Energy Gel A New Product Introduction (A) Case Study Solution
Elite Corporation (HPC) is choosing whether to continue with another product offering or not, and on the off chance that they do continue with the venture, at that point Energy Gel undertaking ought to be assessed. The assessment bases characterized by Mr. Winkler and Mr. Leiter are obviously referenced for the situation for the assessment. The assessment premise is centered around, how to use the abundance limit with regards to assembling of Energy Gel. After exhaustive investigation on both of the assessment premise characterized by the two directors, Mr. Leiter's procedure is ideal. Mr. Leiter recommended that Energy Gel undertaking ought to be assessed through acquiring full expense as remain solitary premise. Through this methodology the genuine capability of the task will be assessed. The assessment is made on remain solitary premise and for this reason a supposition that is made that through use of hardware, it will deteriorate at a quicker rate which will eventually diminish the long haul limit of Leiter's item. Another worry raised during the investigation was that, for the situation request of the two items would diminish then what influences it would expedite the gear? These are purposes behind which Mr. Leiter's full cost methodology is proper for the assessment.
Exhibit 1
| Pro-Forma Performance of Energy Bar and Energy Gel, 2000 - 2005 (as of June 2000) in millions | ||||||
| 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |
| Pro-forma | Pro-forma | Pro-forma | Pro-forma | Pro-forma | ||
| Units | 43.30 | 47.60 | 51.90 | 56.10 | 60.60 | |
| Sales | 88.80 | 100.00 | 111.80 | 123.80 | 137.10 | |
| - Cost of Goods Sold (incl. Depreciation) | 43.40 | 49.00 | 54.40 | 60.40 | 66.90 | |
| - Advertising Expense | 8.00 | 9.00 | 10.10 | 11.10 | 12.30 | |
| - Selling Expenses | 4.90 | 5.50 | 6.20 | 6.80 | 7.60 | |
| - General and Administrative Expenses | 12.70 | 13.70 | 14.70 | 15.60 | 16.50 | |
| Earnings before Taxes | 19.80 | 22.80 | 26.40 | 29.90 | 33.80 | |
| Earnings before Taxes (Energy Gel) | (4.79) | (0.65) | 0.72 | 1.68 | 2.45 | |
| Total Earnings before Taxes | 15.01 | 22.15 | 27.12 | 31.58 | 36.25 | |
| - Taxes | 6.90 | 8.00 | 9.20 | 10.50 | 11.80 | |
| - Taxes (Energy Gel) | (1.68) | (0.23) | 0.25 | 0.59 | 0.86 | |
| - Total Taxes | 5.22 | 7.77 | 9.45 | 11.09 | 12.66 | |
| Net Income | 9.79 | 14.38 | 17.67 | 20.49 | 23.60 | |
| Add Depreciation | 0.30 | 0.30 | 0.30 | 0.30 | 0.30 | |
| Cash Flows | 10.09 | 14.68 | 17.97 | 20.79 | 23.90 | |
| Discount Factor | 0.87 | 0.76 | 0.66 | 0.57 | 0.50 | |
| Discounted Cash Flows | 8.77 | 11.10 | 11.82 | 11.89 | 11.88 | |
| Total Discounted Cash Flows at zero period | 55.46 | |||||
| Initial Investment | 3.00 | |||||
| Net Present Value | 52.46 | |||||
Exhibit 2
| HPC Financial Evaluation Form - Energy Gel Project [$ million] | ||||||
| Profit and Loss Pro-Forma | 2001 | 2002 | 2003 | 2004 | 2005 | |
| Units (million) | 4.20 | 10.00 | 11.80 | 13.60 | 15.20 | |
| Sales | 6.30 | 15.00 | 17.70 | 20.40 | 22.80 | |
| - Cost of Goods Sold (incl. Depreciation) | 4.08 | 9.30 | 10.92 | 12.54 | 13.98 | |
| Gross Profit | 2.22 | 5.70 | 6.78 | 7.86 | 8.82 | |
| - Advertising Expense | 2.20 | 3.30 | 2.70 | 2.50 | 2.30 | |
| - Selling Expense | ||||||
| - General and Administrative Expense | ||||||
| - R&D and Market Research Expense | 2.50 | |||||
| Earnings before Taxes | (2.48) | 2.40 | 4.08 | 5.36 | 6.52 | |
| - Taxes (35%) | (0.80) | 0.80 | 1.40 | 1.80 | 2.30 | |
| Net Income | (1.60) | 1.60 | 2.70 | 3.60 | 4.30 | |
| Net Income (Energy Bar Business) | 12.87 | 14.82 | 17.16 | 19.44 | 21.97 | |
| Total Net Income | 11.27 | 16.42 | 19.86 | 23.04 | 26.27 | |
| Add Depreciation | 0.30 | 0.30 | 0.30 | 0.30 | 0.30 | |
| Change in working Capital | (0.90) | (1.30) | (0.40) | (0.50) | (0.30) | |
| Free Cash Flows | 10.67 | 15.42 | 19.76 | 22.84 | 26.27 | |
| Discount Factor | 0.87 | 0.76 | 0.66 | 0.57 | 0.50 | |
| Discounted Cash Flows | 9.28 | 11.66 | 12.99 | 13.06 | 13.06 | |
| Total Discounted Cash Flows at zero period | 60.05 | |||||
| Initial Investment | 3.50 | |||||
| Net Present Value | 56.55 | |||||
Exhibit 3
| Pro-Forma Performance of Energy Bar Business, 2000 - 2005 (as of June 2000) in millions | ||||||
| 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |
| Pro-forma | Pro-forma | Pro-forma | Pro-forma | Pro-forma | ||
| Units | 43.30 | 47.60 | 51.90 | 56.10 | 60.60 | |
| Sales | 88.80 | 100.00 | 111.80 | 123.80 | 137.10 | |
| - Cost of Goods Sold (incl. Depreciation) | 43.40 | 49.00 | 54.40 | 60.40 | 66.90 | |
| - Advertising Expense | 8.00 | 9.00 | 10.10 | 11.10 | 12.30 | |
| - Selling Expenses | 4.90 | 5.50 | 6.20 | 6.80 | 7.60 | |
| - General and Administrative Expenses | 12.70 | 13.70 | 14.70 | 15.60 | 16.50 | |
| Earnings before Taxes | 19.80 | 22.80 | 26.40 | 29.90 | 33.80 | |
| - Taxes | 6.90 | 8.00 | 9.20 | 10.50 | 11.80 | |
| Net Income | 12.90 | 14.80 | 17.20 | 19.40 | 22.00 | |
| Discount Factor | 0.87 | 0.76 | 0.66 | 0.57 | 0.50 | |
| Discounted Cash Flows | 11.22 | 11.19 | 11.31 | 11.09 | 10.94 | |
| Total Discounted Cash Flows at zero period | 55.75 | |||||
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