Jacobs Division Case $23$

Questions

$1.$ Use Exhibit $23\mathrm{.}1$ and Exhibit $23\mathrm{.}2$ to compute the NPV of the labor$-$intensive alternative and the capital$-$intensive alternative.

$2.$ How is capital budgeting done at Jacobs $?$ Where do the projects come from $?$

$3.$ What are the discount rates used by Jacobs for $1)$ cost reduction, $2)$ new products, and $3)$ Reynolds. Is the use of multiple discount

rates acceptable $?$ Why or why not $?$

$4.$ Evaluate the NPV versus Competitive Advantages of the proposed project. Should be project be selected $?$

Directions for Question $1$

Labor intensive process

Initial investment $-900$

Cash Flow Table

Year Cash Flow

$1-90-90$

$2$ copy the free cash flow line in Exhibit $23\mathrm{.}1241$

$3$ copy the free cash flow line in Exhibit $23\mathrm{.}1273$

$4$ copy the free cash flow line in Exhibit $23\mathrm{.}1283$

$5$ copy the free cash flow line in Exhibit $23\mathrm{.}1280$

$6$ copy the free cash flow line in Exhibit $23\mathrm{.}1280$

$7$ copy the free cash flow line in Exhibit $23\mathrm{.}1280$

$8$ copy the free cash flow line in Exhibit $23\mathrm{.}1280$

$9$ copy the free cash flow line in Exhibit $23\mathrm{.}1280$

$10$ copy the free cash flow line in Exhibit $23\mathrm{.}1280$

$11$ copy the free cash flow line in Exhibit $23\mathrm{.}1280$

$12$ copy the free cash flow line in Exhibit $23\mathrm{.}1280$

$13$ copy the free cash flow line in Exhibit $23\mathrm{.}1280\%$

$14$ copy the free cash flow line in Exhibit $23\mathrm{.}1280$

$15$ free cash flow line $+$ terminal yr cash $661$

Interest rate $20\%$

Number of periods $15$

Use the NPV formula

$=$NPV$($rate in decimals, range of cash flows$)+$d$12$

Capital intensive process

Repeat the above procedure, using the cash flows in Exhibit $23\mathrm{.}2.$

Use the interest rate on page $289,$ paragraph $1.$ Use the initial investment given in this Exhibit, listed in c$40.$ Compute NPV$.$

Initial $-1900$

Year Cash Flow

$1-1400$

$2401$

$3584$

$4644$

$5707$

$6777$

$7809$

$8809$

$9809$

$10809$

$11809$

$12809$

$13809$

$14809$

$15809$