Introduction:

This is a problem written from the perspective of a security vendor. Although you may never work for a security vendor per se, it is important to understand their perspective. This problem will provide you with practice in NPV, margin and markup, breakeven analysis, forecasting, and decision analysis, which are all important tools for managers to know. The problem also combines material from two or more learning modules. The Final Project will also require you to synthesize course concepts. So, this is good practice!

Scenario:

You are part of the management team for Schnauzer Security Systems, which manufactures building security systems. One of your products is a control panel that is used in a wide variety of applications. You have manufactured the product for the past 15 years, and you have enjoyed strong sales growth. Unfortunately, your design engineers have indicated that the current panel is rapidly becoming obsolete, and it will not be capable of interfacing with new sensor technology, which is rapidly taking over the market. So, you must discontinue the current product soon. The question is whether or not you can afford to change over to a new product given the high cost of redesign and retooling. Alternatively, you could outsource the technology to a Chinese manufacturer. But if you do so, you will not achieve significant profit from reselling the Chinese panel. If you choose to manufacture and sell the new panel, your engineers predict that the product life cycle will be about 10 years. So, it is important to recoup your initial investment before then.

Questions:

To answer the following questions, use the data in tables 1 and 2.

1.Using the markup percentage, what is the sales price?

2.Based on your calculations in Question 1, what is the breakeven point?

3.Using trend projection (=TREND() function in Excel), what is the sales forecast for each of the next 10 years (2018-2027)?

4.Assuming that sales will be very close to your forecasts, what is the expected annual profit for each of the next 10 years?

5.What is the net present value of the 10 years of profit computed in Question 4?

6.Should Schnauzer Security Systems invest in the new product? Use all of the results of your analysis to justify your answer.

7.Like all business problems, this problem has some uncertainty. Identify inputs to this problem that may be uncertain. How could changes in these inputs change the outcome?Based on this analysis, are you more or less likely to recommend investing in the new panel? Justify your answer!

Deliverables:

When you have completed your analysis, email your report to the professor, and attach your spreadsheet to the emails. Answer the questions in the body of the email. Do not answer the questions on the spreadsheet or in a separate document. Make sure to add your teammate to the email address if you worked with someone else on the assignment.