Introduction:

Fonderia del are one of the finest manufacturers of specialized nature production of precision metal casting to be used in automotive, construction and aerospace equipments. The company is famous to provide the quality equipments all around the industry. The company’s also has earned many rewards from the reputable automotive companies, the company has shown favorable growth trends, and the predictions stated that the company would earn revenues of 1.3 billion euros in 2015. The company is listed on Milan stock exchange and the bellucci company owns 55% of the common shares of the company.

What are the basic nature of problem in the case?

Problem statement:

Martina Bellucci, the managing director of Fonderia Del Piemonte, considering to buy a new machine that is an automated molding machine, the machine would be used to prepare iron casting, the decision will be taken to buy or not the machine so that the old machine can be replaced, so that the new automated machine would increase the product quality and also increases the capacity of the company. The current machines require more human efforts and increased utility costs, the managing director must have to consider the costs and revenue aspects that are associated with the new machine and would propose the board that either they should buy the new machine? Considering all the concerned factors, decision shall be taken in this regard.

Fonderia Del Piemonte S.p.A. Harvard Case Solution & Analysis

What are the cash flows associated with the Thor MM-9 investment?

The cash flows that are taken to calculate the NPV of the investment are, the costs that are associated with the project and the revenues that are calculated at 7% of the investment i.e. the historic rate that is used to find out the revenues that is the possible revenues of the investment. As the capacity and efficiency of the company increases, the assumption is taken, i.e. the revenues of the company will increase by 20% in the following years, more over the outflows that are considered to find out the NPV of the project are, the workers’ salaries, initial direct costs power and utility costs and other ancillary costs. Taxes are also deducted at the rate provided in the case.

What discount rate did you use? Using fundamental analysis, what is the NPV of the investment?

The discount rate calculated by the figures provided in the case, the weight of debt and equity is considered, and the cost of capital is used to discount the free cash flows associated with the investment. The WACC calculated is 5.17%. The company has lower debts and high equity values, reflecting in the company’s cost of capital. Moreover, the NPV of the project is calculated as around 1.7 million euros. The respective IRR of the project is calculated as 16%. The rate of return from the machine is quite impressive. And the project shows feasibility to peruse...........................

This is just a sample partial work. Please place the order on the website to get your own originally done case solution.