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Primus Case Solution

Primus Automation is pitching a lease agreement for an automation machine to aircraft manufacturer Avantjet. Avantjet is struggling financially and wants to cut costs and accelerate production. Primus' lease offer needs to remain competitive with other bids. Primus analyzes 4 lease scenarios compared to purchasing or borrowing, finding scenario 1 provides the highest advantage. Scenario 2 shows leasing equal to other options. Honshu is the least competitive bidder, while Faulhaber is Primus' main competitor. Primus recommends lease scenario 1 to outcompete Faulhaber and win Avantjet's business.

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Nadya Rizkita
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837 views28 pages

Primus Case Solution

Primus Automation is pitching a lease agreement for an automation machine to aircraft manufacturer Avantjet. Avantjet is struggling financially and wants to cut costs and accelerate production. Primus' lease offer needs to remain competitive with other bids. Primus analyzes 4 lease scenarios compared to purchasing or borrowing, finding scenario 1 provides the highest advantage. Scenario 2 shows leasing equal to other options. Honshu is the least competitive bidder, while Faulhaber is Primus' main competitor. Primus recommends lease scenario 1 to outcompete Faulhaber and win Avantjet's business.

Uploaded by

Nadya Rizkita
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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PRIMUS

AUTOMATION
SYN D I CATE 2

SYN D I CATE 2

DIVISION

OUR BEST TEAM


SYN D I CATE 2
Rozean Wijaya

- 29115684

Raditya Dwi A

- 29115690

Randy

- 29115685

Nadya Rizkita

- 29115630

Wulan C. Lestari

- 29115628

Rais Kandar

- 29115663

M Iqbal F Syamlan

- 29115539

INTRODUCTION

Summary of Primus automation division and avantjet

01

PRIMUS

Primus is a worldwide manufacturing and services


firm which. The automation division was an
innovative producer of world-class factoryautomation products and services operates in the
US, Europe, and Asia.

AUTOMATION DIVISION

FINANCIAL
ENVIRONMENT
uSlower economic growth
uIncreased in market share
competition
uWeakened USD leading to
resurgence in US
manufacturing

PRIMUS
OBJECTIVES
uMaintain leadership in market
share
uIncrease sales by 15% per year
uAchieves targets for net
income and working capital
turnover

PRIMUS
STRATEGY
uResponsive customer service
uStrong share position in high
volume-growing segments
uOffering leading technologies
based on industry standards

AVANTJET
Avantjet is an aircraft manufacturer.

AVANTJET
Struggling through economic
recession
uCapital Intensive
uCEO ordered moratorium on
capital intensive projects that may
negatively affect balance sheet
uWant an automation machine that
will cut costs and accelerate the
production line

AVANTJET
OPTION

These are Avantjets option


to acquire new machine

>> B O R R O W

LEASE
>> Acquire through
conditional sale

AVANTJET
FINANCIALCONDITIO

As can be seen here, Avantjet has


considerably high debt ratio yet their
net profit margin is decreasing from
the year before.
It Indicates the firms will be at risk if
they acquire through sale.

CAPITAL LEASE
-
-
-
-
-

Spans life of asset


Cannot be canceled
Lessee exposed to risk
Required to depreciate
Shown as an asset & liability on the
balance sheet
- Cannot deduct lease payments from
income taxes

OPERATING LEASE

Has a clause to cancel


Not on balance sheet
Deductible from taxable income

PRIMUS
COMPETITION
FAULHABER GMBH
Purchase Price
$759,000

Annual Lease & Residual Value


$170,000; 15% residual value

3 Months earlier, Primus was


competing with these 2 foreign
firms to sell the equipment to
Avantjet

HONSHU HEAVY INDUSTRIES


Purchase Price
$737,000

Annual Lease & Residual Value


$163,000; 24% residual value

M E A N W H I L E

PRIMUS

OFFER IS

M E A N W H I L E

PRIMUS

OFFER IS

Purchase Price

$715,000
Primus is inexperienced with leasing

THUS
Annual Leasing and Residual Value are yet quoted

PRIMUS
LEASING CONDITIONS
u An operating lease keeps the
equipment off of Avantjets balance
sheet which will likely be the only way
they accept the lease.
u Primus must remain competitive with
the offers of other firms in Avantjet
eyes.
u Leasing terms must leave Primus with
an NPV higher than the asset they
lending

LEASING
OPTIONS

Baumman creates 4 leasing


options/scenario to offer due to
uncertainty of the effective tax
rate or cost of debt

CALCULATION

Summary of calculation and comparison for lease offering

02

LEASING
VS
BORROW

OBSERVATIONS

Leasing option #1 show


the highest advantage
over buy & borrow

OBSERVATIONS
At option #2 - Scenario A
There are no lease
advantage
Meaning leasing is equal
to buy & borrow

OBSERVATIONS

Effective tax rate = 0;


and
The increase of Cost of Debt
give more leverage on leasing

PRIMUS
VS
COMPETITOR

OBSERVATIONS

Honshu is the least


competitive in any
scenario.

OBSERVATIONS

Faulhaber
is the main competitors

RECOMMENDATION

Conclusion and recommendation for Primus

03

FAULHABER

RECOMMENDATION

#1

E N D

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