MSFIN222 Pressco 1 
CASE STUDY: PRESSCO, INC.
MS FIN 222
Mr. Roy C. Ybañez
Submitted by:
GROUP 9
ADA, Adrian
ARTICONA, Chrisostomo
CORTEZ, Victoria Anne
MAMARIL, Franchelle Marie
16 October 2014
I. EXECUTIVE SUMMARY
Jane Rogers, Pressco, Inc.'s marketing representative, was preparing a presentation in order to close a sale of mechanical drying equipment to Paperco, Inc. She was unsuccessful to interest Paperco in buying the equipment a year ago since for Paperco, it was an easily postponable cost. Paperco had a sudden interest in the equipment because of a rumored new tax legislation that is said to eliminate tax credit for the equipment, extend depreciation lives for new equipment, and reduce corporate tax from 46% to 34% in the beginning of 1986.
Rogers now needs to make a presentation about when will be the best time to close the deal with Paperco. There are three possible scenarios namely sale of equipment without the new tax legislation, sale of equipment with the new tax legislation and with grandfathering, and sale of equipment with the new legislation and without grandfathering. Depreciation expense (see Appendix Table 4-6), investment tax credit (ITC) and cummulative ITC earned(see Appendix Table 1 and 2), and depreciation rates (see Appendix Table 3) were provided for the analysis. Given these computed depreciation schedules and ITC rates, we have prepared Paperco's cash flow for each scenario.
Based on our analysis of the cash flow, it is best for Paperco to purchase the equipment with the new tax legislation enacted and with grandfathering. This option is also best with regards to Pressco's interest but they have to find a way to maintain a reasonable NPV while adjusting for a higher price for the equipment to yield greater profit.
II. BACKGROUND ON PURCHASE OF MECHANICAL EQUIPMENT (Paperco, Inc.)
Cost-reduction opportunity
Purchase of the mechanical drying equipment proposes replacement of less efficient facilities dated from December 1979.
MS FIN 222
Mr. Roy C. Ybañez
Submitted by:
GROUP 9
ADA, Adrian
ARTICONA, Chrisostomo
CORTEZ, Victoria Anne
MAMARIL, Franchelle Marie
16 October 2014
I. EXECUTIVE SUMMARY
Jane Rogers, Pressco, Inc.'s marketing representative, was preparing a presentation in order to close a sale of mechanical drying equipment to Paperco, Inc. She was unsuccessful to interest Paperco in buying the equipment a year ago since for Paperco, it was an easily postponable cost. Paperco had a sudden interest in the equipment because of a rumored new tax legislation that is said to eliminate tax credit for the equipment, extend depreciation lives for new equipment, and reduce corporate tax from 46% to 34% in the beginning of 1986.
Rogers now needs to make a presentation about when will be the best time to close the deal with Paperco. There are three possible scenarios namely sale of equipment without the new tax legislation, sale of equipment with the new tax legislation and with grandfathering, and sale of equipment with the new legislation and without grandfathering. Depreciation expense (see Appendix Table 4-6), investment tax credit (ITC) and cummulative ITC earned(see Appendix Table 1 and 2), and depreciation rates (see Appendix Table 3) were provided for the analysis. Given these computed depreciation schedules and ITC rates, we have prepared Paperco's cash flow for each scenario.
Based on our analysis of the cash flow, it is best for Paperco to purchase the equipment with the new tax legislation enacted and with grandfathering. This option is also best with regards to Pressco's interest but they have to find a way to maintain a reasonable NPV while adjusting for a higher price for the equipment to yield greater profit.
II. BACKGROUND ON PURCHASE OF MECHANICAL EQUIPMENT (Paperco, Inc.)
Cost-reduction opportunity
Purchase of the mechanical drying equipment proposes replacement of less efficient facilities dated from December 1979.