Fonderia Di Torino S.P.A. - 1148 Words

Finance Case Study: Fonderia di Torino S.p.A. Case Overview: Company considering purchase of Vulcan Mold-Maker automated molding machine. Machine prepares sand molds into molten iron using iron castings, automates manual intensive process. Questions: 1. Assess the economic benefits of acquiring the Vulcan Mold-Maker machine. What is the initial outlay? What are the benefits over time? What is an appropriate discount rate? Does the net present value (NPV) warrant the investment in the machine? Assume that with ordinary maintenance, the semi-automated equipment could be operated for two more years beyond its depreciable life. Given: Total Cost New Machine = 1,010, 000 Euros Depreciated over 8 yrs; replace after 8yrs.†¦show more content†¦Labor costs will be reduced by almost 298,334.4 euros (24*7.33*8*210 + 2*3*7.85*8*210- 2*2*11.36*8*210=298,334.4) and additional 5,200 euros will be saved as a result from improved labor efficiency. 2. What uncertainties or qualitative considerations might influence our recommendation? How, if at all, would an inflation rate of 3 percent(or higher) affect the attractiveness of the Vulcan Mold-Maker? Please estimate the impact on NPV from a change in any of these elements. ïÆ'Ëœ NPV and EAA proved that the company should invest in the new machine. However, there are still some uncertainties that might affect the attractiveness of the new machine. Federia Torino S.p.A still has to decide whether the tough collective-bargaining agreement the company has with the employees union would allow the company to lay off the 24 operators of the semi-automated machines. Reassigning the workers to other jobs might be easier, but the only positions needing to be filled are those of janitors, who are paid 4.13 euros an hour. The extent of any labor savings would depend on negotiations with the union. If the workers are reassigned as janitors, NPV will decrease due to increase in labor costs. ïÆ'Ëœ Secondly, the company is still unsure when added capacity of the new machine would be needed. The old machines currently operate at only 90 percent of capacity. The projection as to how much capacity of the new machine will be utilized, will have aShow MoreRelatedFonderia Di Torino S.P.A.1704 Words   |  7 Pagesconsidered 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 processRead MoreEssay on Fonderia Di Torino S.P.A.1076 Words   |  5 PagesFonderia di Torino S.P.A. Case analysis report Fonderia di Torino S.p.A, founded in 1912 by Benito Cerini, was a manufacturing company who produced metal castings using semi-automated molding machines. The company’s main line of business was the production of precision metal castings for use in automotive, aerospace, and construction equipment. The company excelled at this and was awarded because of the quality of its products. The mainly European customers of Fonderia di Torino were original-equipmentRead MoreFonderia Di Torino S.P.a Essay727 Words   |  3 PagesFonderia di Torino, S.p.A Midterm Individual Case Fonderia di Torino, S.p.A is a manufacturing company who produces metal castings using six semi-automated molding machines. However, they are currently considering purchasing a Vulcan Mold-Maker machine to replace the six machines currently in place. The firm needs to consider all costs in deciding whether to keep the current machines or purchase the Vulcan Mold-Maker. Buying the Vulcan machine will result in year 0 outflows of 1.01 millionRead MoreFonderia di Torino S.P.A. Case Study860 Words   |  4 PagesFonderia di Torino S.p.A. 1. Please assess the economic benefits of acquiring the Vulcan Mold-Maker machine. What is the initial outlay? What are the benefits over time? What is an appropriate discount rate? Does the net present value(NPV) warrant the investment in the machine? Initial Case Outlay Price of new machine (1,010,000) Current after-tax market value of old machine [130,000+{(415,807-130,682) -130,000}*0.43]= 196,704 Net outlay for new machine -1,010,000+196,704 = -813,296 Appropriate