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Hard Merger & Acquisition

New Rubber Plant Investment

#Non-profit
ProHub Comment

This is a complex investment decision case for a government entity that requires balancing financial analysis with non-financial factors like employment and regional development. The key challenge is identifying operational bottlenecks (particularly transportation constraints) that limit profitability despite strong demand, and assessing both security risks and economic benefits to justify the $12M rejuvenation investment.

Estimated Time 36 minutes
Difficulty Hard
Source Wharton
10 / 100
The federal government of a country in a certain part of the world is investigating whether to restart a rubber factory in the western part of the country. The factory was operational in the past, but has not been used for 7 years. The plant was closed due to terrorism in the area which has now come down significantly, though there are still skirmishes reported in the area. If rejuvenated, the plant may become a target for the rebels. All the equipment is considered usable but the government still estimates they would need to spend $12M to rejuvenate the plant which would enable the plant to product up to 10M lbs of rubber per month. The demand of rubber worldwide is strong but rubber must be transported to an export port via trains; up to 2 trains per day can be used for this purpose.

Clarifying Information

  1. Raw Materials – Production of rubber requires gum resin. 3lbs of resin after processing results in 1lb of rubber.
  2. Operations – The resin needs to be transported from the capital. Up to 4 trains can be used for the same.
  3. Pricing – Rubber can be sold at $20 per lb. Gum resin costs $5 per lb.
  4. Suppliers – We have identified one supplier.
  5. Customers – We would be selling the rubber in the commodity market to the entire world.
Mock Interview
Interviewer

The federal government of a country in a certain part of the world is investigating whether to restart a rubber factory in the western part of the country. The factory was operational in the past, but has not been used for 7 years. The plant was closed due to terrorism in the area which has now come down significantly, though there are still skirmishes reported in the area. If rejuvenated, the plant may become a target for the rebels. All the equipment is considered usable but the government still estimates they would need to spend $12M to rejuvenate the plant which would enable the plant to product up to 10M lbs of rubber per month. The demand of rubber worldwide is strong but rubber must be transported to an export port via trains; up to 2 trains per day can be used for this purpose.

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
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A government must decide whether to invest $12M to restart a closed rubber plant with 10M lbs/month capacity. The case requires analyzing production and transportation capacity constraints, calculating profitability, and weighing financial returns against non-financial benefits like job creation and security risks.

Key Insights:

  1. Identify bottlenecks in the value chain (incoming raw materials vs. outgoing transportation capacity) rather than just relying on stated plant capacity
  2. For government investments, consider non-financial factors alongside ROI, including employment, economic development, and reputational benefits
  3. Math-heavy case requiring careful capacity calculations across multiple constraints to determine actual sellable volume and profitability
  4. Security and operational risks require mitigation strategies rather than being deal-breakers for a strategic government investment