Shanghai Jiao Tong University
Antai College of Economics and Management
Case study: Capital budget for Pressco. Inc
March 2010
Abstract
Ms. Rogers, a marketing re give upative for Pressco, Inc., spares no driving to persuade its potential guests like Paperco to sign a covering fire contracts of purchasing new mechanical drying equipment. In view of the doubt about whether a rumored new tax legislation entrust come into effect or not, company like Paperco must(prenominal) examine the net present value of the old installation and new purchasing (with ITC earned or not) respectively in order to decide if its worth investing. In this paper, net present value of new facility under both subsisting and rumored tax legislation are calculated, as well as the expected cost savings for Paperco. On this basis, we are difficult to make some suggestions on the standpoint of Pressco and its counterparts with the help of predisposition analysis method, and finally our takeaways.
Keywords: Cash Flow, final Present Value, Investment Tax Credit(ITC)
Investment background
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Parties related
Presso. Inc: a company in the line of mechanical drying equipment
Paperco: a potential customer of Pressco. Inc.
Jane Rogers: a marketing representative for Pressco
In the year 1984, Jane Rogers used to persuade Papercos management to buy this new mechanical drying equipment, but it turned out to be unsuccessful because the customer viewed the proposed investment as moderately inviting but easily postponable at little cost to Paperco.
In the year 1985, Jane Rogers decided to persuade Papercos management again with her well-prepared financial presentation, which was designed to help close the sale of the new equipment. In her presentation, she gave the expected price of the new equipment of $2.9 million, and also pointed out that the cost saving that Paperco would realize from the proposed new...
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