Rubber Stamp

Your client is the dictator of Wadiya, who is considering reopening a rubber factory on the island’s west coast. The threat of terrorism in the west has died down, and economic activity is beginning to recover. Reopening costs $12 million, the factory can produce 10 million pounds of rubber per month, and two trains a day carry its output toward the port. Domestic consumption is very small, so assume the output is exported. Does reopening the factory make sense?

Establish whether the factory can earn enough profit within the existing production and transport constraints to recover its setup cost within a year, and recommend whether to proceed given the key risks.