WHIRLPOOL EUROPE NPV ANALYSIS CASE STUDY

The case write-up is due on Wednesday December 15 before class. Whirlpool entered European appliance market in and experienced year fast growth. As this prediction is difficult in the long-run, the cash flows beyond might not be predicted accurately. The internal rate of return IRR comes out to be In the long-term, it gets harder to predict the changes in both the internal and the external environment. The cash flows related to this project would only occur beyond , if the company does not plan to abandon the project in favor of some other advanced system which might be available at that point in time. Estimated capital expense and operating expense from are demonstrated as follows.

The result is shown as follows: Afterwards, the net cash flow begins to increase, reaches its maximum and observes a declining trend from there onward. The project aims to achieve this is multiple stages. It is essential to incorporate these technology changes in the products in order to remain competitive. Case study is not only about the numbers you show. At the same, few concerns also exist regarding the implementation of project Atlantic. Estimated capital expense and operating expense from are demonstrated as follows.

This accentuates the need for an integrated information system. Stuy, the company may incorporate major changes in the ERP system itself which may require significant investment. To be conservative and simplify, suppose the annual sales of the following stuy years from will be affected and grow merely by the improvement of availability.

To improve the operating effectiveness and efficiency, the top manager of Whirlpool had determined to introduce a ERP system and expected it would decrease the operating cost.

There are two types of gross margins that are of interest in these projections. Once we know how much DSI is reduced and what the COGS is which can be calculated from Exhibit 3we can use the above formula to find ending inventory, which in turn allows us to find the implied net working capital reductions. Hence these predictions could be incorporated in eyrope forecasts.

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The other expense savings in Exhibit 6 are for the firm as a whole and not by Wave. How about receiving a customized one? This is the gross profit.

Whirlpool Europe Erp Case

In particular, the case illustrates how to do a project evaluation based on cashflow analysis and NPV. Such benefits would further improve the company profitability and thus make a strong case in favor of ERP system.

Whirlpool Europe Overview of Case: On the first page, eufope clearly list the names of all the people in the group.

whirlpool europe npv analysis case study

This leads to high unnecessary inventory, and in some cases, stock outs. Thus for Wave West, the project n;v reduce its DSI to 42 days in37 in33 in and will remain consistent till See Exhibit 1.

In such a case, the cash flows beyond would not be attributable to project Atlantic, and the company will have to ehrope separate cash flow projections.

DSI is an inverse measure of inventory turnover, and tells us how long inventory is stored before it is sold on average. It is essential to incorporate these technology changes in the products in order to remain competitive.

Whirlpool Europe Case Study by laith wahbi on Prezi

Since the incremental revenues comes in the year soon after the Wave West implementationthe revenues for are taken as base year and are assumed to remain the same for That is, say that the firm currently has a product available for 72 out of customers that ask for it. ERP offers system integration and smooth flow of consistent information across the entire supply chain, thus ensuring better and accurate demand forecast.

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whirlpool europe npv analysis case study

Just in Time JIT manufacturing which requires efficient information exchange with suppliers. Capital BudgetingThe ERP investment is financially evaluated on the basis of after-tax cash flow estimations for the years Customers include consumers who purchase stand-alone appliances, and contractors who purchase built-in appliances. That is, if the margin increase for a certain Wave in is 0.

At last, we will make a sensitive analysis and find 3 most important variables. Other type of margins is earned on incremental revenues, which are current gross margins plus any incremental percentage margin that comes from ERP implementation.

Anzlysis reason for this declining trend is that project has promised to increase product availability and reduce DSI inventory upto a certain limit. Therefore, it is advisable to restrict our analysis to the years for which we sufficient knowledge to authentically forecast cash flows.

Whirlpool Europe Case Study by laith wahbi on Prezi

The increase in inventory visibility helps to recognize bottlenecks in the system, which helps in increasing process efficiency, reducing costs and improving product delivery time.

This we can now simplify into the following formula for forecasting the additional sales due to increase product availability: The result is shown as follows: To get the margin in dollar terms foryou then multiply this fraction with whatever the forecasted revenues in are for that particular wave.

With the ERP system, the firm expects to have the product available for 92 out of customers who ask for it. Note that you need to forecast cash flows into

whirlpool europe npv analysis case study