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Papeterie Montral Lte Case produced by Nadher Essafi In mid-2008 and early 2009, the future prospects for the company Papeterie Montral Lte (PML) were rather gloomy with, however, a glimmer of hope The current economic situation is a real threat to PML, which is seriously contemplating c back its activities. This would deal a severe blow to an industry in which PML is one of the main employers. The other competitors are struggling with the same problem. The provincial and federal governments are strongly concerned about unemployment in the pulp and paper industry and are willing to offer financial or other aid to preserve and encourage employment in this industry Furthermore, PML could have chances of maintaining its activities a their current level, if it turned toward the production of higher quality paper. By turning toward production of this new range of products by reducing its old product line and keeping up current levels of production PML could avoid a major drop in its operating revenue. It could keep its organizational structure, its executives and most of the production workers it employs on a regular basis If it opts for producing this new ne, PML would need equipment, which would cost it approximately $800,000. Another $50,000 would be needed to deliver and install the equipment. The assets in question belong to a category in which the CCA (capital cost allowance) is 20% of the declining balance. It has an estimated useful life of 10 years, at the end of which its salvage value would be nil. The production line could start up in January 2010 It is estimated that the revenue from this new line of products would be $400,000 in 2001 $480,000 in 2012, $400,000 in 2013, $320,000 in 2015 and would drop by 5% a year subsequently until the horizon of the project. These estimates are expressed in constant dollars (i.e., 2009 dollars) and do not show inflation, which is estimated to be 2.50% a year over the next 10 years. The operating costs, which would essentially be variable costs, are assessed at 60% of sales. An initial investment of $10,000 would be needed to finance the increase in working capital. This initial investment would be recovered at the end of the 10th year. The tax rate of the business is 209% PML, which is 40% financed by debt at the market rate, and its shares are traded on a multiple of 25 x the anticipated EPS (earnings per share), the anticipated growth of which is 5% for the foreseeable future. PML does not have the necessary funds for its project, but it could take out a