How should Invast Precision Products prioritize capital investment projects proposed by 3 divisions given that only $1.2M retained earnings are available for capital investment? Which investments are to be given priority? Which financing options are to be recommended? Brief Company History Invest Processing Product – Mother Company Founded in 1965 by Webner Gruber Based on Houston, Texas Specialized in the investment casting process of ferrous and non-ferrous materials.
Complex Casting Corporation – Subsidiary Acquired by IPP (Invast Precision Products) in 1977 to improve the Company’s competitive advantage Specializes in the production of highly complex ferrous casting and intricate internal configurations. IPP Financial Corporation Organized in 1977 to gain max leverage from the mother company’s strong cash position through short-term real estate investment.
Analysis of Requested Capital Investments Error! Not a valid link. Total Needed Investment Capital to Finance all Requested Projects: $4,900 all figures are in thousands (‘000) Only the investment in Gnaw Bone Broach has resulted to a negative NPV. But the repair of this machinery is critical to continue operations for Invast.
Net Present Value 3,376 all figures are in thousands (‘000) Decision Points
It is mainly presumed that Invast Main and Complex Casting holds high priority for facilities upgrade. To decide not to upgrade their facilities would result to huge lost of income in the two casting companies. Requested up-grade by both casting companies will result to speed and efficiency of production that will immediately result in increase of revenues, savings in production cost, and leverage in the highly competitive nature of the casting business.
IPP Financial Corporation will take second priority because the main purpose of the corporation’s existence is to support the leverage needs of the casting companies. Sell the Hawaiian Acreage’s 473 acre land at present market price of $4.56M to help finance both IPP’s and Complex Casting’s investment requirement. But, still invest in the Hawaiian Acreage’s 100 acre land to continuously uphold the company’s goal of gaining maximum leverage through short term real estate investments.
