Jacobs divison free essay sample

In determining whether or not to undertake the Silicone-X project, Mr. Soderberg should proceed as follows: First he should complete analysis on the Net Present Values and IRR’s of each the options; the labor intensive and the capital intensive. After reviewing the results, it would be obvious to Mr. Soderberg that he should recommend that the Jacobs division move ahead with production of the Silicon-X operating with the labor-intensive option. The NPV for the labor-intensive option is positive (acceptable) at 12, 16 and 20 % while the capital-intensive option is only positive at 12 and 16 %. Not only that, but the labor-intensive option meets the expectations for both the company guidelines and Mr. Reynolds’ 4 % above company expectations personal rule for undertaking new projects for the Jacobs Division. The major takeaway and conclusion that Mr. Soderberg would hopefully realize from the results of the research is that even though the NPV and IRR methods appear to make the same decisions (both positive and â€Å"acceptable† under financial terms) if projects are used independently, the labor intensive project should be chosen since the projects are mutually exclusive. We will write a custom essay sample on Jacobs divison or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The best NPV option (the labor intensive) should therefore be used. Another advantage in favor of undertaking the Silicone-X project and using the labor-intensive option is that Silicone-X could be on the market within one year’s time (compared to the two years it would take for the capital option) and that the required start-up costs for using labor is only $900,000 compared to $3. 3 million for using the capital intensive option. Another one of Mr. Reynolds personal opinions in regards to choosing a project to undertake is the disregarding the Discounted Rate of Return, in favor of the simple total return of a project in three years time. It is easy to tell that the labor option would have the higher total return on the short run (3 years) than the capital, even though the capital would create the higher return over a longer period of time. The quicker startup time, less capital involved in startup, and the lower debugging costs and time all point to using the labor over the capital-intensive option for undertaking the project. The effect of competition for Mr. Reynolds and the Jacobs Division should not have a dramatic effect of the decision between using the labor or capital-intensive projects, in my opinion. Jacobs would have the advantage of being the first to market, the low cost of the product would make it hard for competitors to undercut them, and even though getting a patent for the product was out of the question, given the research done on competitors, Mr. Reynolds believes that â€Å"odds are against someone devolving a cheaper or superior product† to compete with the Silicone X project. In regards to the pricing structure of the project, both the labor and capital-intensive projects have a break-even point at the price of $1. 90 per pound that should (according to projections) occur within the first year of operations. Again given the extra year for startup of the capital-intensive project, the labor-intensive project would reach its 540,000 pound breakeven before the 325,000 pound breakeven for the capital-intensive project would even have time to generate any revenue. There would be two different opinions of Mr. Reynolds and his tactics if you were a shareholder, given the level and amount of risk that each person was tolerable with. The risk-adverse shareholder would appreciate Mr. Reynolds cautiousness with accepting new projects, while the risk-tolerant shareholder would be less accepting of his ways once they become aware of the numerous opportunities for profit and growth that he passes up on by having standards above the norm for investing in new projects.