Wriston Manufacturing Case Writeup
Tatiana Krymsky
Artem Bolshakov
Alexander Rubinchik
Matan Kurman
Wriston Manufacturing:
Redistribution vs. Factory Termination vs. New Plant
Recommendation: The Detroit plant is an inefficient factory and ought to be closed as soon as possible. Products should be transferred to other plants for benefits in both operational and financial gain.
Assessment of Option 1: Close the Plant (Transfer Products to Other Plants)
Financial Analysis
Selling the plant would cause immediate cash inflow of $4,000,000 and $6,000,000 loss from employee termination. While this does net in a $2,000,000 loss, this option results in the highest net present value for Wriston Manufacturing. In this option the Detroit products are segmented into three groups and redistributed to other factories. Group 1 products are sent to Lancaster, and Group 2 products are sent to Lima, while Group 3 products are terminated. This plan yields a net present value of $24,595 million. We assume that both plants will operate for 20 years and will be sold in their last years of operation. The terminal value of the sale of the Lancaster factory would be $13,568. We take 4,000,000 as the terminal value of the Detroit factory multiplying it by 2 assuming that our factory will be sold in 20 years instead of 77 and that the highest amount of depreciation will occur in the first 50 years. After that we compare all the factories in terms of their capacity with the Detroit factory and calculated the ratio of capacity between the factories. After that we used the discount factor of 0.8 as we assume that a factory twice as big would not cost twice as much. We do the same calculations for the Lima factory, which results in a terminal value of $7,680.
Qualitative Analysis
Given the nature of factory operations, we need to recognize the current underutilization of the Lancaster and Lima factories. If we transfer our production to more specialized facilities, we can be more efficient with our
Artem Bolshakov
Alexander Rubinchik
Matan Kurman
Wriston Manufacturing:
Redistribution vs. Factory Termination vs. New Plant
Recommendation: The Detroit plant is an inefficient factory and ought to be closed as soon as possible. Products should be transferred to other plants for benefits in both operational and financial gain.
Assessment of Option 1: Close the Plant (Transfer Products to Other Plants)
Financial Analysis
Selling the plant would cause immediate cash inflow of $4,000,000 and $6,000,000 loss from employee termination. While this does net in a $2,000,000 loss, this option results in the highest net present value for Wriston Manufacturing. In this option the Detroit products are segmented into three groups and redistributed to other factories. Group 1 products are sent to Lancaster, and Group 2 products are sent to Lima, while Group 3 products are terminated. This plan yields a net present value of $24,595 million. We assume that both plants will operate for 20 years and will be sold in their last years of operation. The terminal value of the sale of the Lancaster factory would be $13,568. We take 4,000,000 as the terminal value of the Detroit factory multiplying it by 2 assuming that our factory will be sold in 20 years instead of 77 and that the highest amount of depreciation will occur in the first 50 years. After that we compare all the factories in terms of their capacity with the Detroit factory and calculated the ratio of capacity between the factories. After that we used the discount factor of 0.8 as we assume that a factory twice as big would not cost twice as much. We do the same calculations for the Lima factory, which results in a terminal value of $7,680.
Qualitative Analysis
Given the nature of factory operations, we need to recognize the current underutilization of the Lancaster and Lima factories. If we transfer our production to more specialized facilities, we can be more efficient with our