Quantitative Analysis of Tipha's Proposal: All numbers in millions

Proposed increase in advertising and promotion $18

Tipha's projected increase in sales from Clark's forecast* 41

Projected profit decrease $303-297 in case -6

Incremental margin of increased sales, based on $18 adv/promo overspend $12

* Tipha's product lines, cited in his email, account for $445MM in sales. His projected increase is very significant when Clark is forecasting a decrease in sales overall .

The numbers above indicate that the gross margin on the new products is only 29% (12/41)compared to the 45% gross margin for the division overall.

Quantitative Analysis of Red Dragon Foods Acquisition ($ millions) Mackey analysis

Analysis is simplified, instructor may wish to include

a NPV calculation

Red Dragon EBITDA $4.2

Acquisition price at 7 times EBITDA 29.4

Debt service at 4% 1.17

Assume 10 year amortiztion 2.9

Red Dragon Foods (RDF) present sales 36

RDF gross margin 45% - given in case 16.2

Advertising/promotion at 30% of sales - case 10.8

Cannibalization of sales .3% x 2973 = 8.9

Cannibalized gross margin 45% x 8.9 = 4

Interest and Amortization 4

Net Earnings for RDF First Year -3.8

Five year sales projection - Low growth at 1.5% 44.5

Gross margin for low growth year five 20

Five year sales projection - growth adds 3.5% to sales 104

Gross margin 46.8

Chong - Quantitative analysis of new product investments ($'s millions)

Note: the instructor will likely have to lead the class through these calculations

Growth of 3% of sales from new products - Chong's email $2973 x .03 =

Proposed increase to R&D budget $14 to 19

Incremental gross margin from price increase for new RTE flavors Clark Est

Advertising increase of 6% f * $170 adv. in 2013 for the new RTE flavors to achieve earnings increase

Add the incremental gross margin to the increase in advertising to get total GM

for the new RTE flavors

Assume a 45% gross margin for new RTE flavors consistent with average GM

Total sales from RTE flavors 22.6/.45

$89

5

12

* $170 adv. in 2013 for the new RTE flavors to achieve earnings increase 10.6

22.6

50

Pugh - Quantitative analysis of investing in the core

Price adjustment - take a $.05 price decrease on core items

Core canned and RTE soups = 64% of division sales

Wholesale cost per can - $1.14 (case footnote)

Number of cans sold in core products - $2973 x .64 / 1.14 1669 cans

Gross profit for core products - $2973 x .64 x .45 $856

Gross profit per can 0.51

Cost of goods - variable costs per can 0.63

Gross profit per can with $.05 lower selling price 0.46

Gross margin if low forecast occurs 1800 cans x .46 828

Gross margin if high forecast occurs 2000 cans x .46 920

High forecast requires an increase of 19.8% in unit volume