Fonderia di Torino S.P.A. Case Study
Date Submitted: 09/10/2006 05:01:00
Category: / Literature / European Literature
Length: 4 pages (988 words)
Category: / Literature / European Literature
Length: 4 pages (988 words)
Fonderia 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<Tab/>-1,010,000+196,704 = -813,296
Appropriate …
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…Mold-Maker? The answer is no. Inflation rate does not affect NPV since NPV is always calculated using real rate or nominal rate "consistently."
3. Should Francesca Cerini proceed with the project?
Francesca Cerini should proceed with the project since the figures above show that the new project generates more value to the company than the old one. Moreover, replacing the semi-automated machine with the Vulcan Mold-Maker offers strategic benefits in the long run as previously discussed.
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