You are a contract consultant to ABC Corp. They wish to grow – they have options and alternatives and are seeking your counsel as to what action to take.ABC CorpHave been in business for 10 years selling Metromine A– an industrial product useful in several industries. ABC has sales of $10mm – with other businesses being their customers. Annual Pre-tax Income of $1mm – has $2.5mm in cash and no debt. ABC sells a “unit” of its product for $250.00 – or 40,000 units currently. ABC controls 60% of the market (estimated at $16mm) and is the dominant player in its regional market. Sales in its market appear to have peaked – and in order to grow, the easiest expansion would be to the much larger region to the South. That market is twice as large as ABC’s current market – and is controlled in nearly equal portions by 3 companies selling a product similar to Metromine A at prices very close to Metromine A pricing. Alternatives:1. ABC can re-tool its factory – at a cost of $2 mm – which would result in cost savings of 15%.2. ABC could offer Metromine BX –an entirely new product that would replace Metromine A. The new product could, conceivably, attract new users (as well as current customers) as its features far surpass the original. R and D of $3mm is anticipated, another $5mm to retool manufacturing (both for product and volume considerations) would be needed and the new product would open up markets 5 times larger than the current market in the current region alone – let alone the larger southern region. The product sales price would be 15% more than the original product and the pre-tax income margin (pre-tax income as a % of sales price) would be about the same as on the current product.

3. ABC could approach one of the 3 dominant players in the southern region market with an acquisition offer of $10mm. Would you propose any of the options to ABC Corp? If so which one – and why?

I will give a thumbs up for a good solution. Thanks

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