Worldwide Paper Company
EPPM3644 KEWANGAN KORPORAT DAN PENSTRUKTURAN
SET: 3
REPORT OF CASE STUDY:
CASE 19 WORLDWIDE PAPER COMPANY
PROFESSOR:
DR. LIZA MARWATI BINTI MOHD YUSOFF
GROUP MEMBERS:
LOH CHAI LING A140178
GOH HOOI SAN A139708
KERK (KEH) YIH JEN A139574
SEMESTER 2, 2013/2014
INTRODUCTION
In December 2006, Bob Prescott, the controller for the Blue Ridge Mill, was considering the addition of a new on-site longwood woodyard. Two primary benefits for this new addition include eliminating the need to purchase shortwood from an outside supplier and creating an opportunity to sell shortwood on the open market. Also, the new woodward would reduce operating costs and increase revenues. Blue Ridge Mill currently purchased shortwood from the Shenandoah Mill, which is a direct competitor. Thus, adding the new longwood equipment would mean that the Prescott would no longer need to use the Shenandoah Mill as a shortwood supplier and that the Blue Ridge Mill would instead compete with the Shenandoah Mill by selling on the shortwood market. The question for Prescott was whether these expected benefits were enough to justify the $18 million capital outlay plus the incremental investment in working capital over the six-year life of the investment.
SYMPTOMS
The addition of a new on-site longwood woodyard would bring benefit to Blue Ridge Mill in term of decreasing their operating cost and also increasing their revenue or sales. But the estimation of revenue and cost did by Prescott do not reflect the inflation rate. Thus, this project’s evaluation will be less accurate.
PROBLEMS
By adding the new on-site longwood woodyard, Prescott estimates that the revenue for their company would increase to $4 million in year 2008 and goes to $8 million every year until year 2013. And also the cost of goods sold would be 75% of revenue and SG&A would be 5% of revenue. But all of this estimation does not include the inflation. So, we are using the net present
SET: 3
REPORT OF CASE STUDY:
CASE 19 WORLDWIDE PAPER COMPANY
PROFESSOR:
DR. LIZA MARWATI BINTI MOHD YUSOFF
GROUP MEMBERS:
LOH CHAI LING A140178
GOH HOOI SAN A139708
KERK (KEH) YIH JEN A139574
SEMESTER 2, 2013/2014
INTRODUCTION
In December 2006, Bob Prescott, the controller for the Blue Ridge Mill, was considering the addition of a new on-site longwood woodyard. Two primary benefits for this new addition include eliminating the need to purchase shortwood from an outside supplier and creating an opportunity to sell shortwood on the open market. Also, the new woodward would reduce operating costs and increase revenues. Blue Ridge Mill currently purchased shortwood from the Shenandoah Mill, which is a direct competitor. Thus, adding the new longwood equipment would mean that the Prescott would no longer need to use the Shenandoah Mill as a shortwood supplier and that the Blue Ridge Mill would instead compete with the Shenandoah Mill by selling on the shortwood market. The question for Prescott was whether these expected benefits were enough to justify the $18 million capital outlay plus the incremental investment in working capital over the six-year life of the investment.
SYMPTOMS
The addition of a new on-site longwood woodyard would bring benefit to Blue Ridge Mill in term of decreasing their operating cost and also increasing their revenue or sales. But the estimation of revenue and cost did by Prescott do not reflect the inflation rate. Thus, this project’s evaluation will be less accurate.
PROBLEMS
By adding the new on-site longwood woodyard, Prescott estimates that the revenue for their company would increase to $4 million in year 2008 and goes to $8 million every year until year 2013. And also the cost of goods sold would be 75% of revenue and SG&A would be 5% of revenue. But all of this estimation does not include the inflation. So, we are using the net present