Hightrek Inc Case Solution

The production cost and material cost are also cash outflows of the company which would further reduce the cash inflows. The taxable income is computed after deducting depreciation cost, production cost, and material cost. The tax rate is 30% and after-tax cash flows are deducted. Since depreciation is a non-cash expense, thereby adding it to the after-tax cash flows to determine the total free cash flows of the machine. The present value was calculated at 10% return and NPV came out to be 28,309 and IRR is 12.3%. Since NPV is positive and IRR is greater than required return of 10%, both indicators suggest that it is financially viable. 

2. How you would address the ideas raised by Manning and Knight?

Dake Manning is of the view to update the existing manufacturing facilities and intends to redirect the investment to existing products. He is reluctant to replace the old machine since the cost of the new machinery would come from his budget. The idea raised by Manning does not seem to be in line with the existing business environment in which the company is operating in. Since, HighTrek is involved in the manufacturing of low-cost tents which would be sold through retailers to casual customers who are highly price sensitive. The growth prospects in the existing business segments of the company were low on account of steady sales volume. It is also pertinent to mention that the margins were also squeezing in the tent business. There is sufficient evidence to suggest that the existing product portfolio of the company is going through a maturity stage and the company needs to take some aggressive measures to restore profitability and business growth. 

Chritine Knight supports the idea of expansion in related product lines. Being a marketing executive, she can sense the decreasing business volumes of the company and proposing to grow the company through the introduction of new products. For this purpose, the company is considering producing lightweight hoop houses for gardening.