Corporate Finance Analysis for Aurora Textile Company

Running head: CORPORATE FINANCE ANALYSIS
Corporate Finance Analysis
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CORPORATE FINANCE ANALYSIS
Table of Contents
Identified issue...........................................................................................................................2
Financial Analysis......................................................................................................................3
References..................................................................................................................................7

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CORPORATE FINANCE ANALYSIS
Introduction and Recommendation
The chief financial officer of the company Aurora Textile Company has the intention to
question whether the business concern has the need to install a new machine that is Zinser in
the production facility. The case outlines the fact that this new machine has the potential to
manufacture a superior quality yarn that can be essentially utilized for high quality as well as
high margin products for the company.
The purpose of the current study at hand is to critically analyse incremental stream of cash
that in turn can assist in identification of cash flow pertinent to capital-investment decision.
In addition to this, the current study has the intention to construct side by side discounted
flow of cash evaluation for undertaking decisions of replacement, adaptation of NPV decision
rule for a dying else wise troubled industry, analysis of impact of financial distress on
enumeration of NPV. Analysis of outcome helps in analysis of significance of sensitivity
analysis to a specific capital investment decision.
Problem Formulation
The main challenge for the business concern Aurora Textile Company include financial
performance of the firm. During the period 1999 to 2002, overall financial performance of the
business concern was very unattractive as well as disheartening. Essentially, this can be
attributed to risks of business that stemmed from stiff competition that characterizes the
segment in which Aurora functions. Considering the year 1999 as a base period, it can be
mentioned that different dimensions of profitability have necessarily worsened. In essence,
on a cumulative yearly basis, overall net sales has decreased by approximately 15%, whilst
profit margins and return on assets (ROA) remained in the negative. Whilst costs of raw