Case Teaching Package
A case teaching package is available for this case. It includes strategies for case presentation, key concepts, solutions to the assignment questions in the case, and suggestions for the most effective ways to work this case into your course.

Length
This case is 4 pages in length and its case teaching package is 12 pages.

Abstract

This case is set in a metalworking job shop in West Virginia, one of whose products is drill bits for oil exploration. The time is 1980, in the midst of an oil-drilling boom resulting from the oil crises of 1973 and 1979.

A frequent charge in recent years has been that many firms fall behind in global markets because they are too slow in implementing new manufacturing technologies—CIM (computer integrated manufacturing), FMS (flexible manufacturing systems), AMT (advanced manufacturing technology), or the more familiar CAD, CAE, and CAM. A popular argument is that conventional methods of capital investment analysis do no capture the full impact of the technology change decision. A project-level net present value (NPV) framework, it is argued, places such a premium on short-term financial results, and so little emphasis on difficult-to-quantify issues, such as quality enhancement or manufacturing flexibility, that major manufacturing breakthroughs do not pass the NPV test. Conversely, projects which pass this test may fail a broader business strategy test.

The problem is easily stated—should Mavis stay with the four hand-loaded machine tools or switch to the automatic machine, an early version of a numerically controlled (NC) lathe? The challenge is how best to analyze the choice.

Linkages to Textbooks or Journal Articles/Fit Within a Course

We use this case as part of the required management accounting course. When we teach it, students have already been exposed to project economics concepts in a managerial finance course and to basic strategy concepts in a business policy course. We see the role of the Mavis discussion as to provide more richness to the students' understanding of capital investment analysis as a business process rather than an exercise in quantitative analysis.

We are not aware of other short cases where there is such a strong contrast between the insights which emerge from a straight NPV analysis and a strategic analysis.

We have added a segment on SCM to this commentary for those instructors who want to introduce explicit consideration of this framework. Mavis is a good case for that purpose. It is also possible to teach the case without using this explicit framework. At Tuck, we do present this framework as a way to pull together the analysis, using about 10 minutes near the end of the class. If this framework is not used, the discussion of strategic issues can still be very rich. In that event, the class comes down to a two-way contrast between conventional project economics and "business" analysis with a strategic emphasis.

Study Questions

1. Summarize the net cash flows for the proposed project.
2. For the project, calculate the internal rate of return, the accounting rate of return, the payback period, the net present value, and the profitability index.
3. What qualitative factors should be considered in evaluating this project?
4. What decision would you recommend?

The downloadable file for this case is in Microsoft® Word 7.0 for Windows®.

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