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CASE 1 9 Fonderia del Piemonte S . p . A . In November 2 0 1 5 , Martina Bellucci, managing director of Fonderia
CASE Fonderia del Piemonte SpA In November Martina Bellucci, managing director of Fonderia del Piemonte SpA was considering the purchase of a Thor MM automated molding machine. This machine would prepare the sand molds into which molten iron was poured to obtain iron castings. The Thor MM would replace an older machine and would offer improvements in quality and some additional capacity for expansion. Similar molding machine proposals had been rejected by the board of directors for economic reasons on three previous occasions, most recently in This time, given the size of the proposed expenditure of nearly EUR million, Bellucci was seeking a careful estimate of the project's costs and benefits and, ultimately, a recommendation of whether to proceed with the investment. The Company Fonderia del Piemonte specialized in the production of precision metal castings for use in automotive, aerospace, and construction equipment. The company had acquired a reputation for quality products, particularly for safety parts ie parts whose failure would result in loss of control for the operator Its products included crankshafts, transmissions, brake calipers, axles, wheels, and various steeringassembly parts. Customers were originalequipment manufacturers OEMs mainly in Europe. OEMs were becoming increasingly insistent about product quality, and Fonderia del Piemonte's response had reduced the rejection rate of its castings by the OEMs to parts per million. This record had won the company coveted quality awards from BMW Ferrari, and Peugeot, and had resulted in strategic alliances with those firms: Fonderia del Piemonte and the OEMs exchanged technical personnel and design tasks; in addition, the OEMs shared confidential market demand information with Fonderia del Piemonte, which increased the precision of the latter's production scheduling. In certain instances, the OEMs had provided cheap loans to Fonderia del Piemonte to support capital expansion. Finally, the company received relatively long Page term supply contracts from the OEMs and had a preferential position for bidding on new contracts. Fonderia del Piemonte, located in Turin, Italy, had been founded in by Bellucci's greatgreatgrandfather, Benito Bellucci, a naval engineer, to produce castings for the armaments industry. In the s and s the company expanded its customer base into the automotive industry. Although the company barely avoided financial collapse in the late s Benito Bellucci predicted a postwar demand for precision metal casting and positioned the company to meet it From that time, Fonderia del Piemonte grew slowly but steadily; its sales for calendaryear were expected to be EUR billion. It was listed for trading on the Milan stock exchange in but the Bellucci family owned of the common shares of stock outstanding. The company's beta was estimated at The Thor MM Machine Sand molds used to make castings were currently prepared in a semiautomated process at Fonderia del Piemonte. Workers stamped impressions in a mixture of sand and adhesive under heat and high pressure. The process was relatively labor intensive, required training and retraining to obtain consistency in mold quality, and demanded some heavy lifting from workers. Indeed, medical claims for back injuries in the molding shop had doubled since as the mix of Fonderia del Piemonte's casting products shifted toward heavy items. Items averaged in The new molding machine would replace six semiautomated stamping machines that together had originally cost EUR Cumulative depreciation of EUR had already been charged against the original cost and six years of depreciation charges remained over the total useful life of years. Fonderia del Piemonte's management believed that those semiautomated machines would need to be replaced after six years. Bellucci had recently received an offer of EUR for the six machines. The current six machines required workers per shift in total at EUR per worker per hour, plus the equivalent of two maintenance workers, each of whom was paid EUR an hour, plus maintenance supplies of EUR a year. Bellucci assumed that the semiautomated machines, if kept, would continue to consume electrical power at the rate of EUR a year. The Review the information presented in Case Fonderia del Piemonte SpA Bruner R Eades, KM and Schill MJ Case Studies in Finance Prepare a pages report that discusses the estimation of project cost, benefits, and recommendation to proceed with investment based off the information provided within the case study. Given the facts presented is this an investment worth making? Why or why not?
CASE Fonderia del Piemonte SpA
In November Martina Bellucci, managing director of Fonderia del Piemonte SpA was considering the purchase of a Thor MM
automated molding machine. This machine would prepare the sand molds into which molten iron was poured to obtain iron castings. The Thor
MM would replace an older machine and would offer improvements in quality and some additional capacity for expansion. Similar molding
machine proposals had been rejected by the board of directors for economic reasons on three previous occasions, most recently in This time,
given the size of the proposed expenditure of nearly EUR million, Bellucci was seeking a careful estimate of the project's costs and benefits
and, ultimately, a recommendation of whether to proceed with the investment.
The Company
Fonderia del Piemonte specialized in the production of precision metal castings for use in automotive, aerospace, and construction equipment. The
company had acquired a reputation for quality products, particularly for safety parts ie parts whose failure would result in loss of control for the
operator Its products included crankshafts, transmissions, brake calipers, axles, wheels, and various steeringassembly parts. Customers were
originalequipment manufacturers OEMs mainly in Europe. OEMs were becoming increasingly insistent about product quality, and Fonderia del
Piemonte's response had reduced the rejection rate of its castings by the OEMs to parts per million.
This record had won the company coveted quality awards from BMW Ferrari, and Peugeot, and had resulted in strategic alliances with those
firms: Fonderia del Piemonte and the OEMs exchanged technical personnel and design tasks; in addition, the OEMs shared confidential market
demand information with Fonderia del Piemonte, which increased the precision of the latter's production scheduling. In certain instances, the
OEMs had provided cheap loans to Fonderia del Piemonte to support capital expansion. Finally, the company received relatively long Page
term supply contracts from the OEMs and had a preferential position for bidding on new contracts.
Fonderia del Piemonte, located in Turin, Italy, had been founded in by Bellucci's greatgreatgrandfather, Benito Bellucci, a naval
engineer, to produce castings for the armaments industry. In the s and s the company expanded its customer base into the automotive
industry. Although the company barely avoided financial collapse in the late s Benito Bellucci predicted a postwar demand for precision
metal casting and positioned the company to meet it From that time, Fonderia del Piemonte grew slowly but steadily; its sales for calendaryear
were expected to be EUR billion. It was listed for trading on the Milan stock exchange in but the Bellucci family owned of the
common shares of stock outstanding. The company's beta was estimated at The Thor MM Machine
Sand molds used to make castings were currently prepared in a semiautomated process at Fonderia del Piemonte. Workers stamped impressions in
a mixture of sand and adhesive under heat and high pressure. The process was relatively labor intensive, required training and retraining to obtain
consistency in mold quality, and demanded some heavy lifting from workers. Indeed, medical claims for back injuries in the molding shop had
doubled since as the mix of Fonderia del Piemonte's casting products shifted toward heavy items. Items averaged in
The new molding machine would replace six semiautomated stamping machines that together had originally cost EUR Cumulative
depreciation of EUR had already been charged against the original cost and six years of depreciation charges remained over the total
useful life of years. Fonderia del Piemonte's management believed that those semiautomated machines would need to be replaced after six
years. Bellucci had recently received an offer of EUR for the six machines.
The current six machines required workers per shift in total at EUR per worker per hour, plus the equivalent of two
maintenance workers, each of whom was paid EUR an hour, plus maintenance supplies of EUR a year. Bellucci assumed
that the semiautomated machines, if kept, would continue to consume electrical power at the rate of EUR a year.
The Review the information presented in Case Fonderia del Piemonte SpA Bruner R Eades, KM and Schill MJ Case Studies in Finance
Prepare a pages report that discusses the estimation of project cost, benefits, and recommendation to proceed with investment based off the information provided within the case study.
Given the facts presented is this an investment worth making? Why or why not?
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