AandB highlight your 3 Allied Pigments and Dyes, Inc. (APD) has received notification

AandB highlight your answers 3 Allied Pigments and Dyes, Inc. (APD) has received notification from the New Jersey Environment Protection Agency (NJEPA) that their Bound Brook manufacturing facility is in violation of waste water effluent standards. APD has been ordered to install new waste water treatment equipment, pay fines, or shut down the facility. 9 10 APD’s Bound Brook facility, built in 1928, produces an old product 11 line with declining sales and cash flow. 12 Before receiving NJEPA’s notice, the facility was scheduled to be 13 shut down in 5 years. 14 15 Bound Brook Facility: Estimated Net Operating Cash Flows 16 Before receiving NJEPA notification. 17 18 (\$s in 000s) 19 Year \begin{tabular}{rrrrrr|} \hline 1 & 2 & 3 & 4 & 5 \\ \hline$23,755&$19,000&$12,350&$6,175&$3,250\\$13,640&$10,950&$7,250&$3,655&$4,950\\ \hline$10,115&$8,050&$5,100&$2,520&($1,700)\end{tabular} 20 21 Cash In-Flow 22 Cash Out-Flow Net Operating Cash Flow (Year 5 cash out-flow includes spending to shut down facility) The following result from the NJEPA notification. Install new waste water treatment equipment 30 Year 0 spending to purchase and install new waste water treatment equipment$6,46531 APD has sufficient funds to purchase and install the new equipment. Pay Fine Annual fines are estimated to be \begin{tabular}{|r|r|r|r|r|} \hline 1 & 2 & 3 & 4 & 5 \\ \hline$6,340&$5,550&$4,855&$3,950&$2,650\\ \hline \end{tabular} (Estimates based on amount of waste water effluent.) Except for the fines, net operating cash flow would be the same as the net operating cash flow before receiving NJEPA notification. APD’s CFO has determined that the required rate of return to be used here is8% (i) As APD’s CEO, should you (a) install the new equipment, (b) pay the fines, or (c) shut down facility now? Explain your choice. (Use financial criteria only). (ii) What other (non-financial) issues should enter into your decision? 103 104 You have also looked into selling the product line and shutting down the Bound Brook 105 faciltiy now. 106 Global Colors has expressed interest in acquiring the product line 107 – brand names, product formulations, inventories, etc. – produced in your Bound Brook 108 Brook facility. Global Colors would manufacture the acquired products in their own 109 facility. 110 111 The decision to sell to Global Colors would require ADP to shut down 112 their Bound Brook facilty now. Spending to do so (in Year 0) 113 would be:$1,750114 115 What is the minimum price ADP should accept to sell the product line. 116 117 118