Fundamentals of Capital Budgeting: Billingham Packaging Production Capacity

Fundamentals of Capital Budgeting: Billingham Packaging Production Capacity

Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750. The cost of the XC-750 is $2.75 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $50,000 feasibility study to analyze the decision to buy the XC-750, resulting in the following estimates:

Marketing: Once the XC-750 is operating next year, the extra capacity is expected to

generate $10 million per year in additional sales, which will continue for the 10-year life of the machine.

Operations: The disruption caused by the installation will decrease sales by $5 million this year. Once the machine is operating next year, the cost of goods for the products produced by the XC-750 is expected to be 70% of their sale price. The increased production will require additional inventory on hand of $1 million to be added in year 0 and depleted in year 10.

Human Resources: The expansion will require additional sales and administrative personnel at a cost of $2 million per year.

Accounting: The XC-750 will be depreciated via the straight-line method over the 10-year life of the machine. The firm expects receivables from the new sales to be 15% of revenues and payables to be 10% of the cost of goods sold. Billingham’s marginal corporate tax rate is 35%.

a. Determine the incremental earnings from the purchase of the XC-750.

b. Determine the free cash flow from the purchase of the XC-750.

c. If the appropriate cost of capital for the expansion is 10%, compute the NPV of the

purchase.

d. While the expected new sales will be $10 million per year from the expansion, estimates range from $8 million to $12 million. What is the NPV in the worst case? In the best case?

e. What is the break-even level of new sales from the expansion? What is the break-even level for the cost of goods sold?

f. Billingham could instead purchase the XC-900, which offers even greater capacity. The cost of the XC-900 is $4 million. The extra capacity would not be useful in the first two years of operation, but would allow for additional sales in years 3–10. What level of additional sales (above the $10 million expected for the XC-750) per year in those years would justify purchasing the larger machine?

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MKT 498 Week 1 DQ 3

MKT 498 Week 1 DQ 3MKT 498 Week 1 DQ 3

MKT498 (MKT/498) Integrated Marketing Strategy Week 1 Discussion Question 3

Chapter 8 in the Kotler text enumerates a number of strategies for building brand equity. Select one that is used by your current employer (or a former employer or a company you would like to work for) and discuss how it is integrated into the marketing mix.

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MKT 498 Week 1 DQ 2

MKT 498 Week 1 DQ 2MKT 498 Week 1 DQ 2

MKT498 (MKT/498) Integrated Marketing Strategy Week 1 Discussion Question 2

Explain why it is important for a firm to define its business by its markets or the needs its products fulfill rather than by its products.

For example, consider Kodak (RIP) which defined its business as “film” for too long and  missed out on the digital revolution – even though they invented digital photography. On the other hand, consider Apple which defined its business as “entertainment/communication” and has been very successful in transforming itself from an “also ran” computer company with a 3% market share into a game-changing marketer of consumer electronics.

Can you think of other examples of firms that did it right … or wrong? Is your employer more like Kodak or Apple?

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MKT 498 Week 1 DQ 1

MKT 498 Week 1 DQ 1MKT 498 Week 1 DQ 1

MKT 498 Integrated Marketing Strategy Week 1 Discussion Question 1

In your own words (without consulting any sources!), what is meant by a marketing objective?  A marketing strategy?  A marketing tactic?

Consider the firm for which you currently work (or a former employer or a company you would like to work for):

State one marketing objective

State one marketing strategy to achieve that objective

State one marketing tactic in support of the strategy.

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Consumer Behavior Analysis

Consumer Behavior AnalysisConsumer Behavior Analysis

  1. Choose a product we have not discussed during this course. Tell us about the product, its pricing, where it is distributed, and how it is promoted
  2. Identify the product’s target market in terms of their demographic characteristics, and any other kind of characteristics you believe are important
  3. Describe the main points of difference of your product for this group and what problem they help solve for the consumer in terms of the 5 stages in the purchase decision process.
  4. Identify the one or two key influences for the marketing mix, the psychological, sociocultural, and situational influences.

Write a 3-5 page, double space paper covering all for areas of the consumer analysis.

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