Trying to figure out the cost benefit analysis for Kerdall Paper Co.

Cost-Benefit Analysis

Benefit/Savings 25% likely 50% likely 75% likely

Present Value (at 20%) of Possible Litigation

Cost to Implement New Technology

Decrease in Profit during Year 1

Decrease in Profit during Year 2

Actual cost of new technology

Onboarding/Training new employees

Additional Local Taxes

Net Benefit

• Annual revenues from the mill average 750 million.
• Profit margin from the mill isapproximately 12%.
• Implementing thenew technologywould take 2 full years. The first year, the company wouldoperateat 55% capacity (assume the company couldmaintainthe 12% profit margin during reduced operations). During the second year, it would need to be completely shut down. After the2 yearperiod, the mill could reopen andoperateat pre-implementation levels.
• Approximate cost of litigation including medical costs for all affected by the contamination, environmental sanctions, legal and court costs, victims' pain and suffering, and several other items is 1.8 billion. Estimate present value of future costs at 20%.
• The company would spendapproximately 5million in hiring, onboarding, and training new employees after reopeningas a result ofseveral of their existing employees having to seek employment elsewhere during the shutdown.
• As a result of the layoffs and shut down, the local economy would suffer greatly. The community would be forced to implement a3 yeartax on all local business profits of 5%. The tax would be enforced for 3 years beginning after the reopening of the mill. (Assume pre-implementation profit margins when calculating this and exclude all other costs and taxes when preparing this analysis.

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