Case Overview:A manufacturer of private-label personal care products must decide whether to fund an unprecedented expansion of manufacturing capacity. The decisionrequires fundamental financial analysis of the potential project, including development of cash flow projections and net present value calculations.

Upon review of the financials and the new contract, Tucker Hanson was concerned about the viability of the project but was equally concerned that he would be losing a valued customer.

After reviewing the financial analysis in the base scenario, he was not completely satisfied that his team had explored all the options. Even, though the base scenario did not meet the required return, he was not convinced that there wasn't a path forward for the expansion.

He asked the team to look at all the details and contact suppliers to try to negotiate better pricing on raw materials. He also challenged his sales team to work with existing customers to try to add some additional business utilizing the excess capacity in the new equipment.

Tucker is becoming more confident with the numbers in the proposal, but is uneasy about the short-term nature of the contract. He is wondering if it might be advantageous to try and renegotiate the contract in an exchange for a longer commitment for the client. His discussion with you included a fixed price for 5 years followed by a reasonable growth period. He is hoping that some incentive will be enough to get a 5-year commitment. Complete calculations under the Q.1 tab. You must calculate the new NPV and IRR given your suggested price. You must also include the impact to the customer by calculating the cost of the contract before and after making price changes. Should Hansson accept this, and would you accept this if you were the customer?20 points

In talking with advisors about the project, due to uncertainty, a suggestion was made that the discount rate was about 30% too low. Calculate what the new discount rate would be following this suggestion. (Note: it is not 37.75% That would be over 400% increase!) What is the new discount rate, and what impact does this have on the project?Given the other implications to the company as presented in the case, and the fact that the cost of capital is 7.75%, what recommendation would you give Mr. Hansson? 20 points

The sales team has been able to add a new product for an existing client to the mix. This contract will account for an additional 10%of unit production on the line immediately. What impact does this have on the project? It is expected that revenue per unit and costs per unit will be the same as the current proposal. The additional 10% increase in unit production will not have an impact on labor. According to the case, how much excess capacity will you have left after adding 10% in production?20 points

The supply chain management team reviewed all the raw material costs and determined if they change the packaging on another product they make, they will be able to save an additional $.04 per unit on the cost of materials by sharing the same packaging. The change will require an additional $3,000 be added to the expansion costs for the packaging equipment upgrade. How much does this change save or cost the company? Should this change be granted?20 points

:Just as Tucker was about to make a decision, the employees heard rumors of the expansion and immediately demanded that their contract be re-negotiated. The employees backed up their threats with work stoppages and demanded a 15% increase in wages. Calculate the impact of a 15% increase in labor. How does a 15% increase in labor expense change the viability of the project? How would you approach this situation from a financial and business perspective? 20 points

Given all the optional scenarios, what recommendations would you make to Tucker Hansson regarding the expansion?Show the impact of adopting your recommendations in calculations on the sheet. You may combine any of the previous changes into this recommendation but must include some response to the labor dispute. The NPV and IRR should reflect all implemented options. The recommendation should be thoroughly explained in at least a full paragraph and state clearly your recommendation for what Hansson should do.