Fonderia del Piemonte S.p.A.: The Falcon3 Capital Investment

The managing director of a specialty foundry must decide whether to approve a major investment to improve the automation of part of her plant’s production process. The case presents information sufficient to build cash flow forecasts of production costs incremental to this investment. Discounted cash flow (DCF) analysis reveals that this investment project is attractive but that the benefits hinge on important assumptions about the plant’s business volume, the manager’s ability to lay off workers over the objections of a labor union, and the hurdle rate. This case provides an update for the case Fonderia del Piemonte S.p.A. (UVA-F-1764). The case is designed as an intermediate case in capital budgeting and for placement in the first-year core finance course at the Darden School of Business.