Case 9 Performance Boating Products

CASE 9 PERFORMANCE BOATING PRODUCTS, INC.

INTRODUCTION

In the case of Performance Boating Products, Inc., Sam Cutlowe is responsible for making a sound financial report to Mr. Slater, the CFO of the firm regarding three potential investments the firm was considering.

Performance Boating Products, or PDP, was considering three separate investment strategies, of which they would move forward with only one. The firms’ strengths included a patent protection on their product design, and high consumer demand.

PBP’s patent allowed it to command high prices in the market and hold a comparatively high profit margin due to high markups, and cheap materials.

Looking into the future, the firm decided to focus on developing a business plan that would allow PBP to counter the market in the best way.

The first project was called the “Melville.” It involved the construction of a new warehouse in a strategic location. The project was projected to increase sales in the designated region, as well as cut down on distribution costs.

The second project was called the “Broadside.” “Broadside” called for the construction of a new production facility in an alternative region. The project was projected to increase production in the area and cut down on pent-up customer demand.

The third and final suggested project was called “Turbine.” The “turbine” plan called for the construction of a plant that would build a new type of apparatus at an undisclosed location. The project would allow the firm to expand its product lines.

Sam Cutlowe utilized the theories of capital budgeting and capital structuring to determine which project would be the best investment.

METHODOLOGY

In order to evaluate the optimal project decision, a series of calculation have been constructed.

These calculations are the:

* Net Present Value

* Payback Period

* Capital Asset Pricing Model

* Z-Score (same across all projects)

* Profitability Index

* Discounted Cash...