The case is closely related to Chapter 12 and Chapter 13.

Jack Manufacturers Inc.

Jack Manufacturers Inc makes office equipment, and manufactures tables, desks, and chairs. Jack is considering adding a new product line to their offerings. Janelle Turnbull is responsible for new product development at Conestoga Manufacturers.

In 2002, sales were only $500,000. They have since grew during the 20-year period to almost $20 million by 2022. However, sales have not increased in the most recent 3-year period and the 2022 profit is expected to be about 9% less than the 2021 profit.

To address the issue of declining profitability, Janelle wants to l expand product offerings by introducing mounts for computer monitors.

Existing mounts from competitors already on the market are known for a faulty design that damaged the computer monitors. As a result, there may be an opportunity to fill a need in the market. However, there is also the risk that the mounts designed by Jack Manufacturers will have the same design flaws as their competitors. Janelle is hopeful to avoid this issue by hiring a top-tier design engineer that is known for robust designs that do not damage monitors.

Janelle wants to assess the profitability of the new mount and has predicted sales for the first 6-years of launching the mounts. Janelle is hoping that the mounts become a permanent product that Jack offers. However, she has decided to analyze the profitability of the project for only the first 6-years, as the management of Jack Manufacturers requires a positive return on new projects within 6-years of product launch.

After the product is designed and tested, sales are first expected in 2024. To analyze the potential for the monitor mount market, Janelle knows success will depend on the quality of the mount, the sleek design, and the promotional efforts of the marketing team. Therefore, she has assigned probabilities to different sales levels in 2024, as outlined below:

Table 1: Expected First Year Sales

Scenario	Probability	Sales
Worst Case Scenario	0.25	$1,100,000
Expected Scenario	0.40	2,000,000
Optimistic Scenario	0.20	3,750,000
Best-case Scenario	0.15	4,500,000

Janelle wants to calculate the expected value for sales for the first year, and then projects a 20% growth rate for the next 3 years, and a 10% growth rate for the final 2 years of the forecast period.

To manufacture the monitor mounts, Jack will be required to purchase new equipment, which will be included in Class 8 for CCA purposes. This equipment will cost $2.8 million. Additional information is resulting from this product launch is:

Operating expenses are expected to average 70% of sales.

There will need to be a $200,000 investment in working capital to operationally support the new product.

Coefficient of Variation	Appropriate Discount Rate
0 - 0.20	8%
0.21 0.40	10%
0.41 0.60	14%
0.61 0.80	16%
Over 0.80	20%

Janelle wants to determine the profitability of this product launch through a capital budgeting analysis. However, she is unsure of the appropriate discount rate to use in her analysis. She asked her direct manager for support in determining the discount rate, and she was told that the discount rate to use is to be based on the coefficient of variation of first years sales projections, based on the table below:

Table 2: Coefficient of Variation and Discount Rate

Janelle needs to use the information above and present a recommendation to her manager on whether Jack Manufacturers should launch the Monitor Mount product.

Required:

Specifically, calculate the expected value for sales, the standard deviation, and coefficient of variation. Then, use the appropriate discount rate from Table 2 to perform a Net Present Value (NPV) analysis.

Based on your analysis, make a recommendation on whether the project is feasible and should be considered. Lastly, comment on whether a 6-year time horizon is appropriate.

Requirement

Expected Value for Sales

Standard Deviation

Coefficient of Variation

Net Present Value of Project

Recommendation

Time Horizon Comment

Professionalism*