Illustrates the correct utilization of incremental evaluation for decisions pertaining to capital funding and investment expenditures.
1. What are the relevant cash flows for General Foods to use in evaluating the Super project? In particular, how should management deal with issues such as (a) test-market expenses, (b) overhead expenses, © erosion of jell-O contribution margin, and (d) allocation of charges for the use of excess agglomerator capacity?
2. How attractive is the investment as measured by various capital budgeting techniques
(i.e., net present value, internal rate of return, payback method, accounting rate of return)? How useful is each of these techniques?
3. How attractive is the Super project in strategic and competitive terms? What potential risks and benefits does General Goods incur by either accepting or rejecting the project?
4. Should General Foods proceed with the Super project? Why?