Overhead CostsEssay Preview: Overhead CostsReport this essaySpillover effects (positive and negative as described in case)Classically spillover effects are the impact of certain economic activities which may seem unconnected initially. In the context of this case, the launch of New Line will have an impact on both the Modern (positive) and the Old Line (negative – cannibalisation). There are differing opinions on whether cannibalisation should be part of the cash flow consideration of an investment decision – with some arguing for no consideration and some arguing that:
it should be modelled if the industry/tech is patent protected and threat of new entry is low (i.e. Pharmaceuticals industry)it should be not be modelled if we are a competitive industry with high likelihood of your own products being cannibalisedIn the case studied here, we believe that the analysis of the decision to invest in the New Line should include the impact on the two existing lines -Modern and Old as it impacts the cashflows of the project and its unclear if the industry is competitive or patent protected. Based on our calculations the New Line will have a clear cannibalisation effect on the Old Line, with sales declining at a much faster rate YoY with the launch of this extension.
Q10. How long will you need to keep the New Line from going public?
A11. How much time remains in the contract at this stage? Will the time allow for that?Will we be able to find out soon as it is being discussed?Q11. How much time remains in the contract at this stage?Will the time allow for that?Will we be able to find out soon as it is being discussed?
Q12. How many people will want to be part of this? Will the community and government get involved?It may take a while but soon we have the chance, will you? Q12. How many people will want to be part of this?Will the community and government get involved?It may take a while but soon we have the chance, will you?
Q13. Do you think that your team and the staff at NEM should be held responsible for the design of the New Line?I will explain what is said. Q13. Do you think that your team and the staff at NEM should be held responsible for the design of the New Line?I will explain what is said.
Q14. Do you think that your team shall be able to bring these improvements without any extra funds that will be provided by the market?What was proposed is the price of doing this project, which will increase the cost and delay the actual completion of this project? How much to reduce the cost if the project does not take place ?
A14. Do you think that your team or staff members shall be forced to do something with the technology if it is not going to be cost effective and have to do it with no additional funds that will be provided by the market ?
Q15. Should the project be started as soon as can be, or over a longer term?What is the right order within which such a project will be started?
A15. Do you think that as early as possible the New Line will provide a reliable route to the market to enable the development of new products that are able to bring the quality of life to the poor people, by providing higher quality of life.
Q16. There are concerns that the NEM is operating under an incorrect definition and that it is not fulfilling its obligations to its citizens. How will these concerns be addressed?
A16. There are concerns that the NEM is operating under an incorrect definition and that it is not fulfilling its obligations to its citizens. How will these concerns be addressed?
Q17. How will you be informed about the project?
A17. How will you be informed about the project?
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Working capital has been calculated as a percentage of sales, based on the estimates provided by the case – based on historical data of domestic DIY products- since there isn’t enough data to estimate working capital based on the difference between assets and liabilities on each year of the forecast period. Nevertheless, this method presents some disadvantages – it doesn’t consider unforeseen events such as emergency repairs in equipment, inventory build-up, opportunities to buy discounted raw material, etc. Besides it is highly dependent on the sale forecast, so if the forecast is faulty it will also affect the estimates