Iskall Arno Inc. Case Study Solution
This project does not show any positive cash flows along with representing low projects risks. So, it is recommended that company should look into this project as it will satisfy the safety needs and societies welfare needs. At this time, company is not able to bear any misleading or negative publicity because of any possibility of lawsuit in term of any injury. Thus, company should look into this matter effectively.
- Expand market eastward &southward
| Expand market eastward | Expand market southward | |
| Cash flows | $37.50 | $32.50 |
| Risk adjusted NPV | 11.07 | 8.43 |
| IRR | 21.4% | 18.8% |
| Factual project | No | No |
| Core competency | Yes | Yes |
| Internal potential | Yes | Yes |
| Project risk | Medium | Medium |
| Incremental risk | Medium | Low |
These two different projects have different synergies in term of expansion. Additionally, eastward expansion could provide with desirable profits to the company as compared to southward expansion along with all this, eastward expansion project has medium risk level and incremental risk level. The company’s core competency is the sales volume thus, it is recommended that company should go with this project.
- New product line and new advertising campaign
| New product line | New advertising campaign | |
| Cash flows | 28.50 | 4.00 |
| Risk adjusted NPV | 7.88 | 0.58 |
| IRR | 20.5% | 16.2% |
| Factual project | No | Yes |
| Core competency | Yes | Yes |
| Internal potential | Yes | Yes |
| Project risk | Medium | Medium |
| Incremental risk | No | No |
Evidently, the project is based on advertising campaign. The above table reveals that both of the projects new product line and advertising campaign are quantified with a medium project risk but the cash flows for a new product line are quite high as compared to the advertising campaign. Moreover, it can be seen that the NPV of new product line is quite higher than the advertising campaign as well as the IRR is also higher than the advertising campaign.
- Theme park
| Theme park | |
| Cash flows | $134 |
| Risk adjusted NPV | 0.58 |
| IRR | 28.7% |
| Factual project | Yes |
| Core competency | Yes |
| Internal potential | Yes |
| Project risk | High |
| Incremental risk | High |
The above table depicts that the theme park project has positive cash flows with a risk adjusted NPV of 0.58 while the IRR is 28.7% that shows that the theme park project is feasible for conducting. However, the risk associated with the theme park project is relatively high with an incremental higher risk.so, the project will be very risky.
Recommendation
A thorough analysis of each project and the deep evaluation of the fundamentals of each project reveals that some of the projects has positive returns but for long term success it is recommended that the company should expand its market eastward, it has the higher profit as compared to others with the maximum internal rate of return with a higher NPV. Moreover, the business expansion plan has medium risk as compared to the all other proposed projects which make it more feasible for the long run operations. This project is recommended for the company’s prosperity and future success through expanding and reaching in a new market and capturing a large market share with low potential risk.
Conclusion
In 1897, Iskall Arno Inc. was founded. In the year 1987, the proper capital budgeting meeting was held for proposing some strategic measures which were later known as Iskall Arno Inc.
This meeting suggests eleven proposed projects which were related to the business expansion and present a total of $208 million proposed budget for these eleven projects. These projects suggest some business expansion drivers which includes product divergence, operation effectiveness and its expansion plan.The ultimate concern of the corporation was to expand the business operations within the available allocated budget i.e. $80 million.A thorough analysis of each project and the deep evaluation of the fundamentals of each project reveals that the company should expand its market eastward, it has the higher profit as compared to others with the maximum internal rate of return with a higher NPV. Moreover, the business expansion plan has medium risk as compared to the all other proposed projects which make it more feasible for the long run operations…………….
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