Worldwide Paper
Drexel University
Worldwide Paper Company
Group 2 Case Analysis
Brian Burke, John Lafferty
FIN 790 Winter 2015
Seminar in Finance
Dr. Samuel H. Szewczyk
Lebow School of Business
February 9, 2015
Executive Summary:
Blue Ridge Mill is a wood mill owned by Worldwide Paper Company and supplies wood pulp for the company for use in paper production. Blue Ridge Mill bought its wood supply from Shenandoah Mill’s excess production of shortwood that was processed from its longwood supplies. In 2006, Bob Prescott, the controller for Blue Ridge Mill, was considering a project that would give Blue Ridge Mill the capability to process longwood into shortwood, which would eliminate the need to purchase from Shenandoah Mill, as well as compete with Shenandoah Mill in the shortwood market.
Project Overview:
The project would provide Blue Ridge Mill with a new longwood yard, giving the mill the ability to produce shortwood, a required input for paper production, from longwood. The project would also product excess shortwood that would allow Blue Ridge Mill to sell shortwood as an additional revenue source, competing with their current shortwood supplier. Construction for project would begin in 2007 and production would begin in 2008. The project will cost $18 million, with $16 million in 2007 and an additional $2 million in 2008. The $18 million investment will be depreciated using the straight-line method for six years and a zero salvage value. Although, the equipment is believed to be able to be sold at the end of the project for $1.8 million.
The main purpose of the project is to save on operational costs by producing shortwood. The cost savings is estimated to be $2 million in the first year and $3.5 million in the following five years. In addition, the longwood yard would provide enough capacity to allow Blue Ridge Mill to sell shortwood on the market. Bob Prescott confidently estimates that shortwood sales in 2008 will be $4 million, and will increase to
Worldwide Paper Company
Group 2 Case Analysis
Brian Burke, John Lafferty
FIN 790 Winter 2015
Seminar in Finance
Dr. Samuel H. Szewczyk
Lebow School of Business
February 9, 2015
Executive Summary:
Blue Ridge Mill is a wood mill owned by Worldwide Paper Company and supplies wood pulp for the company for use in paper production. Blue Ridge Mill bought its wood supply from Shenandoah Mill’s excess production of shortwood that was processed from its longwood supplies. In 2006, Bob Prescott, the controller for Blue Ridge Mill, was considering a project that would give Blue Ridge Mill the capability to process longwood into shortwood, which would eliminate the need to purchase from Shenandoah Mill, as well as compete with Shenandoah Mill in the shortwood market.
Project Overview:
The project would provide Blue Ridge Mill with a new longwood yard, giving the mill the ability to produce shortwood, a required input for paper production, from longwood. The project would also product excess shortwood that would allow Blue Ridge Mill to sell shortwood as an additional revenue source, competing with their current shortwood supplier. Construction for project would begin in 2007 and production would begin in 2008. The project will cost $18 million, with $16 million in 2007 and an additional $2 million in 2008. The $18 million investment will be depreciated using the straight-line method for six years and a zero salvage value. Although, the equipment is believed to be able to be sold at the end of the project for $1.8 million.
The main purpose of the project is to save on operational costs by producing shortwood. The cost savings is estimated to be $2 million in the first year and $3.5 million in the following five years. In addition, the longwood yard would provide enough capacity to allow Blue Ridge Mill to sell shortwood on the market. Bob Prescott confidently estimates that shortwood sales in 2008 will be $4 million, and will increase to