Caso Practico

Minicase
Flowton Products enjoys a steady demand for stainless steel infiltrators used in a number of chemical processes. Revenues from the infiltrator division are $50 million a year and productioncosts are $47.5 million. However, the 10 high-precision Munster stamping machines that are used in the production process are coming to the end of their useful life. One possibility is simply toreplace each existing machine with a new Munster. These machines would cost $800,000 each and would not involve any additional operating costs. The alternative is to buy 10 centrally controlled Skilborostampers. Skilboros cost $1.25 million each, but compared to the Munster, they would produce a total saving in operator and material costs of $500,000 a year. Moreover, the Skilboro is sturdily builtand would last 10 years, compared with an estimated 7-year life for the Munster.

Analysts in the infiltrator division have produced the accompanying summary table, which shows the forecast totalcash flows from the infiltrator business over the life of each machine. Flowton’s standard procedures for appraising capital investments involve calculating net present value, internal rate of return,and payback, and these measures are also shown in the table.

As usual, Emily Balsam arrived early at Flowton’s head office. She had never regretted joining Flowton. Everything about the place, fromthe mirror windows to the bell fountain in the atrium, suggested a classy outfit. Ms. Balsam sighed happily and reached for the envelope at the top of her in-tray. It was an analysis from theinfiltrator division of the replacement options for the stamper machines. Pinned to the paper was the summary table of cash flows and a note from the CFO, which read, “Emily, I have read through 20 pages ofexcruciating detail and I still don’t know which of these machines we should buy. The NPV calculation seems to indicate that the Skilboro is best, while IRR and payback suggest the opposite. Would...