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%