This case tests financial modeling and capital investment analysis. The key is recognizing that while the base case (cost savings alone) doesn't justify the $25M investment, the revenue expansion opportunity through accessing the high-end market creates substantial incremental profit that makes the investment highly attractive. Candidates must synthesize both operational improvements and market opportunity.
This is an interviewer-led case. Question 1: Should Benjamin Carpet Co. purchase the machine? How would you structure your solution? (Provide Exhibit 1 to interviewee)
Question 2: What are some of the categories that will affect the calculations?
Question 3: Given the following information is the machine worth investing in? ($0.25 incremental savings per yard of yarn (currently $10 per yard), Annual yarn production is 10M yards, Machine has useful life of 10 years)
Question 4: With the following additional revenue is the venture worth pursuing? (New technology allows for creation of carpet with new textures and patterns which will attract high end customers, Current customers pay $16 per yard, New customers will pay 25% more, High-end market sells 70M yards/year, Benjamin Carpet will capture 5% of the high-end market, 30% of current market comes from high-end customers, Machine lasts 10 years)