Adamac Inc Harvard Case Solution & Analysis

Adamac Inc Case Study Solution

Evaluation of Alternatives for Expansion

In the given situation of the ADAMAC Incorporation, for running at 100% capacity, and for the owner’s willingness to operate the company at any cost, the expansion is necessary for ADAMAC to continue its growth by meeting the demands and avoiding the future risk of its operations blockade. There are various pros and cons of expansion, given below:

Advantages of Expansion

• Increase in the company’s net cash flows.
• Increase in the overall worth of the company.
• Increase in the total revenues of ADAMAC.
• Enabling the company to efficiently manage its rapid growth.
• Avoiding the risk of operation blockade due to machine breakdown.
• Exploration of the New Markets.
• (Rossum, 2017)

Disadvantages of Expansion

• Increase in the Overall Operating Cost.
• Low running capacity of the new machines i.e. only 40%.
• Moving Cost.
• Risk of failure in expansion if the desired demands are not achieved.

Olliver and Watts can consider the alternative option to expand their operations. The two alternatives along with the necessary calculations are as follows:

Alternative 1: Purchase a Laser Cutter Only, shift location and hire more personnel.

Alternative 2: Purchase a Laser Cutter and a Water Jet, shift location and hire more personnel.

The Net inflows and outflows of each of the alternative along with their NPV are given in the table below:

Table 1: Cash Flows and NPV

Note: The Detailed Calculations of the Inflows and Outflows of Each Alternative is given in Exhibit B,and supplementary computations are given in the excel doc, attached with the report.

From the above calculations of NPV; it can be seen that Alternative 2 has a positive NPV, while Alternative 1 has a negative NPV. Positive NPV of Alternative 2 is quite potential and has a tendency to result in increased wealth for ADAMAC.(Ozyasar, 2017)

Recommendations

After undergoing a deep analysis of qualitative advantages and disadvantages of the expansion and finding out the quantitative evaluation of each alternative for expansion, by using NPV; Alternative 2 is suitable to be recommended to ADAMAC for its expansion plan. As the company needs to have an expansion to manage the increasing demand, Alternative 2 would enable the company to meet its increasing demands, and avoid the risk of operations blockade in the future. It would also save the potential expenses of ADAMAC during an emergency.(Merritt, 2016)

Evaluation and Recommendations of Buyout Decision

The buyout decision can be evaluated on the basis of future cash flows of the company. If the company opts for an expansion by applying the alternative 2; the expected cash flows of ADAMC from its expansion for 5 years period are given in the following Cash Budget: (C., Edwards, & Edwards, 1991)

Table 2: Cash Budget

From the above cash budget; it can be analyzed that the company would have a substantial amount of cash inflows if it goes for expansion. On the basis of these high positive cash flows, Ryan Olliver and Ben Watts should buyout Degena’s sharesin order to have increasing profits

Exhibits

Exhibit A: SWOT Analysis

 Exhibit B: Calculations for Inflows and Outflows

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