Essay About Jacobs Division Strategy Paper And Rate Of Return

Jacobs Division Strategy Paper
The Jacobs Division Strategy Paper        The main issue pertaining to the Jacobs Division case study is whether they should accept or reject the opportunity to invest in the Silicone-X project. The first step would be to analyze different variables associated with taking on the new project and determine whether the project is within company guidelines.  For this case, the manager of the Jacobs division desires a rate of return greater than that of the company guidelines so this would have to be taken into account.  Assuming that the projects rate of return, start-up costs, and other capital budgeting variables fall within company guidelines, the next step would be to analyze the project’s NPV.  If the NPV is negative, the company should reject the project.  If the NPV is positive, however, the company should consider accepting and continue with further analysis.  If the project is accepted, the next step would be to decide whether to go with a capital-intensive plant or a labor-intensive plant.  The first layer of this analysis would look at the rate of returns for each option and the payback periods as well as other risk analysis factors.  Although, it is also important to consider competition when making this choice.  According to the case, if competition between firms selling this new product were to increase and competitors were able to lower costs by investing in capital-intensive plants, a labor-intensive plant would create difficulties in the areas of production increases, cost management, and overall rate of return and payback period and cause the Jacobs division to struggle in remaining competitive.  One way the Jacobs division could prevent these issues could be with strong pricing strategy analysis.  A high price that would yield higher margins, and therefore greater returns, would be appealing to new competitors looking to enter an established market.  On the other hand, a low price that would yield lower returns would discourage new competition.  A complex analysis that would compare different demand levels at different prices would be used to decide what the lowest price that would still attract enough demand to yield an acceptable rate of return would be.  This would inevitably involve forecasting future demand for the new product at different price levels as well.  Once all of these steps have been completed, the pricing strategy analysis along with rate of return and NPV analysis would be used together to make a final decision as to whether the opportunity to invest in this new product line should be accepted or rejected.