Pressco Case

Executive Summary

Jane Rogers, Pressco, Inc. sales representative is trying to sale drying equipment to Paperco, Inc. The first Roger’s attempt to sale the products fail, but, however in November 1985 the new tax legislation had been rumored and Peperco, Inc. was interested in by the Pressco equipment.

There are three solutions for this case to be analyzed and discussed.

1. Buy the new equipment without any change in taxes. This option has a NVP of $78.978.16.

1. Buy the new equipment with the new tax proposes with the biding contract to be “grandfathered” by the congress with the depreciation and tax credit. In this case, Paperco receives the 8% of tax credit and the reduction of the tax rate to 34%. This option is the best for Paperco because the NPV is $ 194.366,04.

1.  Buy the new equipment with the new tax proposes without the biding contract. In this case, Paperco receives the 8% of tax credit and a depreciation period of 7 years. This option has a NVP of -38.360,93.

Case Analysis

Is expected an increase of the investment of 8%.

In addition, we must take into consideration three aspects: price increase trend of gasoline, increased utilization of paper and grow of the American’s economy.

Gas Prices

The fuel costs are 64% of the total costing savings with the new equipment. The cost of gasoline is an international suffering drastic price increases and decreases according to strategic changes in producer countries of oil and war.

The NVP was calculated assuming that the gas price would be stable. In the last five years the gasoline increased by approximately 4%.

Whereas gas increased, the value of savings with gas will be larger and have a more favorable NVP for Paperco.

Paper Demand[pic 1][pic 2]

There is also the trend of increased utilization of paper. In 1985 it was released the first Windows for personal computers.

In 1984, it launched the first printer low cost laser printer by HP for use in companies. In 1988 he was released the first printer to become a home consumer.

The technology was advancing and the paper utilization grown along with the demand for printing.

US GDP Grow Rate

After a significant increase in the US GDP between 1982-1983, the trend in 1984 growth is stabilizing or leads drop in GDP.

In 1984, the US economy appears strong enough to maintain growth in previous years and can support new growth.

The development of the economy makes the demand for materials and services have boosted growth with the GDP.

[pic 3]

Figure 2: US GDP Grow Rate

Papermaking Process

Many modern papermaking machines are based on the principles of the Fourdrinier Machine. The Drying section, where the pressed sheet passes partly around, in a serpentine manner, a series of steam heated drying cylinders. Drying removes the water content down to a level of about 6%, where it will remain at typical indoor atmospheric conditions. [pic 4][pic 5]