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# Are Factory Jobs Important to the Economy? Essay Example

Pages: 6

Words: 1766

Essay

Introduction

Costs and NPV

The cost of acquiring the facility would be £400,000. This amount must be paid whether the place is used as a brickmaking facility or not. The cost of purchasing the plant and the equipment is £1, 800,000. The internal cost of capital is 8%. Consequently, the formula for NPV can be applied in this case which is the following:

NPV = Rt/ (1 + 0.08)5= (£400,000 + £1,800,000)/1.4693281 = £1,497,283

This amount is the net present value of the investment that will be made in order to acquire the property, plant and equipment.

Analysis of IRR, Payback and Profitability Index

The plant is anticipated to have a sales driven turnover of £306,000 in the first year which is £80,000of the staff salaries who will be employed at a location within close proximity. The second year profit would be £234,000. The third year is projected to operate at a loss which is -£54,000. The fourth year is also anticipated to operate at a loss which means -£222,000. The fifth year is anticipated to operate at a loss; however, the equipment can be sold for £50,000. In addition, there is the redundancy payment of £400,000 which brings the net loss for year five to -£612,000. In addition, £600,000 must be invested in order to bring the place back to its original state. Afterward, it can be sold as land for low density housing for £1, 200,000. Considering the present cost of capital at £1,497,283, looking at the internal rate of return is not effective due to the current cost of capital which does not change. The cost of capital is 8%. The profitability index can be applied. Consequently, £1,497,283 ? (£306,000 + £234,000 – £54,000- £222,000 – £612,000). Using the payback formula, there would be a -£348,000. This infers that this is not a good deal. Even calculating for the £600,000 in order to restore the plant and the £1,200,000 which can be realized from the sale of low density housing, the net profit from the investment would be £252,000.  This is the first option.

Options: Operating the Woden Mill Brickworks Ltd. or Remaining Vacant

The second option would be to purchase the establishment for £400,000 and incur a cost of restoring the land at the end of five years of £50,000. Using the NPV formula for the cost of the purchase of the land yields:

£400,000/ (1+ 0.08%)5 = £400,000/1.4693281 = £272, 233.27

The current cost of capital is £272, 233.27, in order to purchase the property. The cost of restoring the property a6tb the end of year five due to nonuse would be £50,000 + 8% interests, considering that the sale is made within one year. The total present value of the acquisition of the land and its restoration after five years of non-use would be £326, 233.27. The property will be sold for low density housing in five years. The NPV of the £1,200,000 is calculated by the NPV formula:

£1,200,000/ (1 +0.08)5= £816, 699.82

This is the present value of the purchase price that will be realized in five years for the sale of the property. The net profit that would be realized by allowing the land to stay vacant and sell the property in five years would be £490,466.55. In comparing the gain from allowing the property to stay vacant compared to purchasing the plant and operating the plant for five years, there would be a 194.63% gain in allowing the property to remain vacant.

In the event that an organization is seeking accruals of 30% or more, the most sacred of tenets may have to be challenged. In addition, there may be a pleasant surprise to the cost cutting implementations. Quite frequently, entire operations which are conducted by a particular staff may require elimination. Initially, the least valuable task should be the first to be eliminated. The final decisions may have the requisite of input from other members of the organization. A list of possibilities can always be composed (Coyne et al. 2010).

Factories and the jobs which are produced are important for the growth of economies. The factories have the outcome of fueling results as a product of innovation. However, in the global economy of the twenty first century, the factory employment positions can be traded on the global labor markets. The factory employment positions ensue the migration of the commercial activity toward areas which have the requisite of lower skilled and lower paid labor. The endeavors in order to resuscitate the elevated value added fabrication in the UK will be founded upon more elevated levels of productivity. The factory owners may not have the required wisdom if their goal is only to create new employment positions (Heskett 2012).

Experts have debated the appropriate type of manufacturing positions has the ability of motivation an economy in manners that the other segments of an industrialized economy do not. The employment positions which create wealth are the basic foundation of the industrialized economic systems. Unfortunately, the skilled positions which create wealth exclude many of the non-tradable factory employment positions (Heskett 2012).

Considering that the manufacturing positions are the most traded in the global marketplace, there are some manufacturing positions which are less tangible. Germany in the twenty -first century had been perceived as a nation which has pursued an enlightened attitude toward manufacturing. This is despite Germany’s encouragement of an apprenticeship systems which supplies the modified mixture of the skills which had been demanded in the past for today’s manufacturing segment. The Germans industrial segment has directed its attention toward the markets segments which desire the most precise, elevated performance expensive products. As an outcome, the Germans have created some of the factory jobs which are the least tradable on the global market (Heskett 2012).

Many advocates of job creation perceive that creating a manufacturing revival may not have the outcome of creating significant amounts of new employment positions. This is considering the requisite of substantial production in order to provide a reversal of the outflow of employment positions from the industrializes nations. In the United States, the manufacturers percentage of the GDP has been stabilized at 15% during the past three decades, whereas the percentage of manufacturing positions in the United States economy has decreased from 20% to less than 10% during the same time interval (Heskett 2012).

It is possible that the employment positions which are created in the manufacturing sector may not be equivalent to the manufacturing positions of the previous eras. The manufacturing procedures are a component of the process of innovation. Manufacturing parks are designed in order to connect product designers with manufacturers in a manner which decreases the requisite of shipping products over long distances. Notwithstanding, the manufacturing positions which are created are lower wage positions. Manufacturing occupations will continue to be important to the development of the industrialized nations. This is attributed to the premise that the manufacturing employment positions are of a better quality than the service sector positions (Heskett 2012).

The employment positions which are found in the serv8ice sector have the characteristic of being less essential for economic recovery in industrialized nations. Manufacturing employment positions have composed as much as 80% of the employment. In addition, the service employment positions in three economies are derived from the manufacturing positions. Many believe that the gradual decline of the middle class in the United States and the United Kingdom over the past three decades has been directly association with the attrition of manufacturing positions. It is perceived by experts that the research and development capacities will become atrophied with the loss of manufacturing positions (Heskett 2012).

As the distance is becoming narrow between the economic production of the developing nations and the industrialized nations, the tradable employment positions and the non-tradable employment positions which include nurses, automobile mechanics, the consensus of whom consume the services in the same areas where they are produced. The future of the middle class is reliant on the production of solid manufacturing jobs. Although these employment positions may be low paying, they produce the residents of areas which include the Woden Mills Brickworks Ltd. plant the potential of being able to earn a modest living (Heskett 2012).

There have been a number of proponents of the public regulations which are referenced by education, technology and infrastructure with the objective of motivating the employment positions to regress to the shores of the industrialized nations. One of the examples which has been Germany. Germany is an excellent example of a nation which maintained its manufacturing base as it had decreased salaries. In addition, Germany had placed freezes on real wages in the public and private segment of the economy while continually pursuing an apprenticeship matrix of production (Heskett 2012).

Conclusion

In the exercise it had been demonstrated that the Consolidated Brick & Tile plc organization should refrain from making bricks in the old outdated facility. This fact had been demonstrated by means of the application of the net present value formula and the payback rate of return. In addition, the profitability index had been explored. It had been concluded that the Woden Mill Brickworks Ltd. site should remain vacant and the property may be sold by the Consolidated Brick & Tile plc organization in five years at a substantial profit.

Reference List

Coyne, K, Coyne, ST & Coyne EJ 2010, ‘When you’ve got to cut costs – now’, Harvard Business Review.

Heskett, J 2012, ‘Are factory jobs important to the economy?’ Harvard Business Review.

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