CPI Expansion into Five US Cities and to Countries  

 Assignment: Prepare a three page Memorandum to the CPI Board members addresses the following:

Situation: The Board liked the analysis you did on valuation and agreed to proceed with the expansion plan. Your CFO, investment bankers, and consultants have all been working on the cost and benefits of various expansion options. They have agreed on an option that will see simultaneous expansion into 5 domestic markets (Chicago, Dallas, Miami, New York, and Charlotte), Germany, and Brazil. The CFO has developed cost and benefits of the scenario in a spreadsheet and has asked you to review it.   Look at the spreadsheet and use present value analysis to discount the cash flows. Include the calculations for net income, operating cash flows, free cash flows and the present value cash flows and NPV in your spreadsheet. Does the project have a positive or negative NPV? What are the implications for CPI and its shareholders if there is a positive NPV or a negative NPV. Is the dollar value of the NPV important in light of the expenditure? In making the final decision, what kind of economic assumptions do you think the CEO had to make. Articulate the economic and political risk with the strategy and list options to overcome. How will this decision affect the share price and the value of the company? In light of all this information, would you support the above-mentioned option for expansion? Why or why not.

Scenario:  Company History: Consumer Products Inc. (CPI) is a U.S. regional consumer Products Company located in Phoenix, Arizona. The company manufactures and distributes a small line of consumer products to retailers in major western cities including Los Angeles, San Francisco, Seattle, Portland, and Phoenix. The company has an excellent reputation as a good corporate citizen and producer of some of the highest quality products in the business.   CPI’s three major brands are Shades of Youth, a hair care line that recently has been doing extremely well as the aging baby boomers look for products to help retain some of their youth; Super Clean, a line of detergent and bleach products; and Super White, a line of tooth paste that quickly and safely whitens teeth. Super Clean is the anchor division, and it was the sole line of products the company had when Javier Lopez founded it in 1951. The company launched Shades of Youth in 1975 and Super White in 1980.   You have headed up the Super Clean division for the last 8 years and were recently promoted to Chairperson of the Board and Chief Executive Officer (CEO). The firm went public ten years ago under the leadership of your predecessor as CEO, Regina Baker. CPI is well established on Wall Street and has a reputation of being a good company that is conservative and a safe investment.

With only a U.S. regional presence and $200 million in revenue, you are clearly aware that the company’s ability to compete with the industry giants (Procter & Gamble, Unilever, Colgate, and Gillette) is limited. You believe that the firm must expand to other regions in the U.S. and begin international expansion if it is going to grow and prosper over the next decade.   The Board has reservations about making such bold moves, arguing that the company has been a successful regional company for over 50 years and can remain a niche player in the consumer products business. You see things differently. You see that the market is changing and competitors are becoming more aggressive by making acquisitions or developing new products that are extremely competitive with CPI’s brands. More importantly, you believe that the company will either be crushed by competition or forced into a merger to survive.   You know the task ahead of you is daunting. As you approach the challenge of persuading the Board to expand, you believe it is critical that you outline the global macroeconomic issues that are driving the industry and articulate the microeconomic dynamics that are central to the firm’s success. Ultimately, you see this as a decision-making problem. The Board must make the right decision now because the survival of the firm is at stake.   Reference materials will be sent to you by email.   Ensure reference(s) citations are included within the body of the essay and a reference page is also included!

**Please very important- include at least one reference is from the textbook Managerial Economics (Economic Tools for Today’s Decision Makers), 6th Edition, Paul G. Keat, Philip K. Y. Young; Publisher Pearson   ALSO please stay within the 750-800 word count for the main body of essay/Memo, do not exceed or have less than word count requirement.

 

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