Introduction
The Super Project evaluates whether General Foods (GF) should invest in a new product line. This invention uses extra capacity to manufacture and market a Super product in enormous quantities. This essay will discuss the company’s decision to accept or reject the project, along with supporting evidence. Analyzing cash flows directly related to The Super Project is necessary to choose the best choice because it will reveal the choice’s core considerations.
Cash Flow Analysis
Determining the cash flows associated with the project is essential to accurately determine if an investment in it will be worthwhile. These flows are units produced by the project, but they do not count toward the cash flows produced if they are not carried out (Kester, 1992). Therefore, General Foods must consider the following four additional cash flows:
- The costs incurred by the GF to test Super goods prior to release are known as market test costs. These expenses cannot be regarded as the primary ones because they are associated with implementing a development that has not yet reached the market. Consequently, this cash flow ought to be listed among the supplementary ones.
- The cost that is unrelated to the creation of The Super Project products includes overhead expenses. These expenses will be incurred whether the manufacturer decides to carry out the project. Because they will always be incurred, these costs are no longer included in the project’s budget.
- Overhead expenses are included in the cost not connected to making The Super Project items. Whether or not the manufacturer ultimately decides to complete the project, these costs will still be incurred. These expenditures are no longer included in the project budget as they will always be incurred.
- Also distinct from the cash flow that would have been collected if the project hadn’t been constructed is the allocation of the agglomeration overcapacity fee. Therefore, the pertinent stream category should contain these extra expenses.
Summary of Additional Cash Flows
As a result, none of the four cash flows examined are additive. Due to their secondary nature or lack of significance, they are all supplementary if the project were not launched.
Sensitivity Analysis Factors
Regarding sensitivity analysis, it is essential to note that it is an indication that establishes a project’s sensitivity to changes in the primary factors. The main factors affecting The Super Project are:
- The selling price is the indicator charged for each item sold to the buyer. The Super Project is sensitive to this factor because it has a direct impact on its revenue.
- A unit of sales represents the quantity sold of an item over a period of time. The most important factor for any firm is the volume of sales, which, coupled with price, determines the company’s income.
- A corporation’s expenditures for purchasing a unit of production result in waste because each unit’s output is wasted. This indicator controls the price of items, which impacts the company’s gross profit. As a result, The Super Project is sensitive to this variable since it affects the project’s profit.
Strategic Considerations for General Foods
Given that General Foods can increase the scope of its product offering, the Super Project is an alluring strategic choice. This action can make the company more competitive and enable it to join a new market. However, taking this move carries the danger of the general failure of The Super Project and a decline in the margin profit of Jell-O products (Kester, 1992). On the other hand, the prospective improvements center on raising the project’s profit and enhancing profitability.
Cash Flows and Indicators
It may be deduced from examining additional cash flows that each indicator is unique. None of them matter because they wouldn’t have happened if the project hadn’t been carried out. According to sensitivity analysis, Jell-O, the unit value of a Super product, and its sales volume all affect whether or not a company accepts a partnership offer from The Super Project (Kester, 1992). As a result, the project’s NPV may alter if at least one of these factors changes. The Excel file includes a table and a graphic with all calculations included. The NPV of the project will be $(493,339.75) at a discount rate of 10%, indicating that the project will not be financially viable at this rate. Therefore, the project could be more advantageous for General Foods in these circumstances. The Super Project will result in losses for the company that initially cooperated because the project’s cost will ultimately become negative.
Competitive Analysis
When looking at it from a competitive angle, one can assume that The Super Project is a profitable choice for General Foods. The company will be able to carefully plan the extension of its product line and future entry into new markets. If it is successful, the idea could result in substantial business profits. However, the results need to be more encouraging so that the project can proceed confidently.
Conclusion
After an overall study of several criteria, the Super Project has shown itself to be an unworkable alternative for partnership with General Foods Corporation after considering extra cash flows, analyzing the sensitivity of corporate income, and considering its competitive and strategic considerations. As a result, collaboration could be more stable and involve more risks than rewards. My choice to accept The Super Project as a consultant to General Foods would be unfavorable, especially in light of the project’s unfavorable NPV.
Reference
Kester, W. (1992). The super project (TN). Harvard Business School Teaching Note 292-033.