Tasty Foods Corp. (B)

Tasty Foods Corp. (B)

Case Study 4

PROBLEM STATEMENT:

After reading the capital budgeting case for Tasty Foods Corporation it is clear that the company is facing a problem with their new lite athletic drink project. The main issue that was raised by the executive committee was whether or not this new athletic drink would be profitable. Though the project appears to be successful, the committee wants to run risk analyses for the project to account for all different scenarios. We feel we should test the project to see what the financial outcomes would be if the drink sold below, at, or above expected sales levels. It is also important to analyze the risk that the whole product may turn out to be a failure. After meeting with the marketing and production managers we have found that two areas with the most uncertainty were unit sales and salvage value. In order to accurately examine the affects that these two areas will have on the overall project it will be crucial that we examine all the best and worse case scenarios, as well as determine the impact of these areas on the overall profitability of the project.

BACKGROUND:

As part A of this case stated earlier, Tasty Foods Corporation is a food conglomerate that sells a variety of products. They sell major lines of cereal, soda, juice, and frozen dinners. The company began in 1955 when Henry Abercrombie decided he wanted to be his own boss and start his own company. Tasty Foods Corporation grew rapidly over the years and has made many new and innovative products. Recently Harry hired his daughter, Abigail, as a management trainee in hopes that one day she would become the president of the company. Abigail came up with many new product ideas shortly after she started working there. After performing some marketing research, Abigail realized that people were looking for a new athletic drink because they felt dissatisfied with the ones already on the market, claiming they had bad...