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General Foods - Super Product

In: Business and Management

Submitted By sunnyy009
Words 2778
Pages 12
Overview
In 1966-1967 General Foods Corporation was considering introducing a new product called the Super product. This product was “a new instant dessert based on flavored, water soluble, agglomerated powder” to both the United States and foreign markets. The capital investment was projected to be $200,000, and it would leverage the existing facilities used by the Jell-O manufacturing unit that had an available under-utilized capacity of its Jell-O agglomerate. A Nielsen market survey was done that showed a powered desert which would contribute to a significant growth market. The results projected that the product would capture 10% of the market share; 8% percent would be from new growth while 2% would come from the cannibalization of the current Jell-O-sales.
The evaluation process to determine the investment opportunity for the Super Project was based on the incremental cash flow analysis. Crosby Samberg, a manager and financial analyst for General Food Corporation felt that this model was flawed and that a new more “accurate” model had to be used to examine the returns on the Super Project. The first assessment model was using the General Food acceptable practice of incremental analysis. The incremental anlaysis determined that Super Project have an attractive return of 63%. The second mythology was to add the facilities' costs, which examine the opportunity costs of leveraging the available pre-existing Jell-O equipment. This model determined that the Super Project would return 34%. The last approach was to allocate both opportunity and overhead costs to the project. This analysis projected this opportunity to have a 25%, fortunately still meeting the General Food threshold for acceptance.
Changes in the financial evaluation methodology for deciding which projects would be considered potential investments would ripple across the organization and affect the

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