Protein Plus Lite

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DE LA SALLE UNIVERSITY - MANILA

Ramon V. Del Rosario College of Business

CASE 104 - Universal Corporation 

Submitted by:

Group 7

Lerey, Ruffy

Ventura, Roy Anthony

Yap, Kristian

In Partial Fulfilment

of the Course Requirements In Financial Management

Term 2, AY 2016-2017

FNC535M GMF

Edgardo Grey, Jr.

11 February 2017

STATEMENT OF THE PROBLEM

As a consultant, is introducing “Protein Plus Lite” a feasible new product to be introduced by Universal Corporation?

OBJECTIVES

• To help Sandra decide whether or not to recommend going forward with full-scale production of the new product
• To analyze and provide the best approach if introducing the new product “Protein Plus Lite” has a big impact to grow to the business
• To recommend if introducing the new product “Protein Plus Lite” is feasible in consideration to the possibility of cannibalization

AREAS OF CONSIDERATION / ASSUMPTIONS OF THE CASE

• Melvin Sherman founded Universal Corporation to capitalize on an idea for an instant hot cereal and become a food conglomerate with three major product lines: creals, frozen dinners, and canned vegetable and fruit juices
• Universal Corporation have steadily grew having the company’s sales were $347 million, its net income was $14.6 million, and its book common equity is $105 million
• Sandra Sharpe, Melvin’s niece, has been hired for the company’s marketing and product development groups
• Sandra introduced a new athletic drink “Protein Plus” and has developed a small but loyalty following, due to the product’s know weakness of having five grams of fat per serving
• Research department have developed “Protein Plus Lite”, a low-fat or “lite” version of Protein Plus, which showed potentially strong acceptance of the product even though it will be priced a bit higher than the regular version
• Sandra’s evaluation have estimated that the company would sell 1 million 16-ounce cartons of Protein Plus Lite at a price of $2.12 per carton in each of the next 10 years in consideration of using forecasts constant unit sales
• Universal Corporation uses forecast projection of no further than 10 years when evaluating new products due to the conservative nature of Melvin
• Sandra is uneasy with this company’s procedure and having options to try to change it a little bit
• Company’s sales manager have raised that introducing Protein Plus Lite cut the sales of the regular product, or known as “cannibalization” effect
• Issues have been encountered during the assessment and evaluation regarding the “mass production” of the new product and Sandra has asked a consulting firm to study the situation and then recommend acceptance or rejection

ANALYSIS

Let us analyze one by one the cost implication of each different consideration that Sandra would like to know. 1st is the determination of NPV, IRR, Modified IRR, payback and cash flow of the project. 2nd assumption is the possibility to lease out the space that would be used to produce for protein plus lite to Chem-Free Foods, Inc. In this assumption, the company could lease space and equipment in the local Pepsi bottling plant that which almost no capital would be invested in the lite project except for rental payments made to Pepsi bottler. 3rd assumption is to make “real options” or strategic option values like for example is the integration of lite pizza or anything that can be add up to the products of the company.