Question.2570 - This assignment will be marked out of 100% This assignment contributes to 50% of the total module marks. The assessments are bonded which means you need 40%+ over both assessments combined to pass the module. Learning Outcomes to be assessed As specified in the validated module descriptor available at: https://icis.southwales.ac.uk/studentmodules/10122/studentmodulespecifications Learning outcome 1 The ability of students to critically assess, apply and evaluate the issues and techniques of strategic financial management. Grading Criteria Please see School’s marking criteria for undergraduate/post graduate assessments on the module VLE. Any additional grading/marking guidance will be posted with assessment task below. Assignment AYR Co. is considering two separate projects known as ‘Aspire’ and ‘Wolf’ which are quite different but each of which has the potential to increase AYR Co.’s market share. To date $120,000 has been spent on market research into the increase in demand that can be expected for each project. The next stage is to conduct a financial appraisal to determine which project should be taken forward as AYR Co. can only afford to fund one project at this time. Project Aspire: This project will require the acquisition of plant and machinery costing $2,250,000 which is payable immediately. This machinery will have a scrap value of $375,000 at the end of the 5 years. There is also $140,000 working capital to be used immediately. This amount has been taken from the company’s retained profits and will be repaid at the end of the project. Cash inflows are expected to be $650,000 in year 1 rising at a rate of 7.5% per annum for years 2 to 5 inclusive. Variable costs in year 1 are expected to be $27,000 per annum and are expected to rise at 6.75% per annum. Capital allowances are available on the plant and machinery as follows:$Year 1 Year 2 Year 3 Year 4 Year 5600,000 390,000 345,000 300,000 240,000This project will expand the current product range and will appeal to existing and potential customers.Project Wolf: This project will require an immediate outlay of $2,250,000. This expenditure will not attract capital allowances. Annual cash inflows of $955,000 are expected to be constant for the life of the project. Material costs are expected to be $14,400 in the first year, rising at an annual inflation rate of 7.5% per annum. Other expenses are expected to be $18,000 in year 1 and these are expected to fall by 7.5% per annum over the life of the project. To undertake Project Wolf, factory space which is currently generating rental income will need to be used for the project. The rental income, which would not have been expected to change over the five-year period, is $75,000 per annum. This project will take the company in a new direction appealing to a different type of customer. Additional financial information: ? Corporation tax is paid at a rate of 20% and tax is payable one year in arrears. ? The weighted average cost of capital is 10% and, unless otherwise stated, cash flows occur at the end of the year to which they relate.? A straight line method of depreciation at a rate of 20% is applied to all non- current assets.The initial investment of $2.250m, for whichever project is chosen, is significant in terms of value for AYR Co. The board of directors is considering ways to finance the investment, and will choose between, increasing equity by issuing new ordinary shares, or taking on new debt in the form of a bank loan at a fixed rate of interest. AYR Co. is currently financed as follows: Capital Employed $million Equity holder funds 20 Long term debt 18 Total 38Required: Prepare a report to the Directors of AYR Co. which includes the following. 1. A calculation of the Net Present Value (NPV), Internal Rate of Return (IRR) and Payback Period for projects Aspire and Wolf. Detailed calculations should be included as an appendix to the report. All cash flows should be rounded tothe nearest $. 30%2. Analysis and evaluation of the investment project options as follows: i. A recommendation regarding which project (if any) to undertake; ii. Justifications for your recommendation including an evaluation of the investment appraisal techniques used in task 1 above. iii. A summary of other factors that should be considered and information that may be needed prior to making a final decision. 30% 3. A discussion of the two sources of finance being considered by the board of AYR Co. Your report should include: i. A description of Equity and Debt. ii. An explanation of the costs of each source of finance. iii. An analysis of the effect the selection of the source of finance may have on AYR Co.’s weighted average cost of capital. iv. An assessment of the impact of the selection of finance on current and potential shareholders and lenders. 30% Marks are available for presentation of the report, which must not exceed 3,000 words. 10% Total 100%Marking guidance Section Weighting Criteria 1) Calculation of NPV, IRR and Payback. 2) Analysis evaluation and recommendation. Additional factors and information. 3) Discussion of two sources of finance. Impact on WACC and investors/lenders.30%30%30% Demonstrate: ? Relevant practical, academic and subject specific skills ? Knowledge understanding and appreciation of issues involved. ? Ability to research and provide practical and relevant points ? Clear communication, explanation evaluation and discussion of aspects being covered.Report Structure and presentation 10%? Clarity of layout, grammar, presentation and inclusion of all relevant matters ? Tone and use of professional language i.e. suitable for addressee of report ? Accuracy of referencing, and appropriate use of appendicesAssessment guidance Your report should be word processed, clearly laid out and concise and should be supported by appropriate workings for the numerical elements. The word limit for the report is 3,000 words. The text of this assignment must be in your own words (not even a sentence or phrase should be taken from another source unless this source is referenced and the phrase placed in quotes). It is dishonest not to acknowledge the work of other people and you open yourself up to the accusation of plagiarism. Referencing should in accordance with the Harvard System. A guide published by the Library lists the most common types of references with examples. The guide can be found on the module VLE Hand-in requirements and dates:
Answer Below:
Calculation xx NPV xxx amp xxxxxxxxxxxxxx Aspire xxx Present xxxxx NPV xxxxx showing xxx calculation xxxx Cash xxxxxxx Variable xxxx Capital xxxxxxxxx Profit xxxxxx tax xxx Arrears xxxxxx after xxx - xxx capital x owance xxxxxx value xxxxxxx capital xxxx inflows x Discount xxxx at x PV xx cash xxxxxxx Project xxxx Working xxxxxxx Total xxxxxxxx NPV xx project xxxxxx Computation xx IRR xx the xxxxxxx As xxx cashflows xxx not xx uniform xx need xx use xxxxx and xxxxx method xx calculate xxx IRR xx get xxx base xxxx the xxxxxxx I xxxx is xxxxx investment xxxxxxx cashflows xxxxxxx cash xxxxx are xxxxxxx but xxxxx cashflows xxxxxxx by xxxxxx of xxxxxxxx total xxx cash xxxxxxx that xx got xxxx above xxx calculation xx Duration xx the xxxxxxx is xxxxx I xxxx observed xx years xxxxxx the xxxx at xxxxx is xxxxxx to xx So x calculated xxx as xxxxxxx Cash xxxxxxx - xxxxxxxx rate xx PV xx cash xxxxx - xxxx outflows xxxx inflows xxx - xxxx I xxx negative xxx so xxx IRR xxxxxx be xxxx than xx next x took xx At xxx IRR xx Cash xxxxxxx - xxxxxxxx rate xx Cash xxxxxxxx Cash xxxxxxx NPV xx here xxx NPV xx equaling xx Zero x have xxx digged xxxxxxx as xx is xxxxxxxxxxxxx matching xx IRR xx aporox xxxxxxx Period xxx back xxxxxx is xxx years xxxx required xx recover xxx initial xxxxxxxxxx here xxx ask xx payback xxxxxx not xxxxxxxxxx payback xxxxxx so x considered xxxxxxxxx before xxxxxx interest xxxx effectCash xxxxxxx Cumalative xxxx flows xxxxx outflows xx the xxxxxxx is xxx project xxxxxxxxxx revenue xxxxxxx it xxxxxx th xxxx but xx exceeded xx the xxx back xxxxxx is xx between xx and xx yearSo xxx amount xxxx require xx th xxxx to xxxxx the xxxxxx of xxxxxxxxxx is xxxxx inflows xx th xxxx is xxxxxxxx it xx evenly xxxxxxx in x year xxx back xxxxxx X xxxxxx months xx years xxxxxx daysProject x WOLF xxx Present xxxxx NPV xxxxx showing xxx calculation xxxx Cash xxxxxxx Variable xxxx Other xxxxxxxx Opportunity xxxx Depreciation xxxxxxx allowance- xxx Tax xxxxxxx Profit xxxxx tax xxx capital x owance xxxxx value xxxxxxx capital xxxx inflows xxxxxxxx rate xx Net xx of xxxxxxx Total xxxxxxx value xx inflows xxxxx present xxxxx of xxxxxxxx NPV xxx of xxxxxxx Wolf xxxxxxxxxxx of xxx of xxx Project xx the xxxxxxxxx are xxx in xxxxxxx we xxxx to xxx trial xxx error xxxxxx to xxxxxxxxx the xxx To xxx the xxxx rate xxx formula x used xx Total xxxxxxxxxx Average xxxxxxxxxxxxxxxx cash xxxxx are xxxxxxx but xxxxx cashflows xxxxxxx by xxxxxx of xxxxx The xxxxx net xxxx inflows xxxx we xxx from xxxxx NPV xxxxxxxxxxx is xxxxxxxx of xxx project xx years xx average xxxx inflows xxx I xxxx observed xx years xxxxxx the xxxx at xxxxx is xxxxxx to xxxx between xxx So x calculated xxx as xxxxxxx At xxxx inflows x Discount xxxx at xxx PV xx inflows x NPV xx Cash xxxxxxx - xxxxxxxx rate xx Net xx of xxxxxxx - xxx - xx we xxx one xxxxxxxx and xxx negative xx can xxxxxxxxx IRR xx interpolation xxxxxx Lower xxxx Positive xxx difference xx NPV x difference xx rates xxx X xxxxxxx period xxxxxxx period xx the xxxxx that xxxxxxxx to xxxxxxx our xxxxxxx investment xxxx the xxx is xxxxxxx period xxx discounted xxxxxxx period xx I xxxxxxxxxx cashflows xxxxxx giving xxxxxxxx rate xxxxxxxxxxxxxxx Cumulative xxxxxxxxx Total xxxxxxxx of xxx project xx the xxxxxxx cumulative xxxxxxx reached xx during xx year xxx it xxxxxxxx so xxx payback xxxxxx is xx between xx and xx year xx the xxxxxx that xxxxxxx in xx year xx reach xxx target xx investment xx Total xxxxxxx in xx year xxx assuming xx is xxxxxx accrued xx a xxxx Payback xxxxxx X xxxxxx months xx years xxxxxx days xx i xxxxx on xxx above xxxxxxxx Project xxxx is xxxxxx when xxxxxxxx to xxx project xxxxxxxx Using xxxxxxx budgeting xxxxxxxxxx analyzed xxx mutually xxxxxxxxx projects xxx techniques xxxxxxxxxx here xxx NPV xxx amp xxxxxxx period xxx Present xxxxx NPV xxxxxxxxx the xxxxxxxx rate xxxxx calculating xxxxxxx in xxxxxx terms xx is xxxxxxx but xxxxxxx less xxxxxxxx but xx incorporates xxxxxxxx rates xxx the xxxx so xx discounting xx give xxxx for xxxxxx cashflows xx get xxx present xxxxxx So xxxxx giving xxxxxx effect xx NPV xx positive xx should xxxxxxxx the xxxxxxx in xxxx of xxxxxxxx exclusive xxxxxxxx we xxx consider xxxxxxx with xxxxxxx NPV xxx NPV xx Project xxxxxx is xxx the xxx of xxxxxxx wolf xx Since xxxxxxx wolf xxx greater xxx when xxxxxxxx to xxx project xxxxxx Wolf xxxxxx be xxxxxxxxxxx Internal xxxx of xxxxxx IRR xx the xxxx of xxxxxx where xxxxxxx value xx cash xxxxxxx are xxxxx to xxxxxxx value xx cash xxxxxxxx in xxxxx words xx IRR xxx is xxxx So xxx gives xxx rate xx return xxxx is xxxxxxx from xxxxxxxxx the xxxxxxxx so xx the xxx is xxxxxxx than xxx WACC xx entity xxxx should xx accepted xxx in xxxx of xxxxxxxx exclusive xxxxxxxx higher xxx should xx selected xxx IRR xx project xxxx is xxx IRR xx Project xxxxxx is xxxxx same xx higher xx case xx Wolf xxxx should xx selectedPayback xxxxxx Payback xxxxxx as xxx name xxxxxxxx Shows xxx period xx recovering xxx investment xx capital xx early xxxxxxxx of xxxxxxxxxx is xxxxxxxxxx it xxxxxx any xxxxxx risks xxxx so xxx lower xxx payback xxxxxx the xxxxxx the xxxxxxx The xxxxxxx period xx Wolf xx and xxxxxx is xxx Project xxxx is xxxxxx less xxxxxxx period xxx same xxxxxx be xxxxxxxx iii xxxxx Factors xx be xxxxxxxxxx before xxxxxx final xxxxxxxx Future xxxxxxxxx of xxx project xxxxx and xxxxxxx associated xxxx the xxxxxxxx Impact xx companies xxxxx products xxxxxxxxxxx and xxxxxxxxxxx competition xxx the xxxxx image xx entity xxxxxxx after xxxxxxxxxx the xxxxxxx Interest xxx other xxxxxxx costs x Equity xxxxx funds xxxxxxxxxxx by xxx shareholders xxx profit xxxxxx by xxx organization xxx equity xxxxxxxxxx the xxxxxx funds xx shareholders xxx the xxxxxxxx owners xx the xxxxxxxxxxxx company xxxxx allot xxxxxx to xxxxxx holders xxxxx is xx obligation xx organization xx repay xxxxx fundson xxx other xxxx Debts xxx funds xxxx by xxx company xx outsiders xx future xxxx needs xx be xxxxxx Debtholders xxxxx t xxxx share xx entities xxxxxxx or xxxxxx control xxxxxxxx but xxxxx to xxxxxxx their xxxxxx funds xx Costs xxxxxxxxxx with xxx equity xxx hidden xxxx in xxxxxx is xxx dilution xx control xx the xxxxxx issues xxxx equity xxxxxxx its xxxxxxx is xxxxxxx and xxxxx by xxxxxxxx making xx complex xxxxxxxx there xx no xxxxxxxxxx companies xxx stressed xx give xxxxxxxxx to xxxxxxxxxxxx regularly xxx compliances xxx investors xxxxxx and xxx i x securities xxxxx are xxxxxxxx if xxxxxxx issues xxx equity xxxxxxx Costs xxxxxxxxxx with xxx Debt xxxxx The xxxxxxx cost xx debt xxxx is xxxxxxxx costs xx finance xxxxxxx Benefit xx issuing xxxx funds xx finance xxxxxxx can xx claimed xxx tax xxxxxxxx Its xxxxxx obligation xx companies xx repay xxx same xxxxx on xxxxxxxxx as xxxxx should xx paid xxxxxxxxxxxx of xxxxxxx to xxx entity xxx The xxxx of xx organization xxxxxxx on xxx source xx finances xx the xxxxxxx chooses xx take xxxx debt xxx WACC xxx decrease xx the xxxx can xxx tax xxxxxxx so xx increases xxx cost xx the xxxx time xxxxxx cost xxxxxx will xx more xxxx compared xx debts xxx the xxxxxxx should xxxxxxx the xxxx and xxxxxx obligation xx equity xxxxxxx cannot xxxxxx for xxxxxxxxxx but xxxx funds xxxxxxx needs xx repay xxx same xx The xxxxxx of xxxxxxxxx will xxxx potential xxxxxxxxxxxx and xxxxxxx for xxxxxxx if xxx company xxxxx more xxxx the xxxx of xxxxxxx increases xx it xxxxxx pay xxxx to xxx lenders xx companies xxxxx more xxxxxxx the xxxxxx holders xxxxxxx is xxxxxxx that xx the xxxxx of xxxxxxx shareholders xxxx decrease xxxxxxxxxxxxxMore Articles From Management
.ico)
.ico)
.ico)
.ico)
