Question Details

(Solved) Webster University - Greenville Metro FINC 5880 - Summer

hi I need a great finance tutor to evaluate the study team?s findings and calculate the project?s cash flows and economic returns to the company attached. I have attached a sample business case as a guide along with the case being presented and instructions.
Webster University ? Greenville Metro


FINC 5880 ? Summer 2016


Team Project


Big Breeze Fans




Big Breeze Fans got its start 45 years ago as a manufacturer, seller, and installer of fans for industrial


sites. They invest heavily in fan technology and lead the nation in sales of fans to large industrial


customers. Big Breeze developed a reputation for innovative design and energy efficiency that allows


them to charge a premium price for their fans. Likewise, many Big Breeze sales representatives enjoy the


generous expense accounts and healthy commissions that the steep margins on a large sale to an


industrial customer make possible.


While the investment made in product engineering and research paid off handsomely over the first 40


years of the company?s history, sales reached a plateau and Big Breeze has not been able to increase


prices over the last five years. Concerned about the company?s future, 3 years ago Big Breeze?s executive


management team developed a new long-term strategic plan. The plan looks out 10 years into the


future and caused some dramatic shifts in the company?s thinking.


The plan called for the creation of a new product line designed for luxury homes. Big Breeze had never


designed fans for consumer use, however, it appeared more and more architects and designers were


ordering industrial fans for large spaces in their clients new ?estate ? sized? homes. As a result of


additional market research, Big Breeze concluded there was, indeed, a healthy demand for industrial


quality fans for the retail market. Two years ago, Big Breeze retooled a section of their main


manufacturing facility and began producing smaller diameter, lower horsepower fans. Robust sales of


the new product line encouraged them to expand their consumer grade fan building capacity.


Because of the relatively limited run of fans produced in the initial test of the market, Big Breeze decided


it would sell the fans via the internet and use third parties to distribute and install the fans (Big Breeze


delivers and installs 100% of its industrial fans). This new fulfillment model worked so well, that Big


Breeze intends to expand its online presence and market and distribute consumer fans strictly via the




Another initiative called for by the strategic plan was to conduct customer satisfaction surveys and


determine why industrial fan sales had stagnated. A major marketing research firm was hired to gather


and analyze feedback from customers. What the surveys uncovered was eye-opening to Big Breeze


executives. The surveys revealed that industrial customers who ordered large quantities of fans were


generally very satisfied with the product and the customer service they received. Large customers often


credited their Big Breeze sales representative with providing a seamless customer experience. Unlike


large, well established industrial customers, however, more entrepreneurial customers were completely


dissatisfied with the service they received and felt the company had not lived up to its marketing pitch.





Big Breeze Business Case



The main problems experienced by smaller customers seemed to be missed delivery and installation


deadlines, confusing paperwork and billings, and uncertainty over the credit terms they would be


extended. Cash flow was critical to smaller customers and Big Breeze made it difficult for the small shop


or retailer buying only one or two fans to predict when the bills would be presented or due. Smaller


customers said they definitely WOULD NOT recommend Big Breeze fans to a business associate.


Management concluded from the research results that industrial fan sales would indeed be slowing if a


better service experience could not be provided to new start-up businesses and smaller customers.


After further investigation, it appeared the ?back-office? processes used by Big Breeze were a major


impediment to achieving a great customer experience for smaller industrial fan buyers. The consultants


advised Big Breeze to investigate implementing a CRM (Customer Relationship Management) System. A


CRM would enable Big Breeze to streamline the order and fulfillment process, providing much better


service to its smaller industrial customers. In addition, a CRM was especially critical for support of online


marketing and sales and would be needed if Big Breeze wanted to aggressively expand their consumer


product line.


The industrial fan fulfillment process, shown as exhibit 1, had evolved over time such that, without a


sales representative to intervene, the process created delays and undue confusion for a customer. For


large industrial accounts, the sales reps worked diligently to keep customers informed and to prioritize


their orders over smaller customers. As such, the sales reps protected their commissions and had, over


time, built a fulfillment system that only an experienced sales person could effectively navigate.


Implementing a CRM would drive radical change in the fulfillment process and would require sales


representatives to do more work upfront to feed information to the system. That upfront information


was used by the CRM to automatically check inventories, schedule deliveries, and order installations.


Moreover, the CRM provided information that enabled anyone at Big Breeze to resolve customer issues.


Sales representatives would also be more productive because they would now be able to handle a larger


number of customers. A CRM, however, was not a popular idea with the sales reps. While greater sales


productivity could potentially increase their commissions, many sales representatives thought adding


more customers to their workload would not be worth the extra salary earned.


Economic Costs and Benefits


Big Breeze executives appointed a team to conduct a feasibility study and investigate various CRM


systems that could be implemented. The team was told to use a 7-year life for the project as technology


changes would require Big Breeze to adopt a replacement system at the end of 7 years. The team was


also told to estimate inflation at 2% over the life of the project.


The study team met with various software vendors and saw CRM systems in action at some of the


vendor?s clients, after which the study team recommended Big Breeze?s fulfillment process be revised as


shown in exhibit 2.





Big Breeze Business Case



Based on study findings, the cost of implementing the new system would be $15 million and it would


take an entire year to set up the CRM and train employees in its use before it could be brought online.


Benefits to be gained were estimated by the team as well. Because of process streamlining, there would


be a reduction of labor required to perform back office functions. Sales projections were also made


based on track records of other businesses who had gone through a CRM conversion. The study team?s


benefit estimates are as follows:


Sales Increases ? Year over Year Growth Estimates:




Year 1


Year 2


Units Sold


% growth


% growth


per Year






No growth


7.5 %















Year 3


% growth



Year 4


% growth



Year 5


% growth






No growth



No growth












Sales for industrial fan are not projected to increase until two years after CRM implementation because


of the sales personnel learning curve and organizational change issues. Because of uncertainty over the


industrial market, growth is not projected to increase beyond the 3 rd year after implementation. Sales of


consumer fans will increase in the first year after implementation because the fulfillment process is not


undergoing significant change. The consumer market is thought to be robust enough that growth can be


sustained for five years after which it will level off. There are no additional sales of either consumer or


industrial fans forecasted for years 6 and 7 of the project.


Industrial fans sell at a gross margin (price less cost of goods sold) of $800 per unit on average.


Consumer fans have a lower markup and only generate a gross margin of $150 per unit. To support


volume growth, plans are not to raise gross margins over the life of this project. They are forecast to


remain flat. Because consumer fans are distributed through a 3 rd party, there is an additional expense for


marketing and logistics of $50 per fan. Contracts with these third party distributors include fee increases


based on the rate of inflation each year.


Expense Reductions:


The significant streamlining of the fulfillment process will eliminate positions in the billing department


and warehouse. The CRM is also cloud-based, meaning less IT employees will be needed. In all, 15 fulltime positions would be eliminated as a result of moving to a CRM system. If an employee whose


position is eliminated cannot qualify for another open position at the company, they will be offered a


severance package which includes outplacement services. Big Breeze?s payroll costs for these positions,


including salaries, benefits and payroll burden, averages $60,000 per year. Payroll costs are also


expected to track inflation, so manpower savings will be worth more in the future.


Employees will be severed immediately as the new system comes on line. Severance is estimated to cost


60% of the total payroll costs saved in the first year of the project. Payouts are immediate and


outplacement is provided for 6 months after termination




Big Breeze?s CEO and special Committee of the Board want you to evaluate the study team?s findings and


calculate the project?s cash flows and economic returns to the company. They would like to know what




Big Breeze Business Case



the NPV, IRR, and Payback are for implementing a CRM. The CEO has set hurdle rates at 25% for all


capital projects. While Big Breeze has a WACC of 15%, the CEO only wants to consider projects that far


exceed WACC to guard against the risk of a slowdown in the overall economy which would hurt fan sales.


The CEO refers to this as ?Project A?.


The CEO also wants you to look at another variation of this project, ?Project B? which can generate even


greater savings, but which involves terminating more employees. She wants to make sure she


understands the difference in the economic impacts of both projects and selects the one that best serves


the stockholders without damaging the company?s culture and reputation as a fair employer.


Project B takes advantage of new system capabilities to outsource the remaining back office functions to


a 3rd party. Because of economies of scale of the outsourcer, it appears the cost of the fulfillment


process can be further significantly reduced by letting a 3 rd party perform warehousing, billing, and other


back office functions.


Project B Incremental Economics:


An additional 25 positions can be eliminated by moving these functions to a 3 rd party provider.


Therefore, project B results in termination of a total of 40 Big Breeze employees. Because these


additional employees include managers and other technical experts, their average salaries and benefits


are higher at $75,000 per employee. These salaries are also expected to rise with inflation.


Severance and outplacement continue to be estimated at 60% of the payroll costs saved. Not all 25


positions can be eliminated in the first year, however. In order to support a successful transition to the


3rd party provider, Big Breeze will need to hold onto 10 key employees during the first year after


implementation. In order to do this, Big Breeze will need to offer a retention bonus equivalent to 30% of


salary and benefits for each retained employee. At the end of that year, the retained employees will be


terminated and receive full severance benefits.


The third party provider will charge a flat fee of $1 million per year to perform the duties of these 25


people. The provider signs only 3 year contracts and the feasibility team estimates the rate will jump to


$1.1 million for years 4-6, and then $1.25 million for years 7 and beyond.


Analyze the economic returns of Project B, compare them to Project A, and present a business case


recommending the best course of action. The CEO and Board can move forward with one of these


projects or reject the idea of moving to a CRM and continue to do business as usual. The CEO and Board


are willing to consider other economic criteria, but they must know what the NPV, IRR, and Payback on


these projects are in order to accept the recommendation made in your business case.


It will be important that the Board knows you took into account the human resource issues associated


with these projects and weighed them appropriately. The Board is accountable to stockholders for this


decision and will need your business case to defend their actions.





Big Breeze Business Case




Solution details:

Pay using PayPal (No PayPal account Required) or your credit card . All your purchases are securely protected by .

About this Question






Oct 15, 2019





We have top-notch tutors who can do your essay/homework for you at a reasonable cost and then you can simply use that essay as a template to build your own arguments.

You can also use these solutions:

  • As a reference for in-depth understanding of the subject.
  • As a source of ideas / reasoning for your own research (if properly referenced)
  • For editing and paraphrasing (check your institution's definition of plagiarism and recommended paraphrase).
This we believe is a better way of understanding a problem and makes use of the efficiency of time of the student.


Order New Solution. Quick Turnaround

Click on the button below in order to Order for a New, Original and High-Quality Essay Solutions. New orders are original solutions and precise to your writing instruction requirements. Place a New Order using the button below.


Order Now