Business Case Studies & Business Publications

Fonderia di Torino S.p.A.

Bruner, Robert F.

Case

Fonderia di Torino S.p.A.

Bruner, Robert F.

F-1350 | Published October 8, 2001 | 4 pages Case

Collection: Darden School of Business

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The managing director of this specialty foundry must decide whether to approve a major investment to automate part of her plant's production process. The case presents information sufficient to build cash flow forecasts of production costs incremental to this investment. Discounted cash flow (DCF) analysis reveals that this investment project is attractive but that the benefits hinge on important assumptions about the plant's business volume, the manager's ability to lay off workers over the objections of a labor union, and the hurdle rate. The objectives of the case are to (1) introduce students to the mechanics of DCF analysis of go/no-go capital investment decisions, (2) consider the principle of incremental analysis as the foundation for identifying relevant cash flows for a project, (3) explore the classic trade-offs in capital-for-labor investments, and (4) review analytical adjustments required in comparing projects of unequal lives.