1. How has Aurora Textile performed over the past four years? Be prepared to provide financial ratios that present a clear picture of Aurora's financial condition. 2. What are the limitations to ratio analysis? Are there any ratios that are particularly important or revealing? Ratios are often grouped into liquidity, solvency, profitability and activity ratios. Which is (are) the most important for Aurora? 3. List the factors affecting the textile industry. What do you think is the state of the industry in the United States? How should you incorporate the state of the textile industry into your analysis? Why should anyone invest money in the industry? What is the current and expected impact of trade agreements and foreign competition? 4. What are the relevant cash flows for the Zinser investment? Using a 10% WACC and assuming a 36% tax rate, what do you calculate as the NPV for the project? What are the value drivers in your analysis? What do you estimate as the cost per pound for customer returns under the Zinser alternative? Should you use expansion analysis or replacement analysis for the proposed Zinser investment? (Hint: for a replacement decision, analysts often find it helpful to prepare two sets of cash flows and two NPVS-one for the status quo and one for the new machine.) 5. One of managements' primary concerns is the return rate (as percentage of volume) associated with the Zinser machine. What would be the NPV if the return rate remained at 1.5% instead of dropping to 1%? As part of the risk management process, management is concerned with realistic "worst-case" scenarios. In particular, at what return rate would the project break even? 6. The 36% tax rate assumed in the case is the marginal tax rate for Aurora based on Exhibit 1. Given that the firm has previous losses and potential carryforwards, the effective tax rate in the near future is likely to be lower. Assess the impact of a lower tax rate on the decision to purchase the Zinser.