Case study - Danforth &Donnalley Laundry Products Company
QUESTIONS
1. If you were put in the place of Steve Gasper, would you argue for the cost from market testing to be included in a cash outflow?
2. What would your opinion be as to how to deal with the question of working capital?
3. Would you suggest that the product be charged for the use of excess production facilities and building space?
4. Would you suggest that the cash flows resulting from erosion of sales from current laundry detergent products be included as a cash inflow? If there was a chance of competitors introducing a similar product if you did not introduce Blast, would this affect your answer?
5. If debt were used to finance this project, should the interest payments associated with this new debt be considered cash flows?
6. What are the NPV, IRR, and PI of this project, both includingcash flows resulting from sales diverted from the existing product lines and excluding cash flows resulting from sales diverted from the existing product lines (Exhibit 2)? Under the assumption that there is a good chance that competition will introduce a similar product if you don't, would you accept or reject this project?