Quantitative Analysis of Tipha's Proposal: All numbers in millions

Proposed increase in advertising and promotion Tipha's projected increase in sales from Clark's forecast* Projected profit decrease $303-297 in case

$18 41 -6 $12

Incremental margin of increased sales, based on $18 adv/promo overspend

* Tipha's product lines, cited in his email, account for $445MM in sales. His projected increase is very significant when Clark is forecasting a decrease in sales overall .

The numbers above indicate that the gross margin on the new products is only 29% compared to the 45% gross margin for the division overall.

(12/41)

Quantitative Analysis of Red Dragon Foods Acquisition ($ millions) Analysis is simplified, instructor may wish to include a NPV calculation

Mackey analysis

Red Dragon EBITDA Acquisition price at 7 times EBITDA Debt service at 4% Assume 10 year amortiztion

$4.2 29.4 1.17 2.9

Red Dragon Foods (RDF) present sales RDF gross margin 45% - given in case Advertising/promotion at 30% of sales - case Cannibalization of sales .3% x 2973 = 8.9 Cannibalized gross margin 45% x 8.9 = Interest and Amortization Net Earnings for RDF First Year

36 16.2 10.8

4 4 -3.8

Five year sales projection - Low growth at 1.5% Gross margin for low growth year five Five year sales projection - growth adds 3.5% to sales Gross margin

44.5 20 104 46.8

Chong - Quantitative analysis of new product investments ($'s millions) Note: the instructor will likely have to lead the class through these calculations

Growth of 3% of sales from new products - Chong's email Proposed increase to R&D budget $14 to 19

$2973 x .03 =

Incremental gross margin from price increase for new RTE flavors Clark Est Advertising increase of 6% for * $170 the new adv. RTE in 2013 flavors for the new RTE flavors to achieve earnings increase Add the incremental gross margin to the increase in advertising to get total GM for the new RTE flavors

Assume a 45% gross margin for new RTE flavors consistent with average GM Total sales from RTE flavors 22.6/.45

$89 5

12 10.6

22.6

50

Pugh - Quantitative analysis of investing in the core

Price adjustment - take a $.05 price decrease on core items Core canned and RTE soups = 64% of division sales Wholesale cost per can - $1.14 (case footnote) Number of cans sold in core products - $2973 x .64 / 1.14 Gross profit for core products - $2973 x .64 x .45 Gross profit per can Cost of goods - variable costs per can Gross profit per can with $.05 lower selling price Gross margin if low forecast occurs Gross margin if high forecast occurs 1800 cans x .46 2000 cans x .46 0.51 0.63 0.46 828 920 1669 cans $856

High forecast requires an increase of 19.8% in unit volume