Pantheon Enterprises
Pantheon Enterprises is a well-developed large market cap high tech firm residing in Boston,
Massachusetts. It specializes in the development, manufacture, and licensing of a line of servers
called “Rajun.” Its main competitor is Cisco which therefore necessitates that Pantheon develop
a market niche and focus on being as efficient as possible!
Considering the need to be on the cutting edge of innovation for competitive reasons Pantheon
decided to incur $4,381,200 in research and development to promote its new product called
“Trilux” and make it compatible with the balance of its product line and hence start to develop an
environment with increasing scale economies. Along with this, Pantheon decided to spend
$2,723,700 to hire a market research firm Know-It-All & Associates (KIA). Initially, KIA
conducted marketing tests in 62 economic zones in the U.S, Eastern Europe, Canada, and several
areas of Africa to determine an expected future sales level in both dollars and units that Pantheon
would expect to realize.
The cost of the equipment to develop the new Trilux server is approximately $83,298,000 which
will be depreciated on a five-year MACRS schedule. At the end of five years it is expected that
the reasonable salvage value of the investment will be 9 percent of its original cost. Pantheon
can manufacture Trilux for which the variable costs per unit are expected to come in at $308
while overall fixed costs would be $9,856,000 per year. At this point FMP estimates that sales of
Trilux will be 116,000, 129,000, 145,000, 121,000, and 89,000 units respectively for the next
five years with a sales price of $732 per unit.
Sales of Rajun are expected to come in at 107,500, and 91,200 units respectively over the next
two years if Trilux is NOT developed. Of course, erosion is expected if Trilux is developed as it
would likely cannibalize the original Rajun product. It is expected that Trilux would reduce
Rajun sales by 31,750 units per year for the next two years and market pressure would force the
Rajun product to be discounted from its original price of $457/unit to $249/unit. Variable
cost/unit of Rajun is $198 and fixed costs currently are $4,248,500 on an annual basis.
Working capital to support the Trilux will be approximately 21.25% of yearly sales for the life of
the product which is expected to end after five years for which net working capital will be
released back to Pantheon. The timing of the working capital will be exactly the same as the
cash inflows which will be at the end of each year.
Lastly, the marginal corporate income tax rate is 39.675% and management dictates that the
required rate of return for this project will be 15.95%. You are to determine the NPV and the
IRR of the project and give your recommendation to management as to whether or not the
company should proceed with the project. In addition, you are to take the initiative and make a
recommendation as to what you would reasonably change with respect to the project to make it
more lucrative for Pantheon.
Your presentation must be in the form of an Excel spreadsheet professionally presented; this
means clean it up, make it flowing in its presentation, and create eye appeal! There are to be NO
constant number inputs which would destroy cell referencing for future use. To avoid this, you
are to have a separate worksheet tab for data input that you can reference. Be careful, you will
be penalized for any and all cell referencing that is destroyed. Additionally, you are to have
separate worksheet tabs for Data Entry, NPV, and IRR. Do not submit your computer project
early as I may come back and add requirements! Should I add a requirement-you will need a
separate worksheet tab for each and every additional requirement that is assigned! When you are
done, properly title and submit your work through Moodle by the deadline which is the start of
class Monday, April 11, in the year of our Lord 2016. If you have any questions, feel free to
contact me and I will be in touch along the way…
