finance hw - Monika Zota Date FIN 3104 DANFORTH DONNALLEY...

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Monika Zota Date: 4/11/2010 FIN 3104 DANFORTH & DONNALLEY LAUNDRY PRODUCTS COMPANY CAPITAL BUDGETING: RELEVANT CASH FLOWS On April 14, 1993, at 3:00 p.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 1968 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 Donnalley Home Products Company, headquartered in Detroit, Michigan, makers of Wave detergent, a major midwestern 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, and Wave was a more traditional powdered detergent. Each line brought with it considerable brand loyalty, and by 1993, sales from the two detergent lines had increased tenfold from 1968 levels, with both products now being sold nationally. In the face of increased competition and technological innovation, D&D spent large amounts 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 were needed to do an average load of laundry as compared with 8 to 12 ounces of powdered detergent. Moreover, being a liquid, it was possible to pour Blast directly on stains and hard-to-wash spots, eliminating the need for a pre-soak and giving it cleaning abilities that powders could not possibly match. And, finally, it would be packaged in a lightweight, unbreakable plastic bottle
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