Reference no: EM132383900
Question 1) Use the base case assumptions (pg. 4) as well as the information presented in the case to build a four-year discounted cash flow model for Advanced Seal given a 50% cannibalization rate for the Premium Product and a 15% cannibalization rate for the Basic Product. What are your NPV and IRR results? Please use the "Basic Template" from the excel file provided for the project.
Question 2) Calculate (1) again using a 55% cannibalization for the Premium Product and a 15% cannibalization rate for the Basic Product. Show your NPV and IRR results. Also, calculate (1) again using a 60% cannibalization rate for the Premium Product and a 15% cannibalization rate for the Basic Product. Show your NPV and IRR results.
Question 3) Use the model developed in (1) to test the implications of Christina Whitman's "Proposal to Drive Revenue" (pg. 5). Please use a 50% cannibalization rate for the Premium Product and a 15% cannibalization rate for the Basic Product. Show your NPV and IRR results.
Now, repeat this step but use
• a 57.5% cannibalization rate for the Premium Product and a 15% cannibalization rate for the Basic Product. Show your NPV and IRR results.
• a 65% cannibalization rate for the Premium Product and a 15% cannibalization rate for the Basic Product. Show your NPV and IRR results.
Question 4) Use the model developed in (1) to test the implications of Margaret Tan's "Proposal to Minimize Cannibalization" (i.e. raising the price to $23 dollar and minimize the cannibalization rate to 45% - pg.6) Show your NPV and IRR results. And Summarize your results for part (1) to (4) using the "summary of scenarios "template provided in the excel file.
Question 5) Going back to the base case( question (1) & (2) ), assuming for base case, there is a 30% probability for 50% cannibalization rate for the Premium Product, a 40% probability for 55% cannibalization rate for the Premium Product, and a 30% probability for 60% cannibalization rate for the Premium Product, calculate Expected NPV, Standard Deviation of NPV, and Coefficient Variation of NPV. Assuming P&J generally accepts project with a coefficient variation range between 0.3 to 0.5, should P&G accept the Premium Product?
Going back to Christina Whitman's "Proposal to Drive Revenue" ( question (3 ), assuming for "Proposal to Drive Revenue" , there is a 40% probability for 50% cannibalization rate for the Premium Product, a 35% probability for 57.5% cannibalization rate for the Premium Product, and a 25% probability for 65% cannibalization rate for the Premium Product, calculate Expected NPV, Standard Deviation of NPV, and Coefficient Variation of NPV. Assuming P&J generally accepts project with a coefficient variation range between 0.3 to 0.5, should P&G accept the New Product now ?
(6) Monte Carlo Simulation Analysis - Conduct 1,000 trial MC simulations use the base case (question (1)) and the following assumption:
• Normal distribution for cannibalization rate of the Premium Product :
o Mean = 50%, Standard deviation = 5%
• Normal distribution for per unit revenue of the New Product
o Mean = $23, Standard deviation = $2
Report the following statistics from your trial: Mean, Standard deviation, Maximum, Minimum, Median, Probability of NPV > 0, Coefficient of variation. Also Provide a Histogram of your simulated NPV.
Assuming P&J generally accepts project with a coefficient variation range between 0.3 to 0.5, should P&G accept the New Product now given your simulation results ?
Hint:
1. Cannibalization of 50% = - 50% * 2,000,000 = -1,000,000 à reduce 1 million Premium Product, same principles apply for Basic Product.
2. You can set Net Working Capital Turnover to run at a rate of 9 (average of 8 to 10 times). Footnote 4: Net Working Capital = Incremental Revenue/ Net Working Capital Turnover.
3. The depreciation expense is based on the depreciation schedule in Footnote 3.
4. The Terminal Value for the capital expenditure is calculated as the tax shield of the remaining book value times the tax rate.
Attachment:- Case analysis assignment.rar