Case 1 Danforth & Donnalley Laundry Products Company Capital Budgeting: Relevant Cash flows On April 14,1993,at 3:00p.m. James Danforth, president of Danforth & Donnalley ( D & D ) Laundry Products Company, called to order a meeting of the financial directors. The purpose of the meeting was to make a capital budgeting decision with respect to the introduction and production of a new product, a liquid detergent called Blast . D & D was formed in 1975 with the merger of Danforth Chemical Company, headquartered in Seattle, Washington, producers of Lift-Off detergent, the leading laundry detergent on the West Coast; and Donalley Home Products Company, headquartered in Detroit, Michigan, makers of Wave detergent, a major mid- western laundry product. As a result of the merger, D & D was producing and marketing two major product lines. Although these products were in direct competition, they were not without product differentiation : Lift-Off was a low suds, concentrated powder, while Wave was a more traditional powder detergent. Each line brought with it considerable brand loyalty, and by 1993, sales from the two detergent lines had increased tenfold from their 1975 levels, with both products now being sold nationally. In the face of increased competition and technological innovation, D&D had spend large amount of time and money over the past four years researching and developing a new, highly concentrated liquid laundry detergent. D&D’s new detergent, which they called Blast, had many obvious advantages over the conventional powdered products. It was felt that with Blast the consumer would benefit in three major areas. Blast was so highly concentrated that only 2 ounces was needed to do an average load of laundry as compared with 8-12 ounces of powdered detergent. Moreover, because it was a liquid, it was possible to pour Blast directly on stains and hard-to-wash spots, eliminating the need for a presoak and giving Blast cleaning abilities that powders cold not possibly match. And finally, blast would be packaged in a lightweight, unbreakable plastic bottle with a
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- Net Present Value, Laundry detergent, laundry products company