General Foods, Case Analysis

Topics: Net present value, Costs, Internal rate of return Pages: 4 (1416 words) Published: February 13, 2011
Super Project-Case Analysis
General Foods Corporation is a major manufacturer of consumer food products. The corporation is organized into two separate divisions for its product lines in the United States and their foreign operations. Some of their major U.S. product lines include Post, Kool-Aid, Maxwell House, Jell-O, and Birds Eye. General Foods is considering introducing a new product line called Super, an instant desert. After conducting research General Foods found that powdered deserts represented a large and growing section of the total desert market and after test marketing their new product they feel that Super can capture ten percent of the total dessert market. The problem management faced is how to appropriately measure and allocate costs associated with the project as well as whether to accept or reject the project based on costs and future cash flows generated by Super. With regard to The Super Project or any capital budgeting decision, financial instruments and standards such as payback periods, NPV, and IRR are important. Funds or costs allocated to projects have an opportunity cost because other uses for this money exist. What is more, the decision of whether to accept or reject a project is based on an estimate of future cash flows; a discount rate or weighted average cost of capital selected to demonstrate a project's risk or costs and finally, the present value of cash inflows minus the present value of cash outflows After the completion of the initial capital budgeting estimates for the Super Project, several important oversights were brought up by Crosby Sanberg, a manager-financial analysis at General Food Corporation. The original capital budgeting plan for the Super project was conducted on an incremental evaluation basis, and didn’t incorporate the costs attributable to an agglomerator and building that would be partially used by the Super project, but had already been attributed to another of the corporation’s projects, Jell-O....
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