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An established manufacturer is building a plant in North Carolina and they are evaluating various flood control measures as they have seen problems during construction
An established manufacturer is building a plant in North Carolina and they are evaluating various flood control measures as they have seen problems during construction that indicate they will have problems later. The company is look at 4 options below and since they are cash strapped, they are looking at this analysis with an 22 % required return and a 15 year life. Which option would you recommend? Option 1 Full System - Has large water retention pond, sump pumps, generator for back up power. It will require CAPEX of $2,500,000, and require annual maintenance/testing of $15,000, but prevent damage from a 100 year flood, so we will assume No damage cost. Partial System - Has a medium retention pond and sump pumps, but no back up generator. It will require CAPEX of $1,500,000, and require Option 2 annual maintenance/OPEX of $10,000. There is a 5% chance (assume annually) that the plant will still have outages/damage from a major storm that could cost $3,500,000. a Option 3 Minor System - Has a medium retention pond and no sump pumps, but no back up generator. It will cost $200,000, and require annual maintenance of $1,000. There is a 10% chance (asssume annually) that the plant will still have outages/damage from a major storm that could cost $3,800,000 No System - Wait and See. There is a 15% chance (asssume annually) Option 4 that the plant will still have outages/damage from a major storm that could cost $4,500,000. A. Option 1 B. Option 2 C. Option 3 D. Option 4
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