Brunswick Distribution - This case requires a quantitative solution. To answer it properly you must calculate NPV, ROA, IRR, and payback period for each option using MACRS and a 10 year recovery period.
Details:
GIVEN DETAILS
Investing in new infrastructure
Cost of property = $2,000,000
Cost of plant and equipment = $10,000,000
Depreciation of new warehouse facilities = 20 years
Expected annual sales increase = $4,426,000
New delivery lead time = 2 days
Total annual shipment costs = $955,000
Annual materials and labour costs = 6% increase
Total assets = $43,551,000
Changes to inventory investment = $7,200,000
Loan = 20 years at 11% interest (single payment at the end)
Cost of capital = 12%
Recovery period = 10 years
Tax = 35%
Streamlining the distribution system
Cost of system = $7,000,000
Depreciation = 10 years
Operating costs = $500,000
Shipping expenses = 16% decrease
Labour expenses = 16% decrease
Total Assets = $35,932,000
Aggregate inventories = $4,500,000
Loan = 10 years at 10% interest (single payment at the end)
Cost of capital = 12%
Recovery period = 10 years
Tax = 35%