Corporate Finance

Essay by abbassUniversity, Master'sA-, April 2010

download word file, 15 pages 0.0

Downloaded 56 times

Antai College of Economics and Management

Case study: Capital budget

for Pressco. Inc

Team: Jian Feiyi 1091209040

Zhang Yangyi 1091209041

Shi Yan  1091209053

Ge Mengfei 1091209051

Tong Xuemin 1091209031

March 2010


Ms. Rogers, a marketing representative for Pressco, Inc., spares no effort to persuade its potential customers like Paperco to sign a binding contracts of purchasing new mechanical drying equipment. In view of the uncertainty about whether a rumored new tax legislation will come into effect or not, company like Paperco must examine the net present value of the old facility and new purchasing (with ITC earned or not) respectively in order to decide if it's worth investing. In this paper, net present value of new facility under both existing and rumored tax legislation are calculated, as well as the expected cost savings for Paperco. On this basis, we are trying to make some suggestions on the standpoint of Pressco and its counterparts with the help of sensitivity analysis method, and finally our takeaways.

Keywords: Cash Flow, Net Present Value, Investment Tax Credit(ITC)


41.1 Parties related �

41.2 Investment tax credit (ITC) �

51.3 Rumored tax legislation �

52. Financial analysis �

62.1 NPV for equipment replacement without tax change �

72.2 NPV for equipment replacement under new tax legislation �

82.3 NPV for equipment replacement without ITC �

93. Dynamic financial analysis �

103.1 floating cost saving �

123.2 floating price the equipment investment �

153.3 Adjusted discount rate �

164. Conclusions and suggestions �

164.1 Conclusions �

174.2 Suggestions for both parties �

175. Takeaways �


Investment background

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...