Case 12 Essay

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Case 12 REQUIRED 1. Given the unit sales information in Exhibit 1, develop an annual revenue forecast for 2004 through 2009. Forecast sales first assuming that the revised Bernoulli will be introduced one year from today, and then create a forecast which is based on sales of the current model, assuming that Working declines to invest more capital in Bernoulli. 2. Use the cost information Jennifer has assembled to construct a forecast of cost of goods sold and operating expenses for 2004 through 2009. Assume first that the Bernoulli will be introduced, with its new cost structure, one year from now, and then calculate a cost forecast assuming that the $18 million is not provided for development of the new product. 3. Using the information developed for Questions 1 and 2, develop a discounted cash flow analysis for the Bernoulli division for 2004 through 2009. Working's board has asked for net present value and internal rate of the return when making decisions in the past. Complete your analysis assuming that the additional investment is contributed today. Be sure to recognize a terminal value for the division at the end of 2009. 4. Make a recommendation as to whether or not Working Computers should contribute the requested $18 million to the Bernoulli. Be sure to recognize all aspects of the decision, including the potential impact that the requested ongoing investment dollars could have on the plans of Stewart Workman. 5. Jennifer expects Stewart Workman to ask about selling the Bernoulli division. What price should Working ask for if it sells Bernoulli today, immediately after making the requested investment? What price could it expect to receive if it plans to leave Bernoulli alone? 6. In addition to the issues in Questions 1 through 5, what other considerations might be appropriate when a firm is considering eliminating a product line or divesting a

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