Aurora Textile Case Study

Topics: Net present value, Investment, Rate of return Pages: 4 (1719 words) Published: May 9, 2013
DATE: 2/23/13
TO: Mr. Ansley Chua
FROM: Austin Johnson, Enxing Liu, Tyson Hilyard, and Tanner Strathman SUBJ: Aurora Textile Company

Aurora Textiles has historically been one of the premier textile companies in the United States and now has a decision to make. With the opportunity to invest in equipment that could help cure our slumping financials, we must carefully explore whether this investment is appropriate for a company with such an uncertain future. With that in mind we believe that the Zinser 351 is the perfect investment to pull us out of this slump. As a company that has been able to deliver a premium product for the consumers, the Zinser 351 will allow us to continue to do that while also begin relieving some of the financial stress that we have been under. Our analysis shows that the Zinser 351 project will yield a Net Present Value of $6,474,082.14 million and a discounted payback period of 5.6 years. This project not only brings a big enough payoff as demonstrated by the NPV, but also fits our timeline. The discounted payback period indicates that our investment will be realized before our company is not able to recover from our current financial struggles. The Zinser 351 is a project that this company must undertake if it wants to begin to bring value back to the shareholders who have become more and more impatient with us in recent times. This is an opportunity for Aurora to turn around its fortunes and once again prove that it is the premier textile company in the United States.

When deciding whether the Zinser is a worthwhile investment or not, we will analyze the decision like we would any other investment decision. Finding the net present value of the project will ensure that the project will have large enough cash flows to clear out 10% hurdle rate. When calculating the NPV of the project we discovered that investing in the Zinser will yield a positive NPV of $6,350,623.23. This is the...
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