Jolit Plant

CASE 22

1.) There are a number of assumptions concerning conversion and reconversion costs for the Joliet plant that have to be made.

Answer: As per the given information in the case study, Mr. Mercer has been provided with number of assumptions which are as follows:

Mr. Mercer decided to convert the Joliet plant in to the new car as he did not expect the first generation of tricycle cars provide larger profits to the national. He also decided to build at least one new dedicated facility which generally operates from 50,000 to 200,000 vehicles per year. However, this number may change along with the change in number of shifts.

It is also given that the conversion process would cost $75 million more than the renovation. Also it is mentioned that the new plant would cost $450 million.

Hence, by considering the above given information, Mr. Mercer should decide if he should opt for conversion or reconversion.

According to me, Mr. Mercer should opt for reconversion as we noticed that improving new facility can increase the number of vehicles per year. Also as the cost of conversion process is $75 million more than the renovation, it would be better to opt for reconversion process. It is also mentioned that the new equipment will cost $14 million. It is definitely a better option to replace the new equipment instead of building the whole plant again.

2.) More importantly, the extension of growth patterns into the second generation is critical. The assumption of linear trends may be sufficiently accurate for the first generation, but this assumption becomes less tenable as production grows.

Answer: