OPTIMAL PLANT INVESTMENT PLAN (Part 1)
DETERMINATION OF NPV  
Last edit:  Sept 13, 2005  (part price = 1.25; discount rate = 13%)

GOAL: Apply NPV criteria to a problem of choice.

GENERAL PROBLEM DESCRIPTION:

You are working as an analyst for a major materials manufacturing firm that has decided to enter the advanced
structural ceramics market.  Your boss has requested your recommendation for a plant investment strategy.
You must choose from one of two alternatives.  Plan A is to build one plant with a maximum capacity of 10 million
parts/ year.  Plan B is to build a plant with a capacity of 5 million parts/ year now, and to add a duplicate
facility three years hence.  Plan A requires a larger initial investment, but provides better economies of scale than
Plan B.  Plan B sacrifices some production economies, but also delays part of the capital outlay.  Details of the
project and instructions for your report are provided below.

PROBLEM OUTLINE:

The cost model for this exercise is available on the website.  Look under the Course Material, Spreadsheets Models link
 ( drypressing_cost_model.xls ).  Going to this site leads you to a portion of the entire spreadsheet model, with the
unprotected elements (which you can change) in blue.  The entire model is the result of extensive careful work of the
MIT Materials Systems Lab and has been used extensively in practice.  For this exercise, you need only change
the plant capacity and number of parts produced.

ACTIONS: 
        By changing the appropriate variables in the model,

        Then: