Fonderia Di Torino S.P.a Essay

Decent Essays

Fonderia 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 million euros, but will enable the company to sell the old machines which will result in a net year 0 outflow of 880,000 euros. The cash flows of years 1-8 are summarized in table 1. Factoring in operating, maintenance and power cost, plus the benefits …show more content…

On the other hand, the need for higher capacity may in fact be needed if the effects of an improved product contribute to more market share.

There is a projected inflation rate of 3%. Applying this rate to all costs, minus depreciation, we find that the effect is a lower NPV and raise the EAC for both decisions. However, purchasing the Vulcan machine still remains to have the lower EAC. Thus, all other things equal, the purchasing the Vulcan seems to quantitatively be the better decision. There are also a few other small impacts which are not factored into the EAC. The Vulcan frees up 15% of floor space and also has a maximum capacity that is 30% higher than the current machines. In the near future this may be irrelevant because there is no need for more floor space and the current machines are only operating at 90% capacity as it is, but these should still be considered added benefits as unforeseeable market conditions over the next eight years may warrant the need for added capacity.

After considering both qualitative and quantitative impacts of the decision, it would be my recommendation to purchase the Vulcan machine. All of the data shows that the Vulcan machine will be less costly and more efficient. What the data does not show however is the critical assumption that the laborers will be able to be laid off without dispute. If there is conflict from the labor

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