FIN 332 Integrative Case Study You have been asked to evaluate proposal to expand one of X Co's existing plants and make recommendations. X Co. produces batteries and sells them by the case. Proposal The current plant has a capacity of 260,000 cases per year. The first proposal is for major expansion that would increase the plant's current capacity to 500,000 cases per year. After talking with the firm's design engineers, sales managers and plant operators, you have prepared the following estimates: Installing the new equipment and redesigning the plant to accommodate the higher capacity will require shutting down the plant for 4 months. During that time, the plant's production will cease. After the expansion is finished, the plant will operate at its new capacity. Marketing and selling the additional volume will lead to $1.5 million per year in additional sales, marketing, and administrative costs. The costs will begin in the first year (even while the plant is under construction and shut down). Expanding the plant will require the purchase of $3.0 million in new equipment and entail up-front design and engineering expenses of $3.5 million. These costs will be paid when the expansion begins. Other Relevant Information X Co believes that with or without expansion, the technology used at the plant will be obsolete after 6 years and will have no salvage value, and the plant will need to be completely overhauled at the time. You have been provided with the following additional information: With or without expansion, X Co. will be able to sell all it can produce at an average wholesale price of $75 per case. This price is not expected to change over the next 6 years. X Co. has a gross profit margin on 60% on these batteries X Co's average net working capital at the end of each year will equal 10% of annual revenue except for the last year of the operation. X Co. pays a 35% corporate tax rate.