JNB Quiz
1. That the positive cash flows in the first few years of the project more than pay back the initial investment 2. That the project will need a long-time horizon to recoup the initial investment
A high IRR most likely means:
True
After the Snack Pack failure, JNB implemented a simplified stage gate 3-part process
capital budgeting
BOTH screening and preference decision avenues use ______________ methods to select between alternatives.
True
Brand is the consumer's perception and can be subjective
short periods of time
Capital investment decisions often involve all of the following except ________.
More attractive
Does a higher internal rate of return (IRR) make a project more attractive or less attractive?
True
Gates are a useful way to reduce risk because investment dollars typically increase the closer you get to launch
True
Good projects have a higher IRR than WACC
$14,000 94,000 (23,500 * 4) - 80,000 =14,000
Grummet Company is acquiring a new wood lathe with a cash purchase price of $80,000. The Wood Master Industries (the manufacturer) has agreed to accept $23,500 at the end of each of the next 4 years. Based on this deal, how much interest will Grummet pay over the life of the loan?
Determine which year it will be when the cumulative net cash flows equal the initial investment
How do you estimate payback period?
Transfer all future cash flows you expect from a project using WACC as rate to present value. Add them up and subtract the initial investment from it, leaving you with a net value.
How is NPV calculated?
Variable cost per unit * (Revenue / JNB selling price to retailer)
How is cost of goods sold calculated?
Revenue / Net Income
How is cumulative net income margin calculated?
Total sales of the Company ÷ Total sales of the Market *100
How is market share of a company calculated?
Payback period is the amount of time it will take for an investment to break even, IRR is the discount rate required to break even.
How is payback period different from IRR?
Discovery
In which phase of Stage Gate would you most likely go interview users in search of unmet needs with a goal of finding new business opportunities?
Design
In which stage of Stage gate do you conduct a more rigorous analysis of an opportunity?
The difference between the PV of cash inflows and the PV of cash outflows over a period of time
In your own words: what is NPV (net present value)?
No
Is IRR affected by WACC?
No
Is cumulative new cash flows affected by WACC?
A company's depreciation expense reduces the amount of earnings on which taxes are based, so larger depreciation expense lowers taxable income
Is depreciation relevant to taxes?
NO! Terms are related, but not the same. Breakeven point is a price or value while payback period is how long it will take.
Is payback period the same as the breakeven point?
Having related KSAs
Kelvin has a great eye and does all the graphic design work as the intern for his company. He helps his team with all of its PowerPoint presentations. In this example, which of the CATME dimensions is Kelvin using?
Start up, High Growth, Mature (all phases)
New product development is important for which company stage?
Internal rate of return (IRR) method
Of the following, which calculation helps determine the profitability of an investment?
Provide prototypes to 100 runners for feedback
One idea you consider to address this consumer need is a Gatorade-branded water belt that people ear around their waist. Which of the following would be an appropriate activity for the Scale up stage for this project?
Identify water belts currently on the market
One idea you consider to address this consumer need is a Gatorade-branded water belt that people ear around their waist. Which of the following would be an appropriate activity for the scope stage for this project?
Low profit margins if required features are included
One idea you consider to address this consumer need is a Gatorade-branded water belt that people ear around their waist. Which of the following would most justify a "kill" decision at Gate 3? (In between design and develop)
This idea matches one of the identified consumer needs
One idea your team generates is a dirty kitchen alarm. Sensors in the kitchen trigger notifications to the roommates when, for example, the grease level on the stove reaches a certain point. Which statement is true of this idea?
True
Positive NPV = good Negative NPV = bad
political prominence
Preference decisions compare potential projects that meet screening decision criteria and will be ranked in their preference order to differentiate between alternatives with respect to all of the following characteristics except ________.
Less than $300. You discount the return rate (or WACC) from a FV to get PV
Say you will receive $300 one year from today. What is the NPV of that cash flow?
False
Start ups don't need a structured process because they are not concerned with launching the best products. True or false?
What consumer need would this address?
The Ask Data team is considering adding a voice interface so queries can be spoken instead of typed. If they follow the stage gate process, which of the following is the first thing they would ask?
inventory turnover
The third step for making a capital investment decision is to establish baseline criteria for alternatives. Which of the following would not be an acceptable baseline criterion?
Internal rate of return (IRR) method
This calculation determines profitability or growth potential of an investment, expressed as a percentage, at the point where NPV equals zero
Select a project for future business development. Projects typically require large outlay of cash, provide an uncertain return, and tie up resources for an extended period,
What are capital investment decisions?
Decision points between each stage. At these meetings, the team presents research they've completed and leadership (gatekeepers) decide what to do.
What are gates?
Rank alternatives emerging from the screening process to help make the final decision
What are preference decisions?
Help eliminate undesirable alternatives that may waste time and money.
What are screening decisions?
On the go protein, high quality ingredients, sustainable, organic, non-gmo
What are some characteristics of Justin's brand?
Whether to 1. Go 2. Kill 3. Hold 4. Recycle
What are the decisions made at each gate?
Disregards the time value of money, ignores profitability, and does not consider cash flows after recouping the investment.
What are the flaws of payback period?
Makes it less competitive and barriers to entry are high
What impact does concentration have on a market?
Bottom Line On Top. Business documents should begin with the information most important to your audience.
What is BLOT?
Helping the team achieve its goals or objectives by completing the assigned tasks. Your behaviors influence the quality and quantity of your contribution to the team
What is Contributing to the Team's Work? (CATME)
Focuses on expressing the beliefs that the team is capable of quality work and encouraging the team to strive for quality
What is Expecting Quality? (CATME)
Knowing what you need to know, knowing how to do what you need to do, and having the capabilities you need to do the team work. Effective team members need to have or learn the necessary KSA's for their assigned tasks and should be prepared to perform other roles if needed.
What is Having Relevant Knowledge, Skills, and Abilities? (CATME)
The discount rate that makes NPV equal to 0 or breakeven on the project. Relies on NPV
What is IRR?
Providing positive interactions within the team that contribute to a supportive environment. Talking during meetings (but at appropriate time and knowing when to stop and listen to others)
What is Interacting with Teammates? (CATME)
Assess, Initiate, Launch
What is JNB's current NPD process?
Involves efforts to progress toward achieving the team's goals
What is Keeping the Team on Track? (CATME)
Has lots of companies that hold a small market share. Barriers to entry are lower and competition is higher. Pricing power is also lower.
What is a fragmented market?
A document agreed upon by all team members to provide direction for the way the team functions to meet objectives. Promotes good team work and holds each member accountable
What is a team contract?
Auto dealerships, cab services
What is an example of a fragmented market?
Search engine market
What is an example of a highly concentrated market?
Money generated per unit sold. Unit revenue - Unit variable cost
What is contribution margin and how is it calculated?
Transporting a product to the customer through channels
What is distribution?
How products are handled, stored and transported to retailer
What is logistics?
Process in which raw materials and made into the product
What is manufacturing?
The extent to which a market's sales are dominated by one or more firms.
What is market concentration?
Time it takes for a project to break even. Initial investment / Annual cash flow
What is payback period and how is it calculated?
Identifying and assessing suppliers of materials and ingredients
What is sourcing?
Detailed investigation involving primary research (customer, market, and technical) leading to a business case that includes product and project definition, project justification, and the proposed plan for development. (SWOT)
What is the Design (Stage 2)?
The actual detailed design and development of the operations or production process required for eventual full-scale production. (Prototype development, engineering)
What is the Develop (Stage 3)?
Pre-work designed to discover and uncover business opportunities and generate new ideas. Research consumer needs and product categories.
What is the Discover (Stage 0)?
Commercialization: the beginning of full-scale operations or production, marketing, and sales. Price, place of distribution, promotional plans.
What is the Launch (Stage 5)?
Tests or trials in the lab, plant, and marketplace to verify and validate the proposed new product, brand/marketing and production or operations plans.
What is the Scale Up (Stage 4)?
Quick, inexpensive preliminary investigation and scoping of the project. Desk research. Verify viability of opportunities and narrow to 1. (Mintel)
What is the Scope (Stage 1)?
Calculation of a firm's cost of capital in which each category of capital is proportionately weighted. It is a percentage.
What is the definition of WACC?
Reduce risk
What is the primary goal of implementing an NPD process?
-Team did not do a "line trial" or further research with final finished goods (in packaging) with consumers, instead relied on internal judgement (Stage 4 Scale up) -Overdependence on Target's program (Pre work Stage 0) -Did not test products packaging before launch, reseal feature ended up not working and they leaked oil (Stage 4 Scale up) -Marketed them as high quality and price reflected that, however the ingredients ended up not being high quality, shows in repeat purchase rate (Stage 2 Design)
What were the primary causes for the snack pack failures and in what stage could these have been better addressed?
Down
When WACC goes up, NPV goes _____.
The investment provides an actual rate of return greater than the discount rate
When using the NPV method for a particular investment decision, if the present value of all cash inflows is greater than the present value of all cash outflows, then ________.
NPV of Scenario 1 is higher
Which NPV is higher? Why? Scenario 1: Your business collects $5000 on Jun 1, 2020. Scenario 2: Your business collects $5000 on Dec 1, 2020.
Net Present Value (NPV)
Which of the following discounts future cash flows to their present value at the expected rate of return, and compares that to the initial investment?
Payback period method
Which of the following does not assign a value to a business opportunity using time-value measurement tools?
A. Work is divided into gates; decisions occur at stages. B. Decisions include stop go and wait. C. Stage Gate is a way to guarantee the success of a new product launch.
Which of the following is false about Stage Gate?
Based solely on payback period, Project B would take less time to pay back. Initial investment (200,000) ÷ Annual cash flow (100,00) = 2 years
Which project? Based on payback period A. Company A invests $1 million in a project that is expected to save the company $250,000 each year. The payback period for this investment is four years—dividing $1 million by $250,000. B. Company A invests $200,000 in a project with no associated cash savings that will make the company an incremental $100,000 each year for the next 20 years at $2 million.
IRR > WACC
Which scenario would you prefer?
Project's cash flows
Which set of inputs do I need to calculate the IRR for a project?
THINK: Portable Protein ACTUAL: Product Trial
Why did Justin THINK people would want the squeeze packs, and why did they ACTUALLY want them?
$9,000
Without using a calculator, which of the following is the closest estimate of the NPV of $10,000 received one year from now if the discount rate is 10%?
$8,100
Without using a calculator, which of the following is the closest estimate of the NPV of $10,000 received two years from now if the discount rate is 10%?
The present value of $1 is larger than the future value of $1. A dollar is worth more today than it will be in the future.
You are explaining time value of money factors to your friend. Which factor would you explain as being larger?
Interacting with teammates
Zaid makes a point to arrive on-time to his remote team meetings, with his camera turned on, and a positive attitude for completing the team project. In which of the CATME team dimensions does Zaid appear strong?