Aurora Textile Co Essay

Submitted By Siddharth-Dakoria
Words: 504
Pages: 3

Aurora Textile
Company
Presented by:
Siddharth (Sid) Dakoria
Sofia Garcia
Yang Wang
BUS. 538
July 2, 2015

About Aurora
 A yarn manufacturer established in the early 1900s to service the domestic and international textile industry.
 90% of the company’s revenue came from domestic textile market  The finished products were cotton and synthetic/cotton blend yarns that were sold to a variety of apparel & industrial-goods manufacturers
 mainly in U.S. retail markets.
 The largest volume producer of all cotton yarns for white athletic socks in the U.S.
 half the U.S. population owns socks made with Aurora yarns. Aurora’s Customer Segments:
 Hosiery Market = 43% revenue

 Knitted Outwear Market = 35% revenue

 Wovens Market = 13% revenue

 Industrial & Specialty products = 9% revenue
 medical supplies
 industrial adhesives
 rubber-and-vinyl coated fabrics
 protective clothing

The Textile-Mill Industry
Started in New England but moved to Southern
U.S. because of cheaper production cost.
Recent years the industry has moved to Asia to take advantage of even cheaper production cost.

The Dilemma
The CFO is questioning whether the company should install a new ring-spinning machine, the Zinser 351

The advantage:
• the ability to produce a finer-quality yarn.
• 10% increase in the selling price of yarn.
• Reduce operating costs,
• lower power consumption & maintenance expenses.

The disadvantage:
• Sales volume would decrease by 5% than the current market
• The cost of customer returns would be higher.
• $8.25 million installation cost. •

Decline in sales led management to close 4 manufacturing facilities in 2000 & to reduce manufacturing cost.

Computing NPV for
Existing Machine and Zinser
351

Existing Machine and Zinser
351
Capacity per week – 500,000lb.
 Therefore, sales volume for base year is
26,000,000 (500,000x52).
Textile industry to grow by 2%
Price and cost to increase by 1%
Selling, General, and Administrative Expenses is
7% of net sales

Existing Machine
 Selling price is $1.0235/lb, and will increase every year by 1%
 Conversion cost is $0.4296/lb, and will increase every year by
1%
 Raw material cost is $0.4509/lb, and will increase every…