Super Project Essay

624 Words3 Pages
Subject: Super Project Cash Flow Analysis Date: April 9, 2012 KEY ISSUES General Foods captured a sizeable share of the powdered desserts market with the introduction of Jell-O. As a leader, it is necessary for General Foods to maintain and increase profits for the future. Potential introduction of a new product, Super, offers General Foods the ability to achieve such objectives. An accurate evaluation of the profitability of Super will indicate whether General Foods should go ahead with the project. ANALYSIS Previous analyses evaluating the project on incremental, facilities-used, and fully allocated basis provide an inaccurate picture of the project. Analyzing the Super project is not a management decision but rather a question of accounting for investment decisions. A cash flow analysis (Figure 1) over ten years of the Super project combines and addresses the issues raised in the three analyses to form a more accurate representation of the cost of the project to General Foods. While the original financial evaluation of the project contained many pieces of information, the relevant cash flows in evaluating the Super project should be net sales, COGS, depreciation, overhead, advertising expenses, erosion, taxes, changes in net working capital, investment credits, startup costs, and opportunity costs. Opportunity costs (amortized over ten years) are accounted because the Jell-O building and agglomerator could potentially provide future income in the form of Jell-O expansion. In the new financial evaluation, test-market expenses are omitted because they are sunk costs that cannot be recovered regardless of the final Super project decision. Additionally, overhead expenses that are related to the creation of the new Super product are included, but those expenses not associated with the project are eliminated. Because the cannibalization of

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