Group Genius Case 2 MetalCrafters
Executive Summary Metalcrafters Inc. was founded in the late 1970s and originally specialized in producing polished and anodized aluminum hardware and molding parts for the auto industry. Over the years, MetalCrafters has diversified to producing parts outside of the auto industry to the point where in 1999, over half the parts produced and 40% of the revenue were not associated with the auto industry. Capital investments that are more than $5,000 need to be approved by the budget committee. In September 2000, a new stamping press and an extrusion press were requested. Two models of the stamping press and the extrusion press were under consideration. The SX-65 costs $65,000 and is expected to last 5 years. The MD-40 is more durable and is expected to last 10 years at a cost of $90,000. For the Extrusion Presses, Metalcrafters will have to choose between a small press costing $650,000 and a large press costing $1,000,000. Due to capacity constraints, Metalcrafters can only choose 1 to order. Additionally, management had to choose between 2 parts orders between Eades Electric and Sawmasters due to limited capacity.
Analysis of the future cash flows from each press is located in the appendix. The NPV method was the preferred evaluation method for reasons mentioned in the following section. The further analysis will show why the MD-40 prevails against the SX-65 as well as why the larger extrusion press is favorable to the smaller one. In addition, the Sawmasters order was more favorable than the Eades Electric order. Possible changes in the tax code along with non-financial issues are brought up for additional consideration that can influence the recommendation.
Evaluation Method
First of all, we believe it is necessary to ensure the evaluation method to be adopted for the future projects evaluation. So far, Metalcrafters’ board members were using 3 different methods to evaluate the projects. The three methods are internal rate of returns (IRR), net present
Analysis of the future cash flows from each press is located in the appendix. The NPV method was the preferred evaluation method for reasons mentioned in the following section. The further analysis will show why the MD-40 prevails against the SX-65 as well as why the larger extrusion press is favorable to the smaller one. In addition, the Sawmasters order was more favorable than the Eades Electric order. Possible changes in the tax code along with non-financial issues are brought up for additional consideration that can influence the recommendation.
Evaluation Method
First of all, we believe it is necessary to ensure the evaluation method to be adopted for the future projects evaluation. So far, Metalcrafters’ board members were using 3 different methods to evaluate the projects. The three methods are internal rate of returns (IRR), net present