Tirado Gillette Case Analysis 03 05 15 V1
Running head: GILLETTE CASE ANALYSIS
Gillette Case Analysis
Daniel J. Tirado
Fontbonne University
Professor Ed Scholl
BUS 571
Section 020
March 5, 2015
Executive Summary The Gillette Company has been presented with a potential business opportunity to expand its offering with a new razor. Market research indicates that the new product will be well received and that it will obtain 10% market penetration. An initial pro forma modeled net cash flows of $22,710,427 over four years including an initial capital investment of $10,000,000. The firm has a strong financial position with an overall WACC of 9.50%. Several potential options are examined including taking no action and approving the project under various financing structures. The option that maximizes shareholder value is approval of the project with100% of the financing to be provided via the issuance of new debt. This results in a NPV of $17,818,449 and WACC of 9.23%. Risks associated with the project are minimal and easily mitigated given the high profitability and the relatively low capital intensity of the project. The recommendation is to move forward with the project with debt financing.
Introduction
This case investigates a potential business opportunity for the Gillette Company. Gillette provides many personal grooming products for men including deodorants, body washes, and shaving cream, but its core business remains in the sales of razors and associated shaving products (Gillette, 2015). In an effort to evaluate the possibility of creating a new razor to bring to market, Gillette performed a market research study at the cost of $1,500,000. This study found that the target market consisted of 30,000,000 American males, with 5% to 12% of them interested in purchasing the new razor. The study also proposes that Gillette could initially gain 10% market penetration and that it would experience cannibalization of 30% of its sales from other product lines. The research study
Gillette Case Analysis
Daniel J. Tirado
Fontbonne University
Professor Ed Scholl
BUS 571
Section 020
March 5, 2015
Executive Summary The Gillette Company has been presented with a potential business opportunity to expand its offering with a new razor. Market research indicates that the new product will be well received and that it will obtain 10% market penetration. An initial pro forma modeled net cash flows of $22,710,427 over four years including an initial capital investment of $10,000,000. The firm has a strong financial position with an overall WACC of 9.50%. Several potential options are examined including taking no action and approving the project under various financing structures. The option that maximizes shareholder value is approval of the project with100% of the financing to be provided via the issuance of new debt. This results in a NPV of $17,818,449 and WACC of 9.23%. Risks associated with the project are minimal and easily mitigated given the high profitability and the relatively low capital intensity of the project. The recommendation is to move forward with the project with debt financing.
Introduction
This case investigates a potential business opportunity for the Gillette Company. Gillette provides many personal grooming products for men including deodorants, body washes, and shaving cream, but its core business remains in the sales of razors and associated shaving products (Gillette, 2015). In an effort to evaluate the possibility of creating a new razor to bring to market, Gillette performed a market research study at the cost of $1,500,000. This study found that the target market consisted of 30,000,000 American males, with 5% to 12% of them interested in purchasing the new razor. The study also proposes that Gillette could initially gain 10% market penetration and that it would experience cannibalization of 30% of its sales from other product lines. The research study
References: Ehrhardt, M., & Brigham, E. (2014). Corporate finance (5th ed.). Ohio: South-Western Gillette. (2015).Retrieved March 5, 2015, from http://gillette.com/en-us