Assume that you are a corporate manager that needs to make an important decision. Your company currently has its largest factory (700 employees) located in the Midwestern United States. This factory is currently not competitive in international markets and its poor results are threatening to force the entire company into bankruptcy. The company employs 3,000 in other areas of the U.S. You have to decide whether to keep the factory where it is or move it to Canada or Ireland.
You can only keep one factory open. The corporate tax rates of Canada (20%) and Ireland (15%) are much lower than the U.S. (35%). Labor costs will not change significantly because the cost of training new employees will be offset by the replacement of highly paid senior employees with younger employees in the other countries. The old factory needs extensive renovation which will still not leave it as efficient as the new factories planned for the new countries. Therefore, the NPV of the capital investments involved are equal for all three countries.
You have calculated the NPV of each choice. The NPV of keeping the U.S. factory open is $1,000,000. The NPV of moving the factory to Canada or Ireland is $10,000,000 and $35,000,000 respectively.
Where should your factory be located? Why?
Who are the in this decision? How did you take the into account when making your decision?
How does your decision support responsible stewardship and integrity in the context of financial management?
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