Option #1: Analysis of Payton Furniture Corp, assignment help

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Payton
Furniture Corp. is nationally recognized for making  high-quality
products. Management is concerned that the company is not fully 
exploiting its brand power. Payton’s production managers are also
concerned  because their plants are not operating at near full capacity.
Management is  currently considering a proposal to offer a new line of
affordable furniture.

Those in favor of the proposal (including
the vice president  of production) believe that, by offering these new
products, the company could  attract a clientele that it is not
currently servicing. It could also operate  its plants at full capacity,
thus taking better advantage of its assets.

The vice president of
marketing, however, believes that the  lower-priced (and lower-margin)
product would have a negative impact on the  sales of existing products.
The vice president believes that $10,000,000 of the  sales of the new
product will be from customers that would have purchased the  more
expensive product but switched to the lower-margin product because it
was  available. (This is often referred to as cannibalization of
existing sales.)  Top management feels, however, that even with
cannibalization, the company’s  sales will increase and the company will
be better off.

The following data are available:

(In Thousands)

Current Results

Proposed Results  without Cannibalization

Proposed Results  with Cannibalization

Sales Revenue

$45,000

$60,000

$50,000

Net Income

$12,000

$13,000

$12,000

Average total  assets

$100,000

$100,000

$100,000

Instructions:

  1. Compute Payton’s return on assets, profit  margin, and asset turnover, both with and without the new product line.
  2. Discuss the implications that your findings in  part (A) have on Payton’s decision.
  3. Are there any other options that Payton should  consider? What impact would each of these have on the above ratios?

Show
your work and use MS Excel or Word for your submission.  The written
portion of your assignment should be 4-6 pages in length with  document
and citation formatting conformity with the CSU-Global  Guide to Writing and APA Requirements.

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