Criteria: One Page Executive Summary
Include: 1) Financial Analyses for each alternative you consider, as directed by Les in his email, 2) your recommendation for which alternative should be chosen, 3) a brief discussion of additional information that would assist you in your evaluation of the alternatives.
Notes:
Entire Concept: Capacity vs. Demand
Option 1: Alabama is closed but can be retooled and the company would add facilities to accommodate the demand
- 350,000 units capacity
- Plus 10 percent incremental growing capacity per year
- Cost: $475 million
- Able to begin production of unmet demand as early as 2016
- Reopening will all create more jobs in the U.S.
Option 2: Build facility in Chennai
- Has a growing automotive supply base
- Also has 350,000 units capacity + 10% growth (assume: not necessarily incremental)
- Cost Incentives: Labor costs + Investment cost
Option 3: Appeal: C-Car excess capacity in Europe
- No additional fixed cost
- Shipping Costs (relatively high) $450/unit, $600 + $1200
Key points to include:
Variable Cost per unit: $14000 (includes material, warranty, and freight costs to the plant)
Allocated Fixed Costs (Existing) Production: $1100
Labor and Overhead - $1200 per unit (average-varies by location
North America (Alabama) - $1500
Europe $2000
Asia-Pacific (Chennai #1) $500
Corporate Weighted Average Cost of Capital - 12%
Corporate Tax Rate - 35%
Depreciation - Tooling & Equip.-varies based on expected life
Land, facilities - 50 years
Assume straight line depreciation in all cases
Operating Margin = profit (before tax)/ total revenue
= Net Revenue - Variable Cost - Labor & Overhead - Program Spending - Other Fixed Cost
Inventory Valuation: FIFO
How does it affect the income statement?
Attachment:- MBA Case for Campus Interview (Campus Hires).pdf