Product Overview

The B case extends the analysis in the A case (UVA-F-1020) to the next level, where the executive must choose between two mutually exclusive plant-renovation projects. Net present value (NPV) and internal rate of return rank the projects differently, affording an opportunity to (IRR) discuss the classic crossover problem in capital investment analysis. Operational flexibility is a significant factor, permitting a discussion of the role of real options in investment analysis. The last element is politics as managers jockey for project approval. A student worksheet file is available for use with this case.

Learning Objectives

In this B case, students learn the relevance of cash flows from assets that may be separable from the core project; the classic crossover problem, in project rankings disagree on the basis of NPV and IRR; the assessment of real option value latent in managerial flexibility to change operating technologies; and the identification of some classic games or types of human behavior that can be counterproductive in the resource-allocation process.