Gillette Capital Decision Essay

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Executive Summary Gillette brand which was introduced in 1901 is known for its safety razors. Over the past century the company has made many changes including its merger with Procter and Gamble. Today Gillette is considering the production of a new safety razor. This project will present the pros and cons of this new razor and review the cost and profits, if any, if this new razor actually goes into production. Gillette has a strong hold on the disposable razor market; therefor, one major consideration is how many existing customers will chose to buy the new razor and how many new customers will the product generate? Other considerations, in fact, this is the first item of consideration is what method of is ti be used to make the final determination; IRR, NPV, or Payback of cost. In 1997 Gillette spent 1.5 million dollars on project research and development of this new razor. This 1.5 million is a sunk cost and no matter what happens; new production and sales of the new razor or the rejection of the proposed project, this money will not be recovered. For this reason the sunk cost will not be factored into the final decision. After determining the IRR, NPV and WCC it has been determined that Gillette should move forward with the production of the new razor. The final numbers show that after the initial investment of only $10,000,000 Gillette will make a profit of over 14 million, even after recovery and payback of its initial investments into the project. Introduction The term capital budgeting is used to describe how managers plan significant outlays on projects that have long-term implications such as the purchase of new equipment and the introduction of new products. (Accounting for Management, 2014) There are five technic used to determine if a project is a “GO” or not. Following are the capital budgeting techniques: Net Present Value

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