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Aurora Textile Case study solved (Capital budgeting )
PLEASE answer the following questions as well as you can. make sure to cover what the questions ask. This paper has so mush grade so I need you to do your best.
Case Study:
"Aurora Textile Company%u0432%u0402%u045C Case number (21)
Case Studies in Finance, pp. 311-322
1. How has Aurora Textile performed over the past four years? Be prepared to provide financial ratios that present a clear picture of Aurora%u0432%u0402%u2122s financial condition.
2. List the factors affecting the textile industry. What do you think is the state of the industry in the United States? How should you incorporate the state of the textile industry into your analysis? Why should anyone invest money in the industry?
3. What are the relevant cash flows for the Zinser investment? Using a 10% WACC and assuming a 36% tax rate, what do you get as the NPV for the project? What are the value drivers in your analysis? What do you estimate as the cost per pound for customer returns under the Zinser alternative? (Hint: for a replacement decision, analysts often find it helpful to prepare two sets of cash flows and two NPVs%u0432%u0402%u201Done for the status quo and one for the new machine.)
4. Craft a memo to the board of directors stating your recommendation about investing in the new Zinser machine. Part of your memo should explain why it is better to invest in the Zinser or to pay a dividend to the shareholders. Be sure to explain the primary reasons that justify your recommended course of action.
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Professor
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Aurora
Textile
Company *******
Budgeting:
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**** * 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
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1999
to **** ****** textile ********
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financial performance ** ***** ** financial ratios ** this ******* ***** *** several ******* that *********** ** *** ********** trend ** the *************** performance ** *** ***** ***** ******** **** *** **** ** industry comparables ** yardsticks **** ***** to *** *** ********* *** *********** ******** of Aurora the ******* discourse ******* on ***** ******** *** * *** ** financial ****** *** *** ********* Status Quo *** ******** ******** *** ******* ** ******** the current ********** *****
**
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***
**** ** **** ******* 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 ******** ******* ** *** ***
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are ** *** differential cash ***** because
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*
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***
market
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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 **************** ****** ******
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inventory
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