Hansson Private Label

10. What is the net present value (NPV) of a long-term investment project? Describe how managers use NPVs when evaluating capital budget proposals.

Evaluating the risks, calculating the probability of success, and factoring in the projected profit from sales will provide a clearer NPV to be compared with other projects in the

The company is the corporation’s question mark performer and has the potential of becoming a star performer given the limited competition in the market. The company has the advantage of the parent corporation’s 25-year-old positive reputation as a local family owned business known for the quality of their products.

Pursuing Dino’s Production Plan for only Private Brand (Scenario 1) will result in annual revenues of just 52.8 billion liras, COGS of 42.91 billion liras and even with reduced advertising and selling expenses, a resulting net loss of -1,138,659,000 liras, before taxes. This is clearly not a viable strategy. Since the firm utilized only 39.13% of installed plant capacity in year 2000, they clearly need to increase revenues and profit margins by pursuing their own premium brand, instead of pursuing private label brands with higher volumes, but much lower profit margins, and an

From Exhibit 4 the NPV is about $1.5 million. There initial investment is $400,000. Without included debt payments this appears attractive. However, the NPV should include the debt payments for a useful NPV. This reduces the NPV significantly. The investors double their money and the investment appears viable.

7) See Table 1 NPV=42,318.71 IRR = 14% MIRR = 12% Payback period= 2.93 years. Yes the project should be undertaken.

The owner of Hansson Private Label (HPL) must determine whether or not to accept an aggressive expansion project that would preclude the company from pursuing any alternative investment opportunities for several years. The investment, if successful, would offer numerous benefits to the company, capturing greater market share, strengthening relationships with major customers, crowding out competition and increasing firm value. Nonetheless, the decision carries significant risks and could lead to a substantial decline in firm value, if not bankruptcy, should any number of variables prove unfavorable to HPL. Moreover, the project relies heavily on a contract with a single large

Financial risks include the short payback period. A 3-year payback period would not allow Hansson the opportunity to breakeven. With a negative NPV in the first 3 years Hansson’s decision to invest in the project would be based on his ability to negotiate a longer contract time. The Net Present Value (NPV) would have to be examined in tandem with the other non-financial variables.

Rising acceptance of own label products. The sales of private label products have increased by more than 40% over the last 10 years. This reveals increasing consumer acceptance of supermarket chain

The present value of the net incremental cash flows, totaling $5,740K, is added to the present value of the Capital Cost Allowance (CCA) tax shield, provided by the Plant and Equipment of $599K, to arrive at the project’s NPV of $6,339K. (Please refer to Exhibit 4 and 5 for assumptions and detailed NPV calculations.) This high positive NPV means that the project will add a significant amount of value to FMI. In addition, using the incremental cash flows (excluding CCA) generated by the NPV calculation, we calculated the project’s IRR to be 28%. This means that the project will generate a higher rate of return than the company’s cost of capital of 10.05%. This is also a positive indication that the company should undertake the project.

As a manufacture of private label personal care products, Hansson Private Label, Inc. has a considerable amount (28%) of market share in its specific industry. However, private labels as a whole constitute less than 19% in the entire personal care industry. Therefore, growth of HPL depends on the growth of the industry and more importantly the growth of private label component within the industry. In terms of the personal care industry, market growth will not improve significantly in the future. As proven in the past four years, unit volumes in the industry increases less than 1% in each year and the dollar sales growth was only driven by modest price increases. Therefore, the opportunity for private labels

L Brand, Inc. is a company that is based on American fashion retailer. This retail company was made into a couple store brands which are Victoria’s Secret, PINK, Bath & Body Works, La Senza, and Henri Bendel. This Delaware Corporation sells from women’s lingerie, personal care products like perfumes and lotions, and women’s and men’s apparel under other trade names that are sold in retail stores, catalogues, and e-commerce. A woman named Bella Cabakoff who came from Russia to Columbus Ohio for a better life she became one of the youngest buyers for the Lazarus department store chain. She and her husband Harry Wexner opened a clothing store after a while that she had spent at the Lazarus department store. Later then her son Leslie Wexner opened his own store with some help of his family and the bank. He named his retail store “The Limited” which focused on clothing for young women. Bella and Harry joined him, but later died and now to this day Leslie Wexner owns 17% of limited brand. He made the company public on the New York Stock Exchange. According to an investor overview in lb.com,” its brands are sold in more than 700 additional franchised locations worldwide” (Investor 1). L Brand Inc. is known well for their quality in fragrances and intimate and other apparel making their customers feel sexy and confident. According to their website their total recorded sales in 2015 was $12.7 billion.

4. Based on the information provided in the case, our group calculated the NPV for the project under both tax environment and tax-free condition, respectively, by using the excel spreadsheet and the NPV function. (For a detailed calculation of NPV, please refer to Appendix Under 15-yr.) According to our calculation, we have the following results: In the first case scenario, which the firm is in a tax environment (35% income tax), the NPV of the project equals to -$6,366,054.53

Sales of private label cereal grew 50% from 1991-1994 in the Ready-to-Eat breakfast cereal industry. Some of the factors that contributed to the entry of private label cereal manufacturers and their subsequent growth include - lower costs related to manufacturing, packaging, marketing, R&D compared to the Big 3 cereal companies, product quality approaching that of branded products, higher margins for grocers, lower priced products. Some observers blamed higher prices and elaborate expenditure on coupon printing, distribution, redemption and reimbursement of grocer's handling fee for market share gains made by private label cereal products. The policy of "price up and spend back" seemed to hurt the Big 3 firms.

The definition of private label branding has evolved significantly over time. Some would argue the term “private label” is a misnomer of great proportions. There is no question that the words “private label” acknowledges the birth, history and existence of generic and store brands. Yet, the term does not adequately capture the extent to which private label has progressed. Today 's retail marketers are managing their proprietary brands with the same combination of care and innovation as manufacturers of national brands.