Cumberland Metal Industries

Topics: Microeconomics, Economics, Pile driver Pages: 3 (976 words) Published: January 28, 2013
CMI has developed a new technology using curled metal to create pile driving pads. Compared to existing products on the market, these pad offer several benefits: •Faster pile driving saves contractors rental fees, labor expense , and spreads overhead over more feet driven in a given period of time •Longer life of pads save contractors additional cost in reducing changeover time •Heat resistance further reduces changeover time, saving additional expenses •Safety – CMI pads do not expose workers to the extreme heat and carcinogens that asbestos does

Total pile feet driven is assumed to be between 290-390 million feet annually given the number of hammers in existence and assuming hammers drive at an average rate of 20 feet per hour, 30 hours per week, and 25 weeks a year. It is projected that one set of six CMI pads will last for 10,000 feet, meaning there is a potential market for between 29-39 thousand sets or 175-234 thousand individual pads annually, 14.6-19.5 thousand pads per month. Since only 6,500 to 13,000 of hammers are leased, the target market is 9,750 to 19,500 sets annually if CMI targets only contractors who lease equipment and incur the monthly and weekly rental costs given in the case. We have assumed that the opportunity cost of operating a hammer, after accounting for capital costs, are similar for and recognized by both owners and renters given a competitive market, so we have added both segments together in an effort to size the market for this analysis. In setting a price for the new CMI pads, it is important to understand the economic value created (EVC) for the customer. We will do this through a hypothetical 10,000 foot pile drive contract extrapolating from the results of the two tests CMI already performed. The table below calculates the EVC experienced by Colerick and Fazio as well as an estimate of EVC in the future given management’s assumptions that, on average, a set of CMI pads...
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