Question: Component Technologies, Inc.: Adding FlexConnex CapacityJulie H. Hertenstein ABSTRACT: Component Technologies, Inc. (CTI) manufactures componentsused in electronic devices. CTI is considering adding manufacturing capacity for

Component Technologies, Inc.: Adding FlexConnex CapacityJulie H. Hertenstein ABSTRACT: Component Technologies, Inc. (CTI) manufactures componentsused in electronic devices. CTI is considering adding manufacturing capacity for FlexConnex to meet increased future demand. CTI's manufacturing planningstaff identifies three options to meet this demand. The staff performs preliminaryfinancial analyses to evaluate whether to conduct detailed planning for and evaluation of each of the three options. During their analysis, they consider whichdiscount rate is more appropriate: the 20 percent rate, which the corporate finance manual states is the hurdle rate for capital investments, or 10 percent, which the staff believes is closer to the corporate cost of capital. They experiment with both discount rates, and two time horizons. This case requires you tocalculate net present values (NPVs) and to analyze the effect of different discount rates and time horizons. It also asks you to consider the effect of other financial and nonfinancial issues on your analysis.

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