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Kraft: Capital Budgeting

Every company has capital projects. Identify one new acquisition your company may need.

What are some issues you are going to have in estimating the cash flow for your new acquisition? Might this be caused from the initial investment and problems in getting it funded? Issues you might raise may include risks, costs, politics and committees, and public relations.

Describe your new project and list the problems you see in getting the funding for it.

Solution Preview

Kraft is looking to divest itself of its lesser brands, and instead focus on its "power" brands and "jewel" brands that get the highest sales. Its "power" brands include Gevalia coffee, Jell-O, Planters and Kool-Aid. It will also build on some of its "jewel" brands such as Athenos, Country time, A.1 steak sauce and Grey Poupon mustard.

Kraft currently has only 6.2% of the market share in the $17.5 billion seasoning, sauce and condiment industry. By building up Grey Poupon, one of its "jewel" brands, Kraft could increase that market share. In order to build Grey Poupon up to a "power" brand, Kraft will need to invest in equipment so as to to increase production at the assembly line. Typical equipment for making the product includes mixers, bottle fillers, labellers and packagers.

In order to determine which of these types of machines would give Kraft the biggest bang for its buck, Kraft will need to do some mathematical modeling. It will need to collect data at the production sites, and determine where the bottlenecks lie—be they at the mixer, bottle filler, labeller or packager. This will decrease the risk of purchasing the wrong type ...

Solution Summary

This a guideline outlining certain issues that Kraft may have in receiving funding for a new project.