Scenario 4.8 The Summerville Vitamin Company Manufactures Bottles of Animal-Shaped Chewable Vitamins

Scenario 4.8
The Summerville Vitamin Company manufactures bottles of animal-shaped chewable vitamins for children. This product line requires two work centers, tablet manufacturing and packaging. The tablet manufacturing work center has a current capacity of 140,000 bottles per month, and packaging is capable of 100,000 units per month. This year (year 0) , monthly sales of the product line are expected to reach 100,000 units. Growth per month is projected at an additional 25,000 units through year 4 (i.e., 125,000 per month in year #1, 150,000 per month in year #2, etc.) . Pre-tax profits are expected to be $5 per unit throughout the 4-year planning period. Two alternatives are being considered:
1) Expand both tablet manufacturing and packaging at the end of year 0 to a capacity of 200,000 units per month, at a total cost for both work centers of $2,250,000;
2) Expand packaging at the end of year 0 to 140,000 units per year, matching tablet manufacturing, at a cost of $1,200,000, then expanding both work centers to 200,000 units per month at the end of year 2, at an additional cost at that time of $1,400,000.
Summerville will not consider projects that don't show a 4th year positive net present value using a discount rate of 25%.
-Use the information in Scenario 4.8. What action, if any, should Summerville take?

A) Find another option-neither alternative provides a positive net present value after four years.
B) Select Alternative #1.
C) Select alternative #2.
D) Either alternative may be selected, since the positive net present values are the same after four years.