Case Study

Fonderia di Torino SpA

October 21st, 2015

Prepared by Group 3:
AnaMaria Quijano-Wittemann
Apostolos Pedakakis
Kseniya Voynova
Roberta Awinmah Ayalingo
Vanessa Nampewo
Prepared for:
Professor E. Bajo

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.
Fonderia di Torina S.p.A.

11/9/15

Initial Investment = Total Cost Sales Proceeds from old machine- tax savings from
sales of old machine
Savings Generated from sale of Old
Machines
Original cost
Accumilated depreciation
Book value
Resale value
Loss
Tax savings

415,807
130,682
285,125
130,000
-155,125
-66,704

Vulcan Mould maker Actual Expenditure

Total Cost
sales proceeds of old machine
tax savings from old machine

Actual Capital
Expenditure
Fonderia di Torina S.p.A.

1,010,000
-130,000
-66,704

813,296
11/9/15

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.
Fonderia di Torina S.p.A.

11/9/15

Project incremental cash flows (per year)= Operations cost of old

machine- operations cost of new machine
Total costs of operations of 6 semi automated machines / year
1
2
3
4
5

Labor cost1)
Maintenance1)
Maintenance supplies
Electricity
Total

295,546
39,564
4 ,000
12,300

351,409

Total Cost of operations of Vulcan Mold Machine / year

6
7
8
9
10
11

Labor cost 1)
Maintenance1)
Electricity
Efficiency savings
Total
Savings (5-10) (Cashflow)

Savings after Tax

12

38,170
59.500
26,850
-5,200
119,320
232,090

(232,090 x 1-0.43)

132,291.3

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

15

- 78,730

Tax savings from depreciation (14* 0.43)

33,854

166,145

Estimated Incremental Cash Flows (12+15)

Asumes 2 shifts of 8 hours for machine operators. One 8-hour shift for maintenance workers

11/9/15

NPV without adjustment for inflation

Period WACC
1
0.0986
2
0.0986
3
0.0986
4
0.0986
5
0.0986
6
0.0986
6
0.0986

Incremental
cashflows
166,145.20
166,145.20
166,145.20
166,145.20
166,145.20
166,145.20
252,500.00

Discounted
cashflows
151,233.57
137,660.27
125,305.18
114,058.96
103,822.10
94,504.01
143,622.94
870,207.03

(Principal)

Initial Investment

813,643.00

NPV

56,564.03

Fonderia di Torina S.p.A.

11/9/15

Adjustment for 3% Inflation

Beginning
WACC

Period
1
2
3
4
5
6

Fonderia di Torina S.p.A.

period Inflation
3%
0.0986
0.0986
0.101558
0.10460474
0.107742882
0.110975169

1) Asumes 2 shifts of 8 hours for machine operators. One 8-hour shift for maintenance workers

rate WACC after

inflation
1
0.0986
1.03
0.1016
1.03
0.1046
1.03
0.1077
1.03
0.1110
1.03
0.1143

11/9/15

NPV AFTER 3% INFLATION

Period

WACC after
inflation

iincremental
cashflows

Discounted
cashflows

0.0986

166,145.20

151,233.5700

0.1016

166,145.20

136,921.9454

0.1046

166,145.20

123,272.7520

0.1077

166,145.20

110,339.7324

0.1110

166,145.20

98,167.1173

0.1143

166,145.20

86,788.9973

0.1143

252,500.00

131,898.0135

Fonderia di Torina S.p.A.

Total
Initial
Investment

NPV

Principal

838,622.1278
813,643.0000

24,979.127
8
11/9/15

For

Qualitative Factors

Fonderia di Torina S.p.A.

Problems with
labour union

Against

Release of
floor space
Higher quality,
Lower scrap
rate
Higher
Productivity
capacity

11/9/15

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.