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5 questions on the Fonderia del Piemonte S.p.A. Case. Questions below:
1.What discount rate should the firm use when valuing the Thor MM-9 machine? Explain your computations – how do you measure the cost of equity and cost of debt?
2.Assess the economic benefits of acquiring the Thor MM-9 machine. What is the initial outlay? What are the benefits over time? Estimate and interpret the project’s net present value (NPV).
3.What uncertainties or qualitative considerations might influence your recommendation (e.g. inflation, discount rate, inability to lay off existing workers, a reduction in the daily operating hours due to economic slowdown)? Please discuss how each of these factors would affect the NPV.
4.Compute the equivalent annual annuity for both machines and interpret your results. Assume that the semi-automated equipment could be operated for two more years beyond the end of its depreciable life with ordinary maintenance, so that the lives of both machines will be eight years.
5.Should Martina Bellucci proceed with the project? Explain why or why not.