Incremental Value Analysis

7. Incremental Value Analysis
After an analysis of the incremental value of both our primary product (children’s books) and our secondary product (greeting cards) we realized that due to the small cost of printing the books, we were able to generate higher incremental value over 5 years ($6,070,279). This led to our decision not to sell the company as our primary product has led to the potential of generating higher cash flows in the future. We also accepted the potential of adding a complementary product in our product line as it would also add a total incremental value of $1,830,675 after 5 years. We believe that this high incremental value is due to the availability of resources without the need for additional fixed cost, since the printing machine would also be able to print the cards. The only costs that changed on our estimates are that variable cost, which is also relatively low due to the excess resources that the printing of the books would be able to contribute to the creation of the second product.
Focus on Value








Decision Maker:

You and Partner

 





Decision Goal:

Maximize Net Cash Flow

 





Available Options:

Reject = SQ

Accept P1













Think Incrementally








Benchmark Option

Reject = SQ















Option: P1

Start-up

End of Y1

End of Y2

End of Y3

End of Y4

End of Y5

Total

Incremental Benefit (IB) of P1 per year

 

 

 

 

 

 

 

Cash Inflow from Operations

 

1,056,786

1,192,321

1,327,857

1,327,857

1,327,857

6,232,679

Release of Working Capital

 

 

 

 

 

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