Decision Sheet ————————————————- Nirmal Rayons Limited ————————————————- 1. Analysis of the Consultant’s Report 1. 1 Confectionary Industry The Following considerations have been neglected * Cellophane is used for 80 % of the organized sector production * It is used for 5 % of the unorganized sector production Revised estimates * Assuming that 40 kg cellophane is required to wrap 1 tonne of candies, we obtain the following demand: (See: Exhibit A6) Year | Revised Estimate (tonnes)| Differnece (Tonnes)| 972 | 596| 74| 1973 | 599| 76| 1974| 622| 78| 1975| 637| 83| 1976| 660| 85| 1. write me an essay cheap 2 Cigarette Industry * Consultant’s figures for 1971 and 1972 show an unexplained dip of -14% followed by a sharp rise of 31% (See: Exhibit A5) * Ignores the effect of politco-legal environmental factors * Sin taxes * Regulations * The revised estimates for cigarette demand are shown below: Year | Revised Estimate | 1972| 1661. 727| 1973| 1730. 213 | 1974| 1834. 673 | 1975| 1941. 873| 1976| 2051. 12| 1977| 2164. 49 | 1. 3 Textile Industry * Claim that per capita consumption low in 1966-67 because of monsoon failures. However, there has been a negative growth for the last five years (-4%, -5%, -3%, 6% & -4%) (Exhibit A2) Since, the consumption of cotton has decreased almost consistently and consumption of man-made fabrics has increased in the same period, monsoon failures are unlikely to be the reason. * Assumption of constant 1. 4% increase in per capita consumption over the next ten years.
Considering the erratic change coupled with the fact that per capita consumption in 1969 (13. 52) is almost the same as that in 1952 (13. 46) (Exhibit A2) there is no justification for this assumption. * However, the final numbers arrived at are the industry estimates and we have decided to use the same. In fact, it is possible that the consultant has worked backwards to arrive at the same estimates as given by ATIRA. * Finally, no justification provided for the projection of man-made fabrics. 1. Pharmaceutical Industry * Consultant’s assumes constant 10% growth rate * However, this growth in expected to be in terms of rupees in sales not necessarily. I need not be equal to growth in volume. Prices of newly introduced drugs may be higher 2. Total Forecast for 1977 Demand for cellophane in 1977 | 8674 tonnes| Average capacity utilization of plants by industry| 72%| Capacity of Nirmal | 3600+3000 = 7200 | Estimated production by Nirmal in 1977 | 4752 tons | Market share of Nirmal | 55% | 3. Decision
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Increase capacity by 3000 tons over 5 years 4. Rationale * Duopoly: Stackelberg’s first mover advantage : Once Rayon increases capacity, the other firms would need to take its output as given and accordingly make a production decision. * Raise the barriers to entry for newer firms: Threat to flood market. Excess capacity would deter new firms. * Rayon enjoys increasing returns to scale : turnover increased by 300%,invested capital by 50% * By 1977, there would be enough demand to help it utilize most of its capacity.