Construction Of The Factory Market Expansion

2161 Words Mar 10th, 2015 9 Pages
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.
• The eastward market expansion could not be done without the plant expansion in Nuremberg, Germany.
• Cash flows are reported after tax.
• Cash flow analysis of each project is on an incremental basis.
• All indirect effects of the project are included in the cash flow calculations.
• The value of resources used in the project are measured in terms of their opportunity costs.
• The effluent-water treatment at four plants is mandatory since it is a regulatory requirement.

After taking into account these assumptions, I then analyzed the financial data to see what combinations of projects were available, and if these combinations of projects selected were good for the business. Below is the ranking of projects based on the financial…
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