1. Should the Silicone-X project be undertaken? Why/why not?
After completing the analysis and reviewing the NPVs and IRRs for each option, labor intensive and capital intensive, Soderberg should recommend that the Jacobs division move forward with production of Silicon-X using the labor-intensive option. The NPV and IRR methods make the same decisions if used for independent projects however, since these projects are mutually exclusive, the best NPV option should be used. In this case the NPV for the labor-intensive option is positive at twelve percent, sixteen percent and twenty percent while the capital option is only positive at twelve percent and sixteen percent. The labor-intensive option meets the expectations
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The labor-intensive plant is closer to Jacob’s typical model type, because it would produce a smaller amount of chemicals, initially 1.5 million pounds, while the capital-intensive plant would produce 2 million pounds per year. The cost to expand is one of negatives of the labor-intensive plant, as compared to the capital-intensive plant, but large expansion does not seem to be the trend if we look at Jacob’s history. Another big factor in deciding which plant to use is to consider who will be making the final approval in deciding whether or not the product goes forward. Mr. Soderberg should target his proposal towards Mr. Reynolds, the division manager. This division is presently one of the most successful of MacFadden, and much of its success is attributed to Mr. Reynolds, so it would be wise to choose the plant that most closely fits his criteria because due to his success, Mr. Reynold’s standards should be given respect. Mr. Reynolds has set very high standards for his products, expecting a return of 20% percent for new products. When Mr. Soderberg did an analysis on the two products with a 20 % return, the labor-intensive plant was a positive value, while the capital was negative. Soderberg knew that this analysis would be unacceptable, so he would have to somehow manipulate the data in order to get approval from Mr.