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Case 4B: Million Air Conditioning Corp
Although the Million Air Conditioning Corp is not among the top leaders of commercial and home air
conditioning manufacturers, it has successfully developed and patented a home room air conditioner which combines a
cooling unit for summer use with an electrical heating element that can be used to heat individual rooms. While not
adequate for full winter heating, the heater serves very well on cold days in spring and all fall months of the year. The
company has heretofore confined its marketing area to regions (such as border area between the Northern and
Southern states)where the appeal of the combined cooling-heating unit seems to have the greatest response. The result
has been to give the company a fairly lucrative regional market free from price competition of leading brands of airconditioning manufactures who specialize in cooling units exclusively. They sell cooling units at a lower price in national
markets,but they cannot sell a cooling-heating unit at a lower price than million offers in the regional market. By
confining itself to a regional market, however, Million has always had excess plant capacity relative to volume and has
been searching for a new channel for expansion.
Currently, Million is studying three propositions (1) expanding sales by more extensive advertising and increased
dealership in other regional markets; (2) using its present business as a base for developing and marketing a regular cool
air conditioner in competition for national markets; or (3) acquiring by merger the patents, fixtures,dies, and other
assets(including 10 year lease of a small manufacturing plant with 6 years to go0 of Humidaire Company, which lacks
enterprising management and financing to make a go of two good products-a portable electric dehumidifier appliance
and a small nonelectric humidifier unit to sold to manufacturer s and to consumers as an accessory. (Assume that
Humidaire Companycan be acquired at a reasonable figure through an exchange of Million’s common stock; that
Million,s excess capacity and leased premises can be fully utilized; and that the carry-forward tax loss is sufficient to
increase Million’s reserves until the new acquisition reaches a break-even point in increased in sales-the actual figures
are not essential to discussion of the principles involved)
Questions
1. Discuss the risks involved in Milion Air’s three propositions and which do myou conclude is the most promising for
Million to undertake?