Energy Gel A New Product Introduction (A) Harvard Case Solution & Analysis

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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