1. 5. "'0 Projections for the Collinsville Plant Extend management's projections through 1990 under the following assumptions: a. b. c. i. ii. iii. iv. V11. The plant reaches efective capacity of 38,000 tons in 1982. Revenue mcreases thereafter reect only unit price increases of 8% annually. Power costs rise at 12% per annum after 1984. Annual capital expenditures will continue at $600,000 from 1984 through 1989. (No additional CAPEX would be required in 1990 as the plant closing approaches.) All capital expenditures are depreciated straight-line over 10 years. (I have corrected Exhibit 8 in the spreadsheet to reect this. Use these corrected numbers.) The tax rate is 48% throughout. With the above exceptions and the items they affect, after 1984 other items should be forecast to grow proportionally with sales. Additional cash balances required as a result of the plant acquisition would be negligible and can be ignored as in Exhibit 8. Estimate free cash ows for each year 19801990. Determine the residual value of the plant in 1990 assuming receivables will be liquidated at 90% of book value, inventory at 80% and PP&E at 0%. 2.What is Dixon's cost of capital for acquiring the Collinsville plant? Assume management's target debt ratio of 35% is appropriate. 3. Ignoring the electrode upgrade, is the asking price of $12 million reasonable? Explain. 4. If the upgrade eliminates graphite costs and cuts power costs 15-20% is it worth the addi- tional investment of $2.25 million? Assume power cost savings are uniformly distributed. Would you recommend the purchase of the Collinsville plant? Explain