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Case Krispy Kreme

In: Business and Management

Submitted By foldeando
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WORLDWIDE PAPER COMPANY

Team: Id. Number
Lorena Tamez Rangel 638130
José Luis Domínguez Damas 809448
Santiago De Hoyos 795568
Héctor Guerrero Pacheco 945840

May 4, 2011

WORLDWIDE PAPER COMPANY
Brief Description:
In December 2006, Bob Prescott, controller for the Blue Ridge Mill, was considering the addition of a new on-site longwood woodyard. This will bring two benefits: Eliminate the need to purchase shortwood from an outside supplier, and the company will have the opportunity to sell shortwood to the open market. Also, this addition will reduce its operating costs and will increase it revenues.
Prescott would no longer need to use the Shenandoah Mill as a short supplier and that the Blue ridge Mill would instead compete with that company by selling on the shortwood market.

Case Information:
The new woodyard would begin operating in 2008 and the investment would be spent over two calendar years: $16 million in 2007 and the remaining $2 million in 2008. After 2008, when the woodyard began operating it would reduce the operating costs of the mill by the difference of the cost of producing shortwood on-site versus buying it on the open market. This is traduced to $2 million for 2008 and $3.5 million for 2009. Prescott also planned to sell the excess production capacity on the open market as soon as possible.

Prescott estimated to have revenues of $4million in 2008 and $10 million per year for 2009 through 2013. The cost of goods sold is 75% of revenues and SG&A would be 5% of revenues. If the revenues increase, the inventories and accounts receivables would also increase. The Net Working Capital is 10% of annual revenues and at the end of life equipment, in 2013; the NWC will be recovered, whereas only 10% or $1.8 million of the capital investment would be recoverable.

Taxes would be paid at a 40%, Straight-line

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