Jacobs Division Essay

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Tim Ruigrok van der Werve | 10114556 | September 30, 2015 Tim Ruigrok van der Werve | 10114556 | September 30, 2015 Case Jacobs Division Case Jacobs Division Table of contents Management summary 2 Defining the problem 5 Options & assumptions 6 Analysis 10 Conclusion 16 Management summary Up for proposal are two alternatives for the Silicone-X project. Test tube batches have been tested inside and outside the Jacobs Division and comments are universally favorable. Mr. Soderberg has drawn up a few calculations for two types of alternatives (labor- or capital intensive) but has some concerns regarding those calculations. In order to cope with the concerns the following assumptions are done in the analysis of the alternatives: Labor intensive * The discount factor is set to 20% * The project lifetime is 15 years * During the lifetime of the project Jacobs will be the only supplier in the market (100% share). * The price of a pound of Silicone-X is set to $ 1.90. * Volatility rate is set to 1.00 under the assumption that the demand estimations are solid. * The original terminal value has been adjusted from $ 381,000 to $ 2,415,000 using the Gordon Growth Model (where cash flow growth is assumed to be 0%) under the understanding that the business will be continued after the project lifetime of 15 years. This will require an investment in new equipment but will also generate new income. * The original depreciation has been adjusted from $ 60,000 per year to $ 47,000 per year because the equipment has a salvage value of $ 200,000 which had not yet been incorporated in the depreciation. * The facility will be expanded whenever demand exceeds the capacity. Expansion can only be done in 250,000 pound increments at a rate of $ 50,000 per 100,000 pounds. Capital intensive * The discount factor

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