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This case was prepared by Professor Samuel E. Bodily. It was written as a basis for class discussion rather than to
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Foundation. Rev. 1/07. ◊
ACP, INC. (B)
agreed on the best way for ACP, Inc., to deal with the question of added capacity was through a new
component plant. They might have ended the meeting at that point, except that Conmetz had a few
more minutes and El-Taboub had another question.
El-Taboub: I wonder if we have really captured all of the contingencies of this expansion
opportunity. Isn’t it true that when we have obtained the environmental approvals after
one and a half years, we could stop the expansion project if the high growth has
Conmetz: Yes. And there is at least one other stopping point. It will take two years to put down
bricks and mortar, and then we could look again before we install the manufacturing
equipment to see if the high growth has continued. The manufacturing equipment is our
largest investment, so it would be nice to save that expense if we aren’t going to use it.
We really better redo the analysis and see how those changes affect the project.
El-Taboub: I’ll do that, but we’ll need some estimates of the total dollar values over the same time
period, if we stop the construction. [These figures were later prepared and are shown in
the Table 1.] I’ll also need to estimate, with the help of our marketing staff, the chances
that the high growth will drop off before those two stopping points. [The probabilities in
Table 1 were subsequently provided. Note that each probability is for the continuation of
high growth through that stage and assumes that the market research study was
conducted with a result that predicted high growth.] You know, it’s not that likely that
we’ll see a drop-off in growth in the next year and a half, or even in two and a half years,
for that matter. So I don’t think that the average of our monetary values will change
much from what we have already seen.
Hamir El-Taboub presented his analysis to John Conmetz, and after some discussion, they
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