Statement of Facts and Assumptions Regarding the using of the unused capacity of Energy Bar, I agree with Frank Nanzen's suggestion that Wickler would make a transfer payment to Leiter, similar to a rental fee.
Now if estimated sales are prone to adverse changes in future events, then overhead costs and mixing machine usage are also prone to unfavorable factors. However, there are two main issues along with this project.
When it is highly expected that some of the sales will be lost during next 10 years as a result of intervention in the market space of energy bars.
Second, should the new project bear incremental or even full costs for the use of otherwise-idle capacity? These sales will further fall if we change sales estimates before because sales from energy gel would not show constant growth due to many factors.
If they are evaluating a 7 year periodwhy are they calculating their ROIC by dividing the 10 year average net income by the average invested capital and not seven? Question 3: Should Wickler include potential cannibalization in his estimates?This way the business case of Energy gel product would seem more favorable. First, did the potential cannibalization of HPC's highly profitable energy bar products diminish the attractiveness of launching the new energy gel? What is the correct method to value the project? It is in the interest of the company to come out with new product, which will increase overall revenues and therefore a specific sales manager of a new department should not have to compensate existing managers of other departments whose sales will lower. According to the projections in the financial statements, it seems as if they will exceed capacity of the machines between the energy bars and gels together. We also see here that they chose to use the payback period and ROIC in order to evaluate the project. Regarding mixing the machine usage, it makes sense for Wickler to consider these costs. According to the projections in the financial statements, it seems as if they will exceed capacity of the machines between the energy bars and gels together. According to the projections in the financial statements, it seems as if they will exceed capacity of the machines between the energy bars and gels together. Regarding lowering the percentage of mark Leiter sales, this should not be Wickler's problem.
Even more so then Wickler must consider machinery as a cost of his.