Construction Of The Factory Market Expansion

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Mr. Verdin: I have recommended four capital projects out of the eleven submitted for you to propose to the board of directors, they are the follwing: 1. Expansion of the plant in Nuremberg, Germany 2. Effluent-water treatment at 4 plants 3. Eastward expansion 4. Strategic Acquisition Before I analyzed the financial data, there were a couple assumptions that I had to make. • The southward market expansion and eastward market expansion are mutually exclusive. • The southward market expansion could not be done without the new plant in Dijon, France. • Each project should have a different risk level. A risk adjustment should be added to the WACC. The 10.6% provided is the company’s WACC, and all projects have a different risk level. •…show more content…
1. Strategic Acquisition 2. Southward Expansion 3. Eastward Expansion 4. Artificial Sweetener 5. Inventory Control System 6. Snack Foods 7. Plant Expansion 8. Automation and Conveyor 9. New Plant 10. Truck Fleet Expansion 11. Water Treatment After ranking the projects, you will notice that the #2 and #3 projects are mutually exclusive. The southward market expansion is the better of the two choices of market expansions, but it is not the better choice when you determine that it requires the new plant in Dijon, France. The new plant in Dijon, France Is #9 out of 11. So the eastward market expansion was selected, and the plant expansion had to be picked because of the increase in product that was necessary. Appendix A has the financial details for the combination of these projects. Each project must meet a minimum acceptable IRR and a maximum acceptable payback period. Two projects selected do not meet both of the management committees’ minimum requirements. That project is the plant expansion in Germany. The reason is because this project is necessary for the eastward market expansion, so their financials had to be considered in a consolidated manner. The eastward market expansion and the strategic acquisition both meet the requirements. The other is the effluent-water treatment at four plants, but it is mandatory since it is a regulatory requirement. The other two projects meet the minimum requirements. SECTION B Risk, size and life of the
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