fonderia di torina spa
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Prepared by Group 3: AnaMaria Quijano-Wittemann
Apostolos PedakakisKseniya Voynova
Roberta Awinmah AyalingoVanessa Nampewo
Prepared for:Professor E. Bajo
Case Study Fonderia di Torino SpAOctober 21st, 2015
04/22/2023Fonderia di Torina S.p.A. 2
Fonderia Di Torino
Fonderia di Torino S.P.A specialises in the production of precision metal
casting.The managing
director is considering the
purchase a Vulcan Mold-Maker
automated machine to replace its six semi automated
stamping machines.
Initial Investment = Total Cost – Sales Proceeds from old machine- tax savings from sales of old machine
Fonderia di Torina S.p.A.
Savings Generated from sale of Old MachinesOriginal cost 415,807 Accumilated depreciation 130,682 Book value 285,125 Resale value 130,000 Loss -155,125 Tax savings -66,704
Vulcan Mould maker Actual ExpenditureTotal Cost 1,010,000 sales proceeds of old machine -130,000 tax savings from old machine -66,704 Actual Capital Expenditure 813,296
04/22/2023 4Fonderia di Torina S.p.A.
For Equitabilty sake,The estimated useful life of the Vulcan Mould Maker should should be reduced to 6years and the residual
value as at the 6th year should be discounted to its
present value.
04/22/2023 5
Project incremental cash flows (per year)= Operations cost of old machine- operations cost of new machine
Asumes 2 shifts of 8 hours for machine operators. One 8-hour shift for maintenance workers
Total costs of operations of 6 semi automated machines / year1 Labor cost1) 295,546 2 Maintenance1) 39,5643 Maintenance supplies 4 ,0004 Electricity 12,3005 Total 351,409
Total Cost of operations of Vulcan Mold Machine / year6 Labor cost 1) 38,170 7 Maintenance1) 59.5008 Electricity 26,8509 Efficiency savings -5,200
10 Total 119,320
1112
Savings (5-10) (Cashflow)Savings after Tax (232,090 x 1-0.43)
232,090132,291.3
12 Depreciation costs of 6 semi atomated machines / year 47,520
13 Depreciation costs of Vulcan Mold Machine / year (8 years, straight line) 126,250
14 Difference in depreciation costs - 78,730
15 Tax savings from depreciation (14* 0.43) 33,854
Estimated Incremental Cash Flows (12+15) €166,145
04/22/2023 6
NPV without adjustment for inflation
Fonderia di Torina S.p.A.
Period WACC Incremental cashflowsDiscounted cashflows
1 0.0986 166,145.20 151,233.57
2 0.0986 166,145.20 137,660.27
3 0.0986 166,145.20 125,305.18
4 0.0986 166,145.20 114,058.96
5 0.0986 166,145.20 103,822.10
6 0.0986 166,145.20 94,504.01
6 0.0986 252,500.00 143,622.94 (Principal) 870,207.03
Initial Investment 813,643.00
NPV 56,564.03
04/22/2023 7
Adjustment for 3% Inflation
Fonderia di Torina S.p.A.1) Asumes 2 shifts of 8 hours for machine operators. One 8-hour shift for maintenance workers
Period Beginning period WACC Inflation rate 3%WACC after inflation
1 0.0986 1 0.09862 0.0986 1.03 0.10163 0.101558 1.03 0.10464 0.10460474 1.03 0.10775 0.107742882 1.03 0.11106 0.110975169 1.03 0.1143
04/22/2023 8
NPV AFTER 3% INFLATION
Fonderia di Torina S.p.A.
PeriodWACC after inflation
iincremental cashflows
Discounted cashflows
1 0.0986 166,145.20 151,233.5700
2 0.1016 166,145.20 136,921.9454
3 0.1046 166,145.20 123,272.7520
4 0.1077 166,145.20 110,339.7324
5 0.1110 166,145.20 98,167.1173
6 0.1143 166,145.20 86,788.9973
6 0.1143 252,500.00 131,898.0135 Principal
Total 838,622.1278
Initial Investment 813,643.0000
NPV 24,979.1278
04/22/2023Fonderia di Torina S.p.A. 9
Qualitative Factors
Release of floor spaceHigher quality, Lower scrap rateHigher Productivity capacity
Problems with labour union
For
Ag
ain
st
Decision
• Fonderia di Cerini should purchase Vulcan Mould Maker Machine because of its positive NPV as well as its positive qualitative factors.
• However the company should negotiate effectively with the labour union and also provide an attractive lay off package for employees.