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Arauco Case

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Arauco Case

1. Should Arauco build the Nueva Aldea project? (Hint: Estimate the project Net Present Value and provide a recommendation considering quantitative and qualitative arguments)

Qualitative arguments

We would suggest the company to go ahead with the the project Nueva Aldea considering next arguments:

Horizontal expansion

The company Arauco should build the project Nueva Aldea, for various reasons related to production, efficiency, access to lower costs and its growth internationally.
Among the reasons that support the construction of the new plant, we consider that Arauco will be located in a specific region (VIII) close to the ports of Lirquén, Coronel and San Vicente where we can find the largest productive plantations and where this strategic position would favors the mobilization of processed materials, key point of analysis to promote the expansion and interconnection of a company of this magnitude. Also have a perfect access to the central power grid, which would significantly reduce the cost of electricity transmission.

In addition to the strategic location also would exist benefits regarding transdisciplinary work between different plants. Benefits that result in a consistent process integration, cross information, facilitating learning, technological exchange and decreased bureaucracies, all factors which contribute to the improvement of production processes and efficiency.

In relation to economies of scope, this new project would achieve diversify activities pulping, taking advantage of new technologies in processing focused on expanding other industries. And finally, this new plant, will allow to Arauco, get an horizontal growth that would position him as one of the largest producers in Latin America with Aracruz.

Forward integration

It means to move into paper manufacturing rather than a horizontal growth, competing...

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