Goodweek Tires Case Study
CASE STUDY ON GOODWEEK TIRES, INC.
1.0 INTRODUCTION
Capital budgeting is the process of identification of opportunities, estimation of cash flow to be generated by the project, evaluating and selecting from among the alternative courses of actions and implementing the investment project with proper follow-up. Hence, Managers must carefully select those projects which promise the greatest future return. How well managers make these capital budgeting decisions is a critical factor in the long run profitability of the company. The case is about the investment decision for producing SuperTread, a new tire of Goodweek Tires, Inc. The report focuses on the Net Present Value (NPV), Payback period, Discounted payback period, Average Accounting Return (AAR), Internal Rate of Return (IRR), Profitability Index (PI) of this project.
1.1 Origin of the Report
Major AHM Yeaseen Chowdhury, course instructor, Corporate Finance (F-601), BUP, authorized this report verbally as part of the course curriculum. This is a group assignment which was assigned after a series of class lectures by the course instructor.
1.2 Objectives of the Study
The main objective of this report is to calculate the NPV, payback period, discounted payback period, AAR, IRR and PI of the project considered by the Goodweek Tires, Inc. and to provide the decision based on the calculation.
2.0 SUMMARY OF THE CASE
The Goodweek Tires, Inc. is a tire producing company. After extensive research and development (R&D) it has developed a new tire named SuperTread. This tire will be ideal for the wet weather and off road driving in addition to normal highway usage. The research and development department has already incurred a total cost of $10,000,000. It is expected that the SuperTread will stay on the market for a total of four years. Test marketing, costing $5,000,000,
1.0 INTRODUCTION
Capital budgeting is the process of identification of opportunities, estimation of cash flow to be generated by the project, evaluating and selecting from among the alternative courses of actions and implementing the investment project with proper follow-up. Hence, Managers must carefully select those projects which promise the greatest future return. How well managers make these capital budgeting decisions is a critical factor in the long run profitability of the company. The case is about the investment decision for producing SuperTread, a new tire of Goodweek Tires, Inc. The report focuses on the Net Present Value (NPV), Payback period, Discounted payback period, Average Accounting Return (AAR), Internal Rate of Return (IRR), Profitability Index (PI) of this project.
1.1 Origin of the Report
Major AHM Yeaseen Chowdhury, course instructor, Corporate Finance (F-601), BUP, authorized this report verbally as part of the course curriculum. This is a group assignment which was assigned after a series of class lectures by the course instructor.
1.2 Objectives of the Study
The main objective of this report is to calculate the NPV, payback period, discounted payback period, AAR, IRR and PI of the project considered by the Goodweek Tires, Inc. and to provide the decision based on the calculation.
2.0 SUMMARY OF THE CASE
The Goodweek Tires, Inc. is a tire producing company. After extensive research and development (R&D) it has developed a new tire named SuperTread. This tire will be ideal for the wet weather and off road driving in addition to normal highway usage. The research and development department has already incurred a total cost of $10,000,000. It is expected that the SuperTread will stay on the market for a total of four years. Test marketing, costing $5,000,000,
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