Alternatives Under
Consideration
Now that we know which questions we will be answering, it is important
to understand which choices we have. Alternatives are feasible strategies
that the company may choose to follow. Careful consideration of all
possibilities may sometimes add as much value as an elaborate mathematical
analysis. It is important to be able to see beyond the options that
are readily available and come up with "creative" alternatives. The
creation of a new alternative may resolve entire problem: it is possible
that the newly created alternative is by far the best.
VOSI may choose any of the following strategies or plans:
Plan Alpha
Under this plan an addition to the old factory will be built. This is a
low cost option which would add enough capacity to produce additional 90,000
units per year. Building an addition would not require a purchase of land
and an EPA approval. Utilities, waste disposal system and some of the climate
control equipment can be shared with the existing plant. Some of the old
assembly equipment can also be shared by rearranging it within the plant.
The total cost of construction and equipment setup is expected to be about
$1 million.
Plan Beta
This plan takes advantage of the plot of land that the company already
owns. A few years ago that lot accommodated the first VOSI's factory which
was closed down when the newer facilities became operational. The land
plot is rather small and the company will not be able to build a large
plant there. The estimates obtained from the construction company show
that the plant's output will be 300,000 units per year. The total cost
will include demolition of all existing structures and reconnection of
the utilities. The total cost is expected to be around $30 million.
Plan Gamma
Under this plan VOSI will build a brand new facility on a new plot of land
that is currently available for sale. This is a very large undeveloped
plot of land which will be able to accommodate a plant producing up to
800,000 units per year. The plant will have to be built "from scratch"
meaning that the company will have to start with land purchase and then
obtain all permits and EPA approvals. It will have to connect all
utilities, build new parking lots and so on. The extent of required
work is reflected in the high overall price of $75 million.
Additional Information
All plants are projected to operate for at least 10 years (technology progress
is expected to make them obsolete after that). All plants can be
operational in one year after the construction begins. Even though
the expenses will be spread out over the year, most of the money will have
to be allocated at the beginning of the construction, thus it was decided
to assume that the complete payment is due before the beginning of construction.
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