Tesca Case
1) How much importance should be given to the energy cost situation? Michael Burton’s proposal to expand into new energy efficient products is justified by increasing interest in the public and private sectors to reduce energy costs. At the highest level of government, the Obama administration has tied the US economy’s energy policy with its future success and competitiveness with other global powers. In a speech on June 2009, President Obama specifically mentions the Energy Department’s plans to implement “…aggressive efficiency standards for common household appliances – like refrigerators and ovens – which will spark innovation, save consumers money, and reduce energy demand.”1 Sarah Max from Money magazine (2010) also mentions that there are over 100 state programs that offer additional incentives for home energy efficiency. She points out that there 6 times as many programs offered by utility companies as well.2 In all, home consumers are being highly incentivized through rebates and tax credits to make home energy improvements— including the purchase of energy efficient appliances. Presumably Tesca Work’s new product will meet the Energy Star standards established by the EPA and DOE. According to the Energy Star achievements report for 2010, American households purchased around 200 million Energy Star qualified products that year (3.5 billion since 2000).3 The energy cost situation is one that the Tesca Works cannot ignore in their product development and marketing strategies. 2) Forecast the project’s cash flows for the next twenty years. What assumptions did you use? This project’s cash flows are projected over twenty years based on three assumptions or scenarios for the product’s demand: Weak, Average, and Strong. Each scenario’s variables are outlined in the Table 1 below:
Table 1: Assumptions / Scenarios4
Demand Probability Price/Unit Units Sold/Year Weak 20% $1,450 42K Average 50% $1,500 41K Strong 30% $1,550 40K
Additional project data, outlined
Table 1: Assumptions / Scenarios4
Demand Probability Price/Unit Units Sold/Year Weak 20% $1,450 42K Average 50% $1,500 41K Strong 30% $1,550 40K
Additional project data, outlined