Project $2$ is individual effort. You may only discuss or receive help on this project from me$.$ You may use your book, notes, and excel$/$DPL files. Any evidence of cheating will result in a score of $0$ for Project $2.$

The decision is whether to expand its production capacity by building a new production facility to meet the global demand for its product. The decision criterion is to maximum net present value $($NPV$).$

Each strategy will require a capital expenditure $($CAPEX$)$ of $$5$ million for Status Quo and $$500$ million for Expand, occurring in $2025.$ The $10-50-90$ values for production capacity $($million units$)$ are: $1,000,1,300,$ and $1,400$ for Status Quo and $2,000,2,200,$ and $3,000$ for Expand.

Production capacity begins in $2026$ for both strategies.

The cost of goods sold $($COGs$)($$ per unit$)$ are: $0\mathrm{.}30,0\mathrm{.}35,$ and $0\mathrm{.}40$ for Status Quo and $0\mathrm{.}25,0\mathrm{.}35,$ and $0\mathrm{.}50$ for Expand.

Initial Demand in $2025$ is uncertain with $10-50-90$ values of $1,000,1,500,$ and $2,000$ million units. Demand is a compound annual growth rate $($CAGR$)$ model $($see below and expected to grow exponentially with $10-50-90$ values of $10\%,10\%,$ and $25\%.$

Pricing is a linear growth model $($see figure below$),$ beginning in $2026$ and ending in $2035.$ The $10-50-90$ values for initial price $($$ per unit$)$ in $2026$ are $0\mathrm{.}40,0\mathrm{.}45,$ and $0\mathrm{.}50$ and the $10-50-90$ values for the final price $($$ per unit$)$ in $2035$ are $0\mathrm{.}30,0\mathrm{.}75,1\mathrm{.}00.$

Linear growth model:

y $=$ y$1+($y$2-$ y$1)/($x$2-$ x$1)*($Year $-$ x$1)$

CAGR model:

y $=$ y$1\backslash$times $(1+$ CAGR$)^($Year $-$ x$1)$

Equations and timing considerations:

$$ Time frame of analysis is $20252035.$ Discount rate is $9\%$

$$ Cash Flow $=$ Revenue $$ Costs $$ Capital Investment

$$ Units Sold $=$ Min$($annual production capacity, annual demand$)$

$$ Revenue $=$ Units Sold $$ Price

$$ Costs $=$ Units Sold $$ COGs