Maketheanalysisbyansweringthefollowingquestions (case and calculation result below):

1. AssestheeconomicbenefitofacquiringtheVulcanMold-MakerMachineincluding:Whatistheinitialoutlay?Whatarethebenefitsovertime?Whatisanappropriatediscountrate?Doesthe net presentvalue(NPV)warranttheinvestmentin themachine?
2. What uncertainties or qualitative considerations might influence your recommendation?Whatdoesa sensitivity analysisofthoseassumptionsreveal?
3. WhatshouldFrancescaCerinirecommendtoherboardofdirectors?
4. Case Background?
5. Methodology and analysis?
6. Recommendation?

Using this data below

\fCash flows of old machine Cash flows of new machine Difference Sales 250.000.000.00 250.000.000.00 Cost 351,405.50 113,315.50 232,050.00 EEIITDA 223.845.550.40 223.550.850.40 232,030.00 Annual Depreciation ' 42,520.00 ' 112,500.00 54,550.00 EEIIT 225.501.020.40 225.255.150.40 152,110.00 Net Income 215.055.534.51 225.255.125.52 51.525.344.21 Operating Cash flow 215.135.354.51 223.550.525.52 180.232.20 Cost of can ital Year Cost of capital Cash flows Discounted cash flows 5. 30/ 5.55A 5.51% 5.02% 5.34% 5.52% 5. 51% 010101th 150, 232. 20 150,232.20 150.232.20 150,232.20 150,232.20 150,232.20 225,000.00 PV of discounted cash flow Initial investment NPV [$143 040. 35] [$135, 001. 43] [$124,305.13] [$113,212.30] [$102,510.40] [$02,320.34] [$123,503.53] [$043,053.01] $555,000.00 [$152,552. 01] Total savin . Year Cash flows WADE Investment Cost of capital Profit 5. 30% 5.55% 5.51% 5.02% 5.34% 5.52% 150,232. 20 2 150.232.20 3 150,232.20 4 150,232.20 5 150,232.20 5 150,232.20 Layoff Cost Total saving 503,102.35 Total labor laid-off 24 Labor cost 2.33 Compensation'labor 12,314.40 Total maintenance labor laid-off 3 Maintenance labor cost 2.55 Compensation'maintenance labor 13,155.00 La off Cost Net profit from newI machine [after lay off] 335 105 50 223 552 25 l 555 000. 00 54 453. 34 105 355. 05 555,000.00 55,003.55 104,135.04 555,000.00 53,300.50 102,452.11 555,000.00 50,514.00 100,310.30 555,000.00 51,200.42 00,033.20 555,000.00 53,130.41 03,004.20 :- \fconfidential marketdemand information with Fonderia di Torino, which increased the precision of the Iatter's production scheduling. In certain instances, the OEMs had provided cheap loans to Fonderia di Torino to support capital expansion. Finally, the company received relatively long term supply contracts from the OEMs and had a preferential position for bidding on new contracts. Fonderia di Torino, located in Milan, Italy, had been founded in 1912 by Francesca Cerini's greatgrandfather, Benito Cerini, a naval engineer, to produce castings for the armaments industry. In the l920s and l930s, the company expanded its customer base into the automotive industry. Although the company barely avoided nancial collapse in the late 1940s, Benito Cerini predicted a postwar demand for precision metal casting and positioned the company to meet it. From that time, Fonderia di Torino grew slowly but steadily; its sales for calendaryear 2000 were expected to be 280 million. It was listed for trading on the Milan stock exchange in 199], but the Cerini family owned 55% of the common shares of stock outstanding. (The company's beta was 1.25.') The company's traditional hurdle rate of return on capital deployed was 14%. [This rate had not been reviewed since 1934.} In addition, company policy sought payback of an entire investment within ve years. At the time of the case, the market value of the company's capital was 33% debt and 61% equity. The debt consisted entirely of loans from Banco Nazionale di Milano bearing an interest rate of 6.3%. The company's effective In rate was about 43%, which reflected the combination ofnational and local corporate incometax rates. Francesca Cerini, age 57, had assumed executive responsibility for the company 20 years earlier, upon the death of her father. She held a doctorate in metallurgy and was the matriarch of an extended family. Only a son and a niece worked at Fonderia di Torino, however. Over the years, the Cerini family had sought to earn a rate of return on its equity investment of about 18%this goal had been established by Benito Cerini and had never once been questioned by management. The Vulcan MoldMaker Machine Sand molds used to make castings were prepared in a semi-automated process at Fonderia di Torino in 2000. 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 1998 as the mix of Fonderia di Torino's casting products shifted toward heavy items. (Items averaged 25 kilograms in 2000.] The new molding machine would replace six semi-automated stamping machines that, together, had originally cost 415,807. Cumulative depreciation of' E 130,682 had already been charged against the original cost; annual depreciation on those machines had been averaging 64?,520 a year. Fonderia di Torino's management believed that those semiautomated machines would need to be replaced after six years. Cerini had received an offer of 130,000 for the six machines. The current six machines required 12 workers per shift1 (24 in total) at 133 per worker per hour, plus the equivalent of 3 maintenance workers, each of whom was paid 7.85 an hour, plus maintenance supplies of 64,000 a year. Cerini assumed that the semiautomated machines, if kept, would continue to conSume electrical power at the rate of E 12,300 a year. The Vulcan MoldMaker molding machine was produced by a company in Allentown, Pennsylvania. Fonderia di Torino had received a firm offering price of 850,000 from the Allentown rm. The estimate for modications to the plant, including wiring for the machine's power supply, was El55,000. Allowing for shipping, installation, and testing, the total cost of the Vulcan MoldMaker machine was expected to be 1.01 million, all of which would be capitalized and depreciated for tax purposes over eight years. (Cerini assumed that, at a high and steady rate of machine utilization, the Vulcan MoldMaker would need to be replaced after the eighth year.) The new machine would require two skilled operators (one per shift), each receiving El [.36 an hour (including benets), and contract maintenance of 59,500 a year, and would incur power costs oft-326,850 yearly. In addition, the automatic machine was expected to save at least 5,200 yearly through improved labor efciency in other areas of the foundry. With the current machines, more than 30% of the foundry's floor space was needed for the wide galleries the machines required; raw materials and inprocess inventories had to be staged near each machine in order to smooth the workflow. With the automated machine, almost half of that space would be freed for other purposes (although at present there was no need for new space). Certain aspects of the Vulcan Mold-Maker purchase decision were difficult to quantify. First, Cerini was unsure whether the tough collectivebargaining agreement her company had with the employees' union would allow her to lay off the 24 operators of the semiautomated machines. Reassigning the workers to other jobs might be easier, but the only positions needing to be lled were those of janitors, who were paid E4. 13 an hour. The extent of any labor savings would depend on negotiations with the union. Second, Cerini believed that the Vulcan Mold Maker would result in even higher levels of product quality and lower scrap rates than the company was now boasting. In light of the everincreasing competition, this outcome might prove to be of enormous, but currently unquantiable, competitive importance. Finally, the Vulcan MoldMaker had a theoretical maximum capacity that was 30% higher than that of the six semiautomated machines; but those machines were operating at only 90% of capacity, and Cerini was unsure when added capacity would be needed. The latest economic news suggested that the economies of Europe were headed for a slowdown