I have 2 cases. There several questions that have to be answered in the end of each case. Give...

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I have 2 cases. There several questions that have to be answered in the end of each case. Give explanations and examples. No plagiarism.

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Finance Professor: Juan Aitor Lago Moneo Business Case HARRIS LABORATORIES First years Robert Harris opened his laboratory in Cambridge, Massachussets, in 1946, after serving in the US Marine Corps in Asia - Pacific. Robert decided to create white label cosmetics for major French companies that were very popular at the moment, even though the economic situation wasn't definitively the best. The Boom By 1965, Harris Laboratories created its own brand as a strategy to survive, since, at that time, white label products didn't work in the market. Harris cosmetics became soon very popular for the middle classes in the East Coast of USA, selling mainly make up. The Financial Statements and a possible new product In 1968, Robert had to decide if launching a new lipstick or not. He wasn't sure and had to take a decision based on financial data. He asked his Production Director of the suitability of the operation and he provided David Miller, with the following information to prepare a report and advise a decision The initial investment was to be paid in 1968. Robert was as well thinking of launching a new face cream with the following financial expectations: The initial investment would as well be paid in 1968. Robert was offered a deposit that would pay a 9,5% annual interest rate if the money was blocked in the bank between 1969 and 1973. The Balance Sheet in 1968 looked as follows: ASSETS Current Assets Cash 80.000 Short - term investments6.000 Accounts receivable11.000 Merchandise inventory8.500 Total current assets105.500 Fixed Assets Equipment 275.000 Buildings 5.000 Land 4.000 Total fixed assets 284.000 Total Assets 389.500 LIABILITIES Current liabilities Accounts payable 42.500 Taxes payable 7.500 Total current liabilities50.000 Long - Term liabilities ...

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David · Accepted Answer

In the present report we have discussed two different cases. Both the cases will be evaluated on 
the basis of Net Present Value technique (NPV). 
NPV technique is a discounted capital budgeting technique that takes into consideration the time 
value of money. The net present value can be calculated from the difference between the present 
value of cash outflows and present value of cash outflows. Every organization expects to earn 
revenues from the projects every year. It is very important for the management that while 
evaluating the project, the cash flows from the future years to be discounted at the discounting 
rate to calculate the present value of the future cash flows. Since, the future cash flows will be 
uncertain and the time value of money will decline the value in today’s terms it becomes 
necessary to discount the cash flows. When the present value of the cash outflows (all the 
investment costs) are compared with the discounted cash flows, the resulting the difference is the 
Net Present Value. If NPV is positive, the management should accept the project. 
Case 1 (HARRIS LABORATORIES):- 
1) 
Cosmetic sector is a flourishing sector, by the advent of technology and various scientific 
innovations this sector has been in boom for last few years. Cosmetic sector is again divided in 
various parts such as hair care, color cosmetic, skin care, bath & shower, fragrances, men’s 
grooming, oral hygiene, sun care nail care & Baby care, deodorants.  
Cosmetic industry is led by few major brands such as Procter & Gamble, L’Oreal, Unilever, 
Avon etc. Cosmetic industry faces monopolistic competition with large number of firms 
operating in it and differentiated products, firms have certain degree of control over pricing and 
there are various barriers to entry like government intervention and distribution channels. 
The boom in the cosmetic sector is due to the increasing awareness of consumers towards their 
health, growing demand for anti-aging creams, and shift in preference of the consumers from the 
chemical based creams to natural creams. But all over review of cosmetic industry is good 
provided the quality products are manufactured and sold. 
2) 
If a choice has to be made between lipstick, face cream and investing in bank following tables 
must be considered:- 
Lipstick 
      Year 1968 1969 1970 1971 1972 1973
Sales   
 $      
200,000.00  
 $      
224,000.00  
 $      
250,880.00  
 $      
280,985.60  
 $      
314,703.87  
Costs   
 $      
202,000.00  
 $      
206,444.00  
 $      
210,985.77  
 $      
215,627.45  
 $      
220,371.26  
Initial investment 
 $      
(18,000.00)
EBITDA   
 $        
(2,000.00) 
 $        
17,556.00  
 $        
39,894.23  
 $        
65,358.15  
 $        
94,332.61  
Present value factor 1 0.91 0.83 0.76 0.70 0.64
Present value of net cash 
flows 
 $      
(18,000.00) 
 $        
(1,826.48) 
 $        
14,641.90  
 $        
30,385.60  
 $        
45,461.45  
 $        
59,922.69  
NPV 
 $     
130,585.

I have 2 cases. There several questions that have to be answered in the end of each case. Give explanations and examples. No plagiarism. Document Preview: FinanceProfessor: Juan Aitor Lago...

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