Vulcan Mold-Maker Machine
Essay by Dwi Purwaningsih • October 17, 2017 • Case Study • 3,991 Words (16 Pages) • 1,458 Views
- Please assess the economic benefits of acquiring the Vulcan Mold-Maker machine. What is the initial outlay? What are the benefits over time? What is an appropriate discount rate? Does the net present value (NPV) warrant the investment in the machine?
Vulcan Mold-Maker | |
Purchase Price | € 850,000 |
Electrical Costs | € 155,000 |
Shipping, Installation, Testing Costs | € 5,000 |
Total Installed Costs | € 1,010,000 |
Six Semi Automated Machines | |
Purchase Price | € 415,807 |
Cummulative Depreciation | € 130,682 |
Current Selling Price | € 130,000 |
Annual Depreciation | € 47,520 |
Book Value | € 285,125 |
Market Value | € 155,125 |
Tax Savings (43%) | € 66,704 |
The company will loss because market value is lower than book value
Annual Labor Cost | |||
| VULCAN | SEMI AUTO | |
Operations | Maintenance | ||
Operator | 1 | 12 | 3 |
Hours | 8 | 8 | 8 |
Shift | 2 | 2 | 1 |
Pay/hour | € 11.36 | € 7.33 | € 7.85 |
Days/Year | 210 | 210 | 210 |
| € 38,169.60 | € 295,545.60 | € 39,564.00 |
Contract Maintenance | € 59,500 | - | |
Power Cost | € 26,850 | € 12,300 | |
Maintenance Supplies | - | € 4,000 |
Labor costs will be reduced € 257,377 and improved labor efficiency. By acquiring the Vulcan Mold-Maker machine Fondaria di Torini SPA will be bale to replace labor intensive required semi-automated machine, thus medical claims. The company will also benefit from higher levels of product quality and lower scarp rates.
Cost of Debt Calculation: | |
Cost of Debt | 6.80% |
Tax Rate | 43% |
After Tax Cost of Debt | 3.88% |
Weight of Debt | 33% |
Cost of Equity Calculation (CAPM) | |
Risk Free | 5.3% |
Beta | 1.25 |
Risk Premium | 11.3% |
Cost of Equity | 12.8% |
Weight of Equity | 67% |
WACC | 9.86% |
Without Inflation | ||||||||||
VULCAN CASH FLOW | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | |
Labor cost |
| € (38,170) | € (38,170) | € (38,170) | € (38,170) | € (38,170) | € (38,170) | € (38,170) | € (38,170) | |
Semi Auto Labor |
| € - | € - | € - | € - | € - | € - | € - | € - | |
Maintenance |
| € (59,500) | € (59,500) | € (59,500) | € (59,500) | € (59,500) | € (59,500) | € (59,500) | € (59,500) | |
Power Cost |
| € (26,850) | € (26,850) | € (26,850) | € (26,850) | € (26,850) | € (26,850) | € (26,850) | € (26,850) | |
Labor Effeciency |
| € 5,200 | € 5,200 | € 5,200 | € 5,200 | € 5,200 | € 5,200 | € 5,200 | € 5,200 | |
Depreciation |
| € (126,250) | € (126,250) | € (126,250) | € (126,250) | € (126,250) | € (126,250) | € (126,250) | € (126,250) | |
Before Tax Cost |
| € (245,570) | € (245,570) | € (245,570) | € (245,570) | € (245,570) | € (245,570) | € (245,570) | € (245,570) | |
Taxes (43%) | 43% | € 105,595 | € 105,595 | € 105,595 | € 105,595 | € 105,595 | € 105,595 | € 105,595 | € 105,595 | |
After Tax Cost |
| € (139,975) | € (139,975) | € (139,975) | € (139,975) | € (139,975) | € (139,975) | € (139,975) | € (139,975) | |
+Depreciation |
| € 126,250 | € 126,250 | € 126,250 | € 126,250 | € 126,250 | € 126,250 | € 126,250 | € 126,250 | |
-Cap Ex | € (813,296) |
| ||||||||
OCF | (813,296) | (13,725) | (13,725) | (13,725) | (13,725) | (13,725) | (13,725) | (13,725) | (13,725) | |
SEMI AUTOMATED MACHINES | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | |
Operating Labor |
| € (295,546) | € (295,546) | € (295,546) | € (295,546) | € (295,546) | € (295,546) | € (295,546) | € (295,546) | |
Maintenance Labor |
| € (39,564) | € (39,564) | € (39,564) | € (39,564) | € (39,564) | € (39,564) | € (39,564) | € (39,564) | |
Maintenance Supplies |
| € (4,000) | € (4,000) | € (4,000) | € (4,000) | € (4,000) | € (4,000) | € (4,000) | € (4,000) | |
Power Cost |
| € (12,300) | € (12,300) | € (12,300) | € (12,300) | € (12,300) | € (12,300) | € (12,300) | € (12,300) | |
Depreciation (6 Years) |
| € (47,520) | € (47,520) | € (47,520) | € (47,520) | € (47,520) | € (47,520) | € - | € - | |
Before Tax Cost |
| € (398,930) | € (398,930) | € (398,930) | € (398,930) | € (398,930) | € (398,930) | € (351,410) | € (351,410) | |
Taxes (43%) | 43% | € 171,540 | € 171,540 | € 171,540 | € 171,540 | € 171,540 | € 171,540 | € 151,106 | € 151,106 | |
Aftertax Cost |
| € (227,390) | € (227,390) | € (227,390) | € (227,390) | € (227,390) | € (227,390) | € (200,303) | € (200,303) | |
+Depreciation |
| € 47,520 | € 47,520 | € 47,520 | € 47,520 | € 47,520 | € 47,520 | € - | € - | |
-CapEx | € - |
| ||||||||
OCF | € - | € (179,870) | € (179,870) | € (179,870) | € (179,870) | € (179,870) | € (179,870) | € (200,303) | € (200,303) | |
Total Cash Flows | (813,296.25) | 166,145.20 | 166,145.20 | 166,145.20 | 166,145.20 | 166,145.20 | 166,145.20 | 186,578.80 | 186,578.80 | |
Cummulative Cash Flow | (813,296.25) | (647,151.05) | (481,005.85) | (314,860.65) | (148,715.45) | 17,429.75 | 183,574.95 | 370,153.75 | 556,732.55 | |
Discounted Factor | 1.00 | 0.91 | 0.83 | 0.75 | 0.69 | 0.63 | 0.57 | 0.52 | 0.47 | |
PV | (813,296.25) | 151,240.34 | 137,672.60 | 125,322.01 | 114,079.40 | 103,845.36 | 94,529.41 | 96,632.07 | 87,963.22 | |
NPV | 97,988 | 97,988 | ||||||||
IRR | 13% | |||||||||
Payback Period | - | - | - | - | - | 4.90 | - | - | - | |
Compounded Factor | 1.93 | 1.76 | 1.60 | 1.46 | 1.33 | 1.21 | 1.10 | 1.00 | ||
FV | 320,795.90 | 292,017.36 | 265,820.53 | 241,973.82 | 220,266.39 | 200,506.33 | 204,966.29 | 186,578.80 | ||
Total FV | 1,932,925.42 | |||||||||
MIRR | 11% |
So we can conclusion, Fonderia di Torino SPA should definitely replace the old machine with the new automated machined. Fonderia di Torini SPA should definitely replace the old machine with the new automated. Benefit over time this calculation illustrated above clearly show that the investment in the new machine greater value to the firm.
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