You are being asked to make each decision at $31$ December $1979.$ In both scenarios the Collinsville plant will last through to the end of $1990(11$ years$).$ Should Dixon continue in the sodium chlorate business after $1990$ it will have to scrap the plant entirely and build a new one incorporating new technologies.

Question $1$: Value the Collinsville plant as it stands with the unlaminated graphite electrodes. Using the following information to make your valuation:

a$.$ Extend management$$s projections contained in Exhibit $8$ through $1990$ under the following assumptions $($project only the additional items you need for the FCF calculation$)$:

i$.$ The plant reaches effective capacity of $38,000$ tons in $1982.$ Revenue increases thereafter reflect only unit price increases. Revenue grows at $12\%$ annually after $1984.$

ii$.$ Power costs rise at $16\%$ per annum after $1984.$

iii. Annual capital expenditures will be $$500,000$ in $1980,1981,$ and $1982.$ From $1983$ through to $1989$ annual capital expenditure will be $$600,000.$ No additional CAPEX will occur in $1990$ as the plant closing approaches. See the note below on PP&E for further information.

iv$.$ All capital expenditures are depreciated straight$-$line over $10$

years. $($I have corrected Exhibit $8$ in the spreadsheet to reflect this. Use these corrected numbers$).$ Depreciation of any capital equipment starts the year after it is purchased.

v$.$ The tax rate is $48\%$ throughout.

vi$.$ With the above exceptions and the items they affect, after $1984$ other items should be forecast to grow at the same rate as sales. In other words, these other items are expected to maintain the same ratio to sales from $1984$ onwards.

$1$ Use the $1979-$ Expected$$ items in Exhibits $6,7$ and $8$ as the true final values for that year.