Pressco Inc Case Study

... 1. What parts of the supply chain are most closely involved with the situation in this case? What is the responsibility of each part in order to maintain a smooth flow of material? It is no doubt that the ultimate problem rising in the case is miscommunication. Communication is utmost vital for both parties – purchasers and suppliers- to interact effectively, hence, to conduct business smoothly. On the other hand, it is also a lack of competency of Avion, Inc.’s procurement managers as they were unaware of such obvious changes in volume and delivery time required for operation though they deal with the flow of material on a day-to-day basis. They could not identify the problem, but also did not even bother initiating inquiries with Foster Technology sooner. To maintain a smooth flow of material, every aspects of value chain, including inbound, outbound logistics, operations, marketing and sales, and customer services must be fulfilled. In the case of Avion, Inc., the volume of goods shipped and its delivery lead time are far beyond the actual ability and capacity that Foster Technology could handle. The inbound logistics was hence affected, slowing down operations and outbound logistics, causing frustrated customers. 2. What initially appears to be the problem? What really is the problem(s) in this case? Delayed shipment initially appears to be the problem causing the whole...

Pressco Case Analysis

Julie Morgan

Finance 6420

Pressco, Inc.

Statement of Financial Problem.

What is the Net Present Value of the Mechanical Drying Project for Paperco if the following is assumed?

The current tax law does not change.

The project is completed in December 1986.

The time frame is 1985-1996

Financial Framework.

Paperco wants to understand how the business risk of new tax legislations will affect their decision to purchase new equipment. What financial risks to earnings will occur if the investment in new equipment is made?

In capital budgeting there are a number of ways to evaluate projects; each approach has its own advantages. All other things being equal, using IRR and NPV measurements to evaluate projects often result in the same findings. However, using IRR is ineffective in a project with a mixture of multiple positive and negative cash flows therefore using NPV to evaluate this project is the best choice.

The Net Present Value (NPV) compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account. When deciding between two different projects or many projects the NPV is used to help determine which project will yield the highest value to share holders and how much value can be added to a given company for investing in the project. When evaluating a single project if the NPV is positive it should be accepted. We calculate the NPV by:

Determining the cash out flow or cost of the equipment or project.

Any installations or set up costs should also show as cash out flows.

There may be tax credits that need to be taken into consideration because, in essence, that would be a cash inflow.

Another important factor in calculating the NPV is that tax rate used by the company. The tax rate can cause a "tax shelter", which in the case of NPV acts as a cash inflow.

After tax impact or cost savings is also added to the equation as a cash inflow.

The salvage value or the proceeds from the sale of equipment after its disposal and after taxes is added as a cash flow.

Once all of these things are taken into consideration the company can sum the inflows and outflows each year to find the net cash flow. Once the net cash flow has been found we discount the project at the projects risk-adjusted cost of capital. Once this has been done we take the sum of the discounted cash flows to define the projects NPV.

Apply Financial Framework.

We begin our analysis of the NPV with some outflows of cash, the purchase of the equipment over two years, a negative cash flow of $(1,050,000) for both 1985 and 1986 and the outflow of $(800,000) in 1986 for the installation of the equipment

The property was...

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