Maine Marine Case

HISTORY

Maine Marine was founded in 1840, over a hundred years ago. They manufactured sails, sail bags, and sail covers. Maine Marine kept with the time in changing what they produced; for example in World War II they went to making coated canvas decking for military ships. In the 1950's they changed to making nylon and dacron sails. Another change they made after World War II is the expansion of making and installing wood cabinets and ship chandlery. In 2000 sales only accounted for 25% of manufacturing for the company. Maine Marine Supply was still known for their high quality cabinetry, customer service, and sails. They had government contracts until 1945 which went dormant until now. In 1985 they lost contract to West Marine retail and catalog sales. In 2000 they are trying to get the contract for making sailor duffle bags.

PROBLEM

The problem with Maine Marine Supply is they are not taking advantage of the current economic boom. The boom is sweeping through the country and they want to figure out some way to increase business. A new contract with the U.S. Navy to make sea bags will give Maine Marine new life and increase in possible revenue. Maine Marie has been asked by the Navy to provide them with a financial analysis to show the 5 - year cash flow, IRR, NPV, and payback. They also need to determine if this will be a good project to go forward with and would it benefit both the Navy and Maine Marine.

ISSUES & ALTERNATIVES

In order for Maine Marine to go forward with the project with the Navy they would need to expand their business and bring in at least 20 more employees. They currently have a facility that has been out of use for several years. The first issue that would need to be taken care of is how much it would cost to replace or update the equipment and update the facilities. Mr. Sheepshank came up with $800,000 for the equipment, $425,000 for working capital, and $500,000 to renovate the building and grounds. Currently the property that Maine Marie owns is a very coveted property that faces the beach, he has stated that he does not wish to sell this property, but it could benefit him, since the same size of land can be bought for almost 80% less than what the current property will sell for. The next project that Mr. Sheepshank would have to insure the current price on canvas and insure he could get the same price for five years. The cash increase for each year Mr. Sheepshank is 4% which would cover price inflation. Is he going to make a profit once cost start to rise year after year? The last important item Mr. Sheepshank would have to insure that he has someone that can develop a five year financial forecast for review by the Navy. Mr. Bowline gave suggestions to Mr. Sheepshank what needed to be presented to the Navy but from the conversation he was not sure. The only acquisition that they may have problems acquiring is the canvas because it is not in demand anymore for sea products. To see the financial report will be on the spreadsheets following these pages.

Financial Analysis

Maine Marie has proposed a contract to the Navy to supply $100,000 canvas a year at a fixed cost of $25 a piece for 5 years. They plan to invest $800,000 in Manufacturing equipment depreciated in 5 years, and $500,000 in building renovations depreciated in 10 years (using the MARCS Depreciation scale.)

Other cost include Canvas $10 per bag, direct labor and benefits at $4 per bag, Other Material and supplies and factory over head which will increase at 4% each year due to inflation. Here is a quick look at their 5 year plan for the project.

From looking at this, if you answered the question if this would be a good deal for both Maine Marine and the Navy - the answer would be yes. Maine Marine will be receiving a good amount of profit