Aurora Textile Case study solved (Capital budgeting )

*****

*******

Professor

***********

Aurora

Textile

Company
*******

Budgeting:

Replacement ******* ****

*****

********** ****** Textile *******

*****

**** * delicate and

challenging

**** owing ** **** its internal and external ************ While there ** ****** *** company *** ** about *** ******** environment ***** ** ************* by global liberalization ** trade ***** ******** **** ***** ******* **** **** *************** in ***** and ********** changing ****** in consumer ****** *** *********** costly production ********** *** ******** ****** *** ******* ************ that ** *** ****** ** a *** ******* ** ****** *** ******** and **** ** in operation ********* ** ************* *** ****** ***** ********** processes to ****** **** ***** ***** **** as **** ** ***** labor costs an ******** **** ** *** ************* ** well ** operating ***** With ************* ******** and * ******* share ***** Aurora’s ********** *** leadership is in * ******* ** ******* ** invest **** ***** to revamp *** ******* ******** *** ****** quo or sell its assets The ******* ***** will **** ** *** current company’s *********** ***** ********* analysis as well ** *** ******** ** * ******* budgeting ***** *********** decision ***** the **** approach ** ********* the **** ***** ** action
********* *********** ***** ******** ***** ******* 2002)
** ***

four

**** ****** ********

1999

to **** ****** textile ********

*********

financial performance ** ***** ** financial ratios ** this ******* ***** *** several ******* that *********** ** *** ********** trend ** the *************** performance ** *** ***** ***** ******** **** *** **** ** industry comparables ** yardsticks **** ***** to *** *** ********* *** *********** ******** of Aurora the ******* discourse ******* on ***** ******** *** * *** ** financial ****** *** *** ********* Status Quo
*** ******** ******** *** ******* ** ******** the current ********** *****

**

****** ******

***

**** ** **** ******* at *** ***** ***** of ****** assuming * ******* **** *** ********** ********** ** that ***** will ******** by ** in terms ** ****** *** ** increase due ** ****** Similarly *** ******* **** also ****** ** increase in ********** *** ******** costs ***** **** increase ** *** **** **** of ******* price ***** ** ** SG&A ***** amount ** ***** percent *** ******** accordingly *** *** ********* ** *********** on a straight **** ***** **** nil ******* value Because *** current book ***** ** *** ***** ******* ** ******** ***** ** *********** ** a ************* ***** for *** ***** with * *** ******* ***** *** company’s NPV ***** *** *** ******* ** *** ******** *** ******* * Invest ** ****** ******** *** ********* and ******** ******* ** *** ***

**********

are ** *** differential cash ***** because

*****

are *** **** ******* that **** ****** ************** decision making ** * ****** the decision ** ****** in the new machine ****** machine or ******** *** ******* ******* and ***** *** the ******* ** the ****** *** **** ** analyzing the *********** ** ******* *********** ** ****** ***** ********* ******** and ************ ***** ******** **** million Another ****** ** ******** ** *** ******** **** *** sale ** the *** ********* ** amount ** ******* ** *** **** **** *** ******* must **** consider *** ******** **** ********** **** *** *** ******* to ***** *** ********* familiarization ** *** ***** ** ****** of * 50000 ****** *** $32000 ***** tax ** demonstrated in (exhibit ** ** *** management decides ** ****** ** the Zinser ******* ***** **** ******** ** ** ** *** ***** **** ** ********* but ***** **** **** ******** **** *** in *** **** period **** ** ********** material **** remain *** **** as ** the ****** *** ******* ********** ***** **** decrease ***** ** better ******* which ****** **************** returns and *** decrease ** ***** *********** *** ** ****** ********** The new ******* **** **** lower *** **** ** holding ********* ******* *** **** in ********* **** be ******* to ** **** *** **** of the *********** other **** *** **** ********* above remain *** same as with *** ****** *** ** **** **** ********* ** ****** ******** ******* ** ****** *** *** ******* Zinser *** NPV *** to this ******** is * **** ** ***** ** *** ******** ****** exhibit 3 ** ********* ********* especially under *********** ****** *** investment **** *** *** ****** *** ** the ***** ********** ** ****** ** ****** textile ** ** ****** ** Zinser ******* ** *** a ****** *** ** 155 ******* ******** ** * ** ******* ***** *** *** machine
*** Effect ** *** *********** Cash ****** *** ******* ** investment ** ****** *** an *** **

*

*********** *** an internal rate ** ******

**

*** ***** ** higher compared ** *** company ****** **** or cost ** capital ******* 4 *** *** *********** have ** ****** on *** NPV ******* ** central ********** is ************** ******** ** the ** ***** ** *** ***** of analysis ** *********** of *** company as equity ******* **** ******** shown ** ******* ** and ******** that we ignore the ******* ***** the ***** **** of ********** cash ***** **** ***** at *** * ** ***** year ** *** ********* ****** *** * ******* ****** ** 45 years Better ***** *** ******* *** ******* *** ***** ****** *** start of *** fourth year ** *** *** ******* *** fetch *** of *** **** ***** ** salvage value *** ******* **** **** **** **** * ***** ** ******* *** costs ** the machine
*************** Innovation ** ********* ** ****** ******* ***** ** ******* *************** **** ******* that ***** *** **** elements **

***

market

****

cannot ** changed ** *** *** machine *** ******** **************** ****** *** preference *** ********* ** ******** ***** The company *** ** ***** ****** than to ****** ** modern ********** ** *** only *** ** ********* ** edge ***** is **** **** ** *** down ** **** ****** ******* outsourcing **** ********** activities ** moving ** ****** **** ******** ***** ***** **** as **** **** ** ******* **** *************** **** **** ** achieved ** the ******* ***** better **** to ** ********* *** ** ******** high quality ************ *** *************** ******** ****** **** remain ********* ** *** ****** forces **** will remain ******** *** that *** affect the overall outcome other **** *** ******* ********* ** **** ********* ******* ** ****** ******* ******** Trend *** ratios
***** 2000
2001
***** Sales ******* 656%
****** ****** Raw **************** ****** ******

******

****** Conversion

***********

****** 3665%
******

******

*****

*************

******

******

*****

******

**********

594%

*****

***** ***** ********

Expense

growth

*****

*****

*****

*****

*********

Profit

******

******

-179%

******

030%

***

profit

ratio

-182%

-271%

******

******

****

*****

************

257

185

****

****

****

inventory

956

****

****

*****

*****

*********

****

****

128

****

****

***********

***********

−78%

***********

***

***********

−95%

************

************

Exhibit

**

*******

3

Exhibit

*

******

*******

********

************

of

***************

Sale

**

********

Ring-Spinning

********

Book

******

*********

Current

******

value

******* *****

********

***

savings

******

540000

***

proceeds

***

********

********

$1040000

Purchase

**

***

*******

*****

**

Zinser

*********

********

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******* Airflow

*************

******

Testing

30000

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****

**

***

******

**

***

***

**

****

***

****

******

$0

******

value
100000

*****

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***

on

gain

@36%

******

Net

proceeds

*******

*******

5

***********

Cash

****


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