Fonderia di Torino S.p.A.
Fonderia di Torino was founded in the 1920’s and focuses on making precision metal castings for OEM parts for many of the major car manufacturers. They are known for their excellent quality parts. They are especially known for making safety parts (parts that if it fails the operator loses control). Fonderia di Torino has just recently considered purchasing the Vulcan Mold Maker. This mold maker would replace six semi automated stamping machines and increase efficiency, reduce costs and make higher quality products.
During our analysis of this scenario we made a couple assumptions. We assumed that the sales would not change from one alternative to the other and we also assumed that there is no capital rationing. We also assumed that the risk free rate is 1.71% (looked up value). Finally we assumed that the return on the market for our case was 6.10% (also a looked up value. With these numbers we calculated a WACC of 5.93% which we are going to use as Fonderia di Torino’s new hurdle rate.
When deciding on whether or not we should accept the project for the Vulcan Mold Machine we had to decide what benefits we would be getting from this decision. We concluded that by accepting this new project we would reduce our expenses by 380,560 per year. We would also take up half as much space as the old machines did. The new machine is also more efficient and would be able to increase capacity by 30%. The new machine would also increase the quality of all the casts that it makes. Another benefit is the fact that this new machine will decrease medical claims because of less back injury to the employees due to the fact that we have less employees. After taking all of these into account we calculated a NPV for this project of €1,741,828,029 compared to the NPV of the current machines of €1,376,910,813. The difference in the two NPV’s is €364,917,216 in favor of the new