International Paper: Alternatives to the Longwood Woodyard Plant

Abstract

This case is a sequel to “International Paper: Longwood Woodyard Plant” (UVA-F-1252).The cases are designed to be taught in sequence. This case presents three alternative proposals to the base-case proposal presented in UVA-F-1252. Students are provided with cash flow data, but must complete the estimation of cash flows in order to make a meaningful comparison across the projects. The importance of using net present value (NPV) as the basis for the decision, rather than internal rate of return (IRR) or some other, accounting-based metric is stressed. Because of the basic issues covered, the cases work well with undergraduate, MBA and executive audiences.

Excerpt

UVA-F-1253

INTERNATIONAL PAPER:

ALTERNATIVES TO THE LONGWOOD WOODYARD PLANT

International Paper (IP) Mill Controller Bob Pescod and Mill Analyst Ray Buckley agreed that they had identified all the relevant cash flows (see Exhibit 1) for the new IP longwood woodyard addition to the Redding Mill. The following cash flows were estimated relative to the cash flows currently being realized by the combined Redding/Ridgefield operation:

1. $ 17.7 million investment ($ 9.7 million in 1996, $ 8.0 million in 1997).

2. $ 800,000 inventory investment in 1997.

. . .

Keywords: discounted cash flow, capital budgeting, capital investment, internal rate of return, net present value