Information A major automotive manufacturer has announced that it will close a manufacturing plant in Ohio. The manufacturer has seen declines in automobile sales and believes that shutting down the factory wil help solidify its financial position. If the plant if shut down, there will be large expenses in the first and third years, but there will also be significant cost savings in the other years, so that the cash flow stream for the proposed shutdown is as follows: Year Year 1 Year 2 Year 3 Year 4 Year Cash Flow $7,000,000 $12,000,000 $5,000,000 -$5,500,000 $5,000,000 $5,000,000 The manufacturer's cost of capital is 6.5%. Questions: 1. 2. 3. What is the problem that the manufacturer is facing? What alternatives does the manufacturer have? Using tools you have learned in this course, analyze the problem What tool(s) is(are) most appropriate for this situation? b. a. What information do you gain from applying the tool(s)? c. Based only on the financial analysis, what decision should the manufacturer make? Why? 4. What other issues should the manufacturer consider? a. What other parties' points of view might the manufacturer consider? b. Based on all factors from your analysis, what decision should the manufacturer make? Why? what are the consequences of the decision you recommended in #5? Are all the relevant factors quantifiable? 5. 6, ror tne proposea snutaown is as TOlnows Year O Year 1 Year 2 Year 3 Year 4 Year 5 Cash Flow -$7, 000,000 $12,000,000 $5,000,000 $5,500,000 $5,000,000 $5,000,000 The manufacturer's cost of capital is 6.5%. Questions: 1. 2. 3. What is the problem that the manufacturer is facing? What alternatives does the manufacturer have? Using tools you have learned in this course, analyze the problem. What tool(s) is(are) most appropriate for this situation? What information do you gain from applying the tool(s)? Based only on the financial analysis, what decision should the manufacturer make? Why? a. b. c. 4. What other issues should the manufacturer consider? What other parties' points of view might the manufacturer consider? Are all the relevant factors quantifiable? a. 5. 6, 7. b. Based on all factors from your analysis, what decision should the manufacturer make? Why? what are the consequences of the decision you recommended in #57 How would your answer to #5 change if a. b. c. The firm's cost of capital rose to 7.5%? The State of Ohio offered the manufacturer tax breaks to keep the plant open? The United Auto Workers (UAW) Union announced a nationwide labor strike at all the manufacturer's plants if the manufacturer shuts this one plant down
