own project’s outlay.
iii. The marketing department is skeptical about sales figures due
to the ongoing recession.
iv. The assistant plant manager wants the controller to include
an EPC project as a part of the overall project.
v. A Treasury analyst says the discount rate used is incorrect.
Additionally, the treatment of engineering costs is incorrect.
4. Recommended Adjustments
• Annual Pretax charge for overhead
• Engineering Sunk costs
• Cash flow and discount rate consistency
• Transportation Investment
• Lost Sales Impact
5. Recommendation 1
Annual Pretax charge for overhead
Corporate manual states overhead costs be reflected at 3.5%
rate
This project is expected to reduce overhead costs and should
not be required to charge an annual pretax
Before removing Pretax charge :
NPV: 9
IRR : 25.9%
After removing Pretax charge:
NPV: 10.67
IRR : 28.5%
6. Recommendation 2
Sunk costs involved in Engineering
0.5 million pounds for renovation efficiency is included in the
analysis
Sunk costs are retrospective costs that have already been
spent and cannot be recovered according to the with-
without principle, not relevant to the present decisions.
Previous:
NPV: 9
IRR : 25.9%
After removing Sunk costs:
NPV: 9.31
IRR : 26.8%
7. Recommendation 3
Inflation : Cash Flow and discount rate consistency
The discount rate currently used in evaluating the project is
10%. However, it’s the nominal rate but the cash flows are
real. Hence, the discount rate used should be adjusted for
inflation, which is 3%.
At 10% discount rate:
NPV: 9
IRR : 25.9%
At 7% discount rate:
NPV: 12.32
IRR : 25.9%
8. • 3% Inflation should be considered for forecast
and take discount rate as 10%.
• Caluclate : New Sales, Old Sales, Depreciation
–wud not be recalculated.
• Gross Profit – olld , new , incremental will be
recalcualted.
• WIP – recalucllatd.Inventory will b
recalculated.
• CAPEX – No recalucation
9. • Tax will not be recalculated.
• Transportation Division: Transport div. is a cost
center. A dept which supports other depts and
incurs costs for providing such support.
• So, transportation cost for the entire project
has to be incurred and taken into account.
10. Recommendation 4
Addition of Transportation Investment
2 million pounds for purchasing new rolling stock to support
anticipated future growth was not included in the DCF
analysis.
Cost should be considered a cash outflow and expense.
Before adding Transportation Investment :
NPV: 9
IRR : 25.9%
After adding Transportation Investment:
NPV: 5.55
IRR : 18.4%
11. Recommendation 5
Lost Sales Impact
Greystock DCF analysis concludes that all customers will
return within one year.
Conservative approach concludes not all customers will
return so quickly and this will impact sales and should be
included in the analysis.
Potential impact includes the overall state of the economy
and improving competitor frequencies.
RECOMMNDATION : Include customer loses
12. Summary of Adjustments to NPV
Following is the impact of the adjustments to the project:
With No Adjustments:
NPV: 9
IRR : 25.9%
With Adjustments:
NPV: 14.66
IRR : 29.4%
13. Conclusion
The project should be undertaken due to the
following reasons:
– NPV and IRR increases as the cumulative effect of these
adjustments.
– Project meets all the investment criteria and adds to the
shareholder value.
– This will increase efficiency and would result in gain in the
long run for the organization.
– With the new technology the organization is likely to benefit
from the returns to scale as well.