Aurora Case Study

Topics: Mathematics, Finance, Stock Pages: 3 (789 words) Published: April 6, 2014

Aurora Textile Company Inc Case Study
Finance 450

I. Recommendations
Aurora Textile Company is currently not in very good financial situation. Based on calculations that I made for the capital budgeting, my recommendation is to buy the new Zinser machine. After computing the NPV for the project it came out to be $10,160,579 over the period of 10 years. According on the analysis of the CFO of the company, Zinser would produce a finer- quality yarn that would be used for higher quality and higher margin products. Since Aurora has been facing so many financial challenges over the years, implementing a new system in place would be a good strategic investment, since their stock price has dropped significantly from $30 to $12. The decision makers of the company need to look at the fact that installing Zinser wouldn’t cost them anything in work force and it is predicted to reduce power and maintenance costs by 0.03 per pound. Based on these assumptions the cost of customer returns will also be higher, which will result in higher profits. With the increasing global competition in mind, Aurora needs to switch to the new Zinser system if they want to remain competitive on the market and keep shareholders confidence.

II. Statement of the Problem
The Chief Financial Officer, Michael Pogonowski needs to decide whether the company should purchase the new machine Zinser or keep using the existing ring-spinning machine. He also needs to figure out how to improve the company’s overall financial situation and regain shareholders confidence.

III Analysis of the Problem
Aurora is facing a lot of financial challenges as seen in the statement of the problem. When you look at the back of this report you will find Exhibits that outline the computations that helped me in making the decision that purchasing Zinser is the best out of the two options. In order to complete the calculations there were a number of assumptions that I had to make to work out the...
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