Aluminum Fabricating Company

In September 1988, Jerry Anderson, assistant comptroller of AFC, was preparing a financial analysis of the six capital projects that were to be reviewed by the budget committee during the coming week. He had joined AFC the previous month after completing an MBA program at a small Midwestern university. This financial analysis was the first real assignment he had received from AFC's comptroller, David Stiles, and Anderson wanted to make a good impression. Excerpt UVA-F-0558 ALUMINUM FABRICATING COMPANY In September 1988, Jerry Anderson, assistant comptroller of the Aluminum Fabricating Company (AFC), was preparing a financial analysis of the six capital projects that were to be reviewed by the budget committee during the coming week. Anderson had joined AFC the previous month after completing an MBA program at a small Midwestern university. This financial analysis was the first real assignment he had received from AFC's comptroller, David Stiles, and Anderson wanted to make a good impression. Aluminum Fabricating Company AFC was founded in 1962 as a fabricator of specialized aluminum hardware and molding parts for the auto industry. In its factory in Flint, Michigan, AFC produced aluminum parts by both the stamping and extrusion processes. Once formed, the parts were usually polished and anodized before shipment to the customers. (Anodization is a process whereby aluminum parts are electrochemically treated to obtain a corrosion-resistant finish.) In the late 1970s, the company began to diversify in an attempt to become less dependent on the cyclical auto industry. By 1988, it was fabricating parts for aluminum windows, ladders, and industrial lighting fixtures, as well as parts for several consumer products. In all, the company produced more than 800 different parts, more than half of which were for nonautomotive customers. As part of the capital budgeting procedure, all departments at AFC were required to submit a capital expenditure proposal for projects costing over $ 20,000. These proposals included justification and description of the project, as well as details on the projected costs and revenues. The comptroller's office reviewed these proposals and prepared a financial analysis of each project. The budget committee (which consisted of AFC's president, treasurer, director of operations, and director of research and development) relied heavily on these financial analyses in making its capital expenditure decisions. . . .