Aurora Textile Company Case SummaryIntroductionAurora Textile Company (hereinafter “the Company”) is a yarn manufacturer thatproduces cotton and synthetic/cotton blend yarns. The Company has operated for around 100years, with the domestic textile market creating about 90% of the Company’s revenue. TheCompany has four major customer segments, listed from the largest percentage of sales to theleast, they are: hosiery, knitted outerwear, wovens, and industrial and specialty products.Recently, the U.S textile industry has undergone some hardships. One reason is that severalapparel makers have relocated their production facilities to Asia in search of lower costs.Another issue is that consumers (especially in high-end markets) have little tolerance for yarndefects. With the advent of better information technology systems, the liability costs of yarnproducers has increased due to the new ability to trace yarn defects back to the producer.Because of these hardships, the Company’s sales have been steadily declining. In 2000,the Company closed four manufacturing facilities. The Company currently has four plantsremaining in operation. The Hunter plant is seeking installation of a new ring-spinning machine,the Zinser 351. This machine would yield higher quality yarn, allowing for sales in a nichemarket that would increase the selling price of yarn by 10%. Additionally, operating costs wouldbe reduced through greater production efficiency. One downside is that sales volume would be5% lower and another is that the cost of customer returns (although less frequent) would behigher. The following is an analysis of cash flows showing whether Michael Pogonowski shouldinvest $8.25 million and purchase the new machine.
