Magic Timber And Steel: Investment Evaluation With Net Present Value Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Magic Timber And Steel: Investment Evaluation With Net Present Value Case Solution

Introduction and Company’s Background

The Magic Timber and Steel company started its functioning in the year 1999 in Australia for the core purpose to manufacture the timber. After passing the year 2013 and 2014, the company has added the steel manufacturing function in its production line. Its manufacturing operations in timber led to its peak in the year 2011 when Magic timber experienced the steady growth from the year 1999 to the year 2011 (the world great recession period is included in these years). After this steady growth rate, the Magic Timbers growth in revenues and profits has start to decline in each year rapidly due to the economic recession.

Today, Magic Timbers ’competitors face a number of survival problems in the wood and steel industry, which has created competition in this market. At the time, Magic Timber survived just because of its owner Davidson’s experience and improved skills related with the decision making since the opening of Magic Timber. During the economic recession, the cost of producing magic wood increased due to the technological advances, who obsolete it’s one of the major production machine Matrix which requires an increased production costs because the tool required a lot of repair and maintenance costs. With the huge professional skills of the workforce, differences in production can be avoided.

To solve these problems, the company began to analyze various alternatives. In this program the company began to consider moving production to a new machine with advanced technology and more efficient product manufacturing capabilities, or investing in many repairs and maintenance to improve an existing machine. Maintenance costs to achieve a level of efficiency that can meet current business needs without causing damage to life(McCarthy, 2016).

Alternate Analysis

To analyze the main problems of the situation, i.e. compared to 2011, profit margins decreased, competition for steel and timber intensified, production machinery became obsolete and the cost of production increased. In order to overcome these main problems of magic wood and steel, we carry out a qualitative and quantitative analysis of the two alternatives below.

The main problem is that in 2015, Magic Timber and Steel will face

Increased production costs,
Obsolete production equipment,
Increased competition, and
Reduced profit margins.

The company considered two options to address these issues.

Alternate 1: Old Machine Repairing

The first is the repair of the old production equipment (Matrix), the main problem of the machine is obsolete. This machine currently requires a lot of repair and maintenance costs to upgrade the version, with a fixed annual cost of $ 7,000 for a repair and maintenance bill. Because this machine is very sensitive to timber production, and if the labor does not place the timber in the ideal position, it can be easily turned over, which increases production costs and increases labor damage. Moreover, another problem with the old machine is that its production capacity is relatively low. With this inefficient machine, Magic Timber and Steel is very concerned about its ability to meet the demand for timber in the future.

Alternate 2: Old Machine Replacement

The second is to replace the old computer (Matrix) with a new one (Delta). To purchase this new woodworking machine, Magic Timber and Steel will have to pay a loan at an annual interest rate of 6% of the principal and the principal after the fifth year. The new woodworking machine is able to increase the production capacity of magic wood and steel with advanced technology, these advanced technologies produce products at low cost, thus reducing production costs. By purchasing this new machine, Magic Timber and Steel will give it a competitive edge over its competitors based on maximizing profit, reducing manufacturing costs and reducing the risk of manual injuries...................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

Magic Timber And Steel: Investment Evaluation With Net Present Value Harvard Case Solution & Analysis