P.B. Auto manufactures automobiles, vans, and trucks. One of its plants is located in Brantford, where vinyl covers and upholstery fabric are sewn. These are used to cover interior seating and other surfaces of P. B. Auto products. The president has just received a report indicating that P.B. Auto could purchase the entire annual output of the Brantford plant from an outside supplier for $34 million. The budget (in thousands) for the Brantford plants operating revenues and expenses for the coming year follows:

Budgeted sales $70,000

Budgeted expenses

Materials 12,000

Labour:

Direct $13,800

Supervision 3,750

Other fixed 4,300 21,850

Overhead:

Depreciation Equipment 5,000

Depreciation Building 3,000

Pension expense 5,600

Plant manager and staff 3,000

Corporate administration allocation 6,000 22,600

Total budgeted expenses 56,450

Budgeted income before income taxes $13,550

None of these expenses are expected to change significantly over the next several years. Additional facts regarding the plants operations are as follows:

1. The plant would not be sold in the foreseeable future. There will be no costs to maintain the vacant plant.
2. The Purchasing Department was instructed to place blanket orders with major suppliers to ensure the receipt of sufficient materials for the coming year. This has been done. If these orders are cancelled as a consequence of the plant closing, termination charges would amount to 18% of the cost of direct materials.
3. Approximately 600 plant employees will lose their jobs if the plant is closed. This includes all direct laborers and supervisors as well as the plumbers, electricians, and other skilled workers classified as indirect plant workers. Some would be able to find new jobs, but many others would have difficulty. Potential employers in the area could not match the Hamilton plants base pay of $29.40 per hour. A clause in Ploegers contract with its affected union may help some employees; under the terms of the collective agreement, the company must provide employment assistance to its former employees for 12 months after a plant closing. The estimated cost for this would be $2 million for the year.
4. If the plant closes, some employees would probably elect early retirement. Under the terms of the existing collective agreement, pension expense would then be reduced from $5.6 million per year to $4.6 million.
5. The plant manager and her staff would not be affected by the closing of the Hamilton plant. They would still be responsible for administering three other plants in the area.
6. The companys discount rate is 12%. Ignore income tax effects. Assume all cash inflows and outflows occur at year-end. The relevant time horizon for projections is a maximum of five years from today.

Make a recommendation to the president whether to close the Brantford plant.