Johnson Control Systems Limited is examining the possibility of closing down production at one of

its factories in Southern Ontario. A partial balance sheet for the factory, along with relevant fair value

data, is shown below:

Balance Sheet

As at December 31, 2010

	Book Value	Fair Value
Current assets
Cash		$50,000		$50,000
Accounts receivable		$104,000		$90,000
Inventory		$120,000		$75,000
Total current assets			$274,000		$215,000
Property, plant & equip
Land		$200,000		$350,000
Buildings	$330,000			$200,000
Less: Accumulated Depreciation	$275,000	$55,000
Plant and equipment	$169,000			$75,000
Less: Accumulated Depreciation	$104,000	$65,000
Trucks	$117,000			$40,000
Less: Accumulated Depreciation	$52,000	$65,000
Total PP&E			$385,000		$665,000
Total assets			$659,000		$880,000
Current liabilities
Account payable		$184,000		$184,000
Income taxes payable		$8,000		$8,000
Total current liabilities		$192,000		$192,000
Long-term liabilities
Bonds payable (secured)		$120,000		$155,000
Total liabilities			$312,000		$347,000
Shareholders' equity
Common shares		$200,000		N/A
Retained earnings		$147,000
Total shareholders' equity			$347,000
Total liabilities and shareholders' equity			$659,000

The buildings are depreciated straight-line over 30 years with no residual value, plant and equipment

are depreciated over 13 years with no residual value, and the trucks are depreciated over nine years with

no residual value. Shut-down severance pay costs to employees are estimated to be $422,000 now, but

will decline to $330,000 by the end of 2015. Working capital (current assets less current liabilities) is

expected to remain unchanged in the foreseeable future. Ignore long-term bonds payable as they are an

allocation from head office.

The expected net income is $75,000 per year from the factory until the end of 2015.

Required:

(a) Analyze the property, plant, and equipment and trucks accounts to determine their ESTIMATED REMAINING USEFUL LIVES

(b) Determine the RELEVANT CASH FLOWS for continuing to operate the factory until the end of 2013,

instead of closing it immediately.

(c) Calculate the NET PRESENT VALUE of continuing to operate the factory using your estimated cash flows

from part (b). Assume a discount rate of 7%.

(d) What is your RECOMMENDATION to Johnson Control Systems Limited concerning the operation of

the factory?