Question

The company has invested approximately $40 million in a metal compressor manufacturing facility in Detroit, Michigan. After experiencing setbacks in developing a commercially acceptable compressor, the Company is currently developing and testing a new line of compressor products. The Company is not able to determine when it will offer a compressor for commercial sale, but it does foresee that reaching volume production will require a large additional investment in the infrastructure. Given such additional investment and current market conditions, management is currently reviewing its options with respect to quality, product improvement, cost reductions, viable substitutes, acquisitions, and joint ventures.

Required:

Discuss relevant issues the company should consider and techniques the company should use to determine whether to pursue this project or not. What factors should be considered? What should capital budgeting techniques be used? What benchmarks should be utilized? What relevant costs and assumptions should be included? Explain your findings and include any related assumptions.

Answer 1

This company is already in set back in developing a commercially scroll compressor .the company is unable to predict when the scroll compressor for sale. But it does anticipate that reaching volume product wii require asignicant additional investment. Asthey are inscroll compressor field but for a new generation they have to manufacture soitwould be better going for an option with cost reduction in Joint veture.                                        

This company can continue pursuing this project with the cost reduction Joint Venture