Component Technologies, Inc. (CTI) manufactures components used in electronic devices. CTI is considering adding manufacturing capacity for FlexConnex to meet increased future demand. CTI's manufacturing planning staff identifies three options to meet this demand. The staff performs preliminary financial analyses to evaluate whether to conduct detailed planning for and evaluation of each of the three options. During their analysis, they consider which discount rate is more appropriate: the 20 percent rate, which the corporate finance manual states is the hurdle rate for capital investments, or 10 percent, which the staff believes is closer to the corporate cost of capital. They experiment with both discount rates, and two time horizons. This case requires you to calculate net present values (NPVs) and to analyze the effect of different discount rates and time horizons. It also asks you to consider the effect of other financial and nonfinancial issues on your analysis.
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Research Article| May 01 2000
Component Technologies, Inc.: Adding FlexConnex Capacity
Issues in Accounting Education (2000) 15 (2): 257–282.
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Julie H. Hertenstein; Component Technologies, Inc.: Adding FlexConnex Capacity. Issues in Accounting Education 1 May 2000; 15 (2): 257–282. doi: https://doi.org/10.2308/iace.2000.15.2.257
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