Williamston Widgets, Inc. (hereinafter referred to as the company), has had a surge in orders that they believe will continue into the foreseeable future, and if so will likely necessitate building or buying a new factory to keep up with product orders. They have decided to do an analysis on potentially building a factory on a tract of land they currently own near Mason. They have hired you to complete this analysis and make a recommendation.

- The project has a 5 year timeline. - The company purchased the land in Mason that the factory would be built on for $11,000,000. The purchase was made in 2009. - The factory site will require $1,000,000 in infrastructure improvements should they decide to build the factory on that site. - The company has performed Research and Development on the products that the factory would build over the past year in the amount of $750,000. - The cost of building and equipping the factory is estimated at $28,000,000. - The Marketing Department of the company has spent $350,000 over the past year to try to increase demand in the company's products. - Only the original cost of the factory and its equipment would be depreciated; they would be depreciated straight-line to $0 over their estimated 7-year useful life. - A residential property developer has offered the company $12,000,000 for the site should they not decide to build the factory on it. - If the company decides to build the factory, they will sell a factory that they own that has been closed for several years located Portland, MI. A competitor has made an offer to purchase the closed facility for $2,531,645.57. This transaction would take place immediately at the beginning of the project (Year 0). - Another competitor has told the company that they will buy the new factory and all of its equipment for $5,000,000 at the end of the project (the end of Year 5). - Products produced by the factory will add an estimated $47,000,000 to the company's revenue in Year 1. - Sales growth in Years 2&3 is expected to be 4.9% per year. - As the market begins to become saturated, sales are expected to decline in Years 4 \& 5 by 5% per year. - Total Costs (Expenses) are estimated to be 77.5% of sales. - Additional Net Working Capital will be required in Year 0 of $600,000,30% of which will be recovered in the project's terminal year. - The company's tax rate is 21%. - The required rate of return on the project is 10.0%. 2 VALUE DRIVERS \begin{tabular}{l|lr} 3 & Sales Growth Year 2 \& 3 & 4.9% \\ 4 & Sales Growth Year 4 \& 5 & 5.0% \\ 5 & Costs as a \% of Sales & 77.50% \end{tabular} Years Capital Spending OCF: Revenues Expenses Depreciation Taxes Net Income OPERATING CASH FLOW Net Working Capital Total Cash Flow NPV IRR