Fonderia Di Torino S.P.A.

Topics: Net present value, Discounted cash flow, Cash flow Pages: 8 (1716 words) Published: October 12, 2008
In order to determine the attractiveness of the investment it is important to determine the financial impact that the new Vulcan mold-maker will have on the firm if it replaces their current machines. It will be necessary to take into consideration both quantitative and qualitative measures. This project should be considered an independent project that is accepted or rejected on its own merits. The project will be decided from a cost/benefit standpoint by looking at the project's projected discounted cash flows, the calculated NPV of the project, the IRR and PI. Finally, the project's other qualitative advantages and disadvantages must also be considered before the project is accepted or rejected.

Question 1: What is the basic nature of the problem in this case? Answer: The basic nature of the problem in this case is all about capital budgeting issue that was being faced by Fonderia di Torino S.p.A. in decided to have some resources investments in order to manage their production throughputs. Managing director of this specialty foundry must decide whether to approve a major investment to automate part of her plant's production process. The case presents information sufficient to build cash-flow forecasts of production costs incremental to the investment. Discounted-cash-flow (DCF) analysis reveals that the investment project is attractive but that the benefits hinge on important assumptions about the plant's business volume, the manager's ability to lay off workers over the objections of a labor union, and the hurdle rate.

Question 2: What are the cash flows associated with the Vulcan Mold-Maker? Answer:
Cash flows012345678
rev280000274400268912263533.76258263.0848253097.8231248035.8666243075.1493238213.6463 vul mach cost(1010000)
sale of saum130.00
Dir mat(140000.00)(137200.00)(134456.00)(131766.88)(129131.54)(126548.91)(124017.93)(121537.57)(119106.82) powr0.00 (26.85)(26.85)(26.85)(26.85)(26.85)(26.85)(26.85)(26.85) maint0.00 (59.50)(59.50)(59.50)(59.50)(59.50)(59.50)(59.50)(59.50) labor cost svd0.00 5.20 5.20 5.20 5.20 5.20 5.20 5.20 5.20 labour cost(38.17)(38.17)(38.17)(38.17)(38.17)(38.17)(38.17)(38.17) wrkr replace(152.64)(152.64)(152.64)(152.64)(152.64)(152.64)(152.64)(152.64)(152.64) dep0.00 (126250.00)(126250.00)(126250.00)(126250.00)(126250.00)(126250.00)(126250.00)(126250.00) EXP(1150022.64)(263721.96)(260977.96)(258288.84)(255653.51)(253070.88)(250539.90)(248059.54)(245628.79) OI(870022.64)10678.04 7934.04 5244.92 2609.58 26.95 (2504.03)(4984.39)(7415.14) tax374109.74 (4591.56)(3411.64)(2255.31)(1122.12)(11.59)1076.73 2143.29 3188.51 EAT-495912.916086.484522.402989.601487.4615.36-1427.30-2841.10-4226.63 ad back dep0.00 (126250.00)(126250.00)(126250.00)(126250.00)(126250.00)(126250.00)(126250.00)(126250.00) NCF-495912.91132336.48130772.40129239.60127737.46126265.36124822.70123408.90122023.37 CNCF132336.48263108.88392348.48520085.94646351.30771174.00894582.901016606.27 DCF-495912.91115779.95100097.5986547.9874839.9364722.1755977.8548419.7941886.41 dcf auto79620.1368262.5858525.0950176.5943018.9436882.2879211.3968331.8258585.67 gain(575533.04)47517.37 41572.50 36371.39 31820.99 27839.89 (23233.54)(19912.03)(16699.26)

tax benefit on
dep0.00 (126250.00)(126250.00)(126250.00)(126250.00)(126250.00)(126250.00)(126250.00)(126250.00)

machine cost break down
machine 850

Question 3: What are the cash flows associated with the semi automated machines? Answer:
Cash Flows012345
Dmat(140000.00)(137200.00)(134456.00)(131766.88)(129131.54)(126548.91) power(12.30)(12.30)(12.30)(12.30)(12.30)...
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