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

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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.