Assessment $3$ Context and questions

Part A: Written Report $($appx$.20\%$ of the total grade$)$

Section $1$: Investment Decision $-$ project evaluation $($using Excel$)(10$ marks$)$

SYdMel PIA Ltd manufactures a variety of snacks. The company is considering introducing a new product. The

company$$s manager has been provided with the following information by their business analyst.

$$ An environmental impact study has been undertaken at a cost of $$700,000.$ This indicates that the project is environmentally sustainable, but the project still needs to be evaluated to see if it is economically viable.

$$ The project will require the use of storage capacity owned by the company. If not used for the project, this could be rented out for $$109,000$ per year.

$$ The project will generate waste products which can be used by another of the firm$$s operations, saving that operation $$88,000$ per year in raw material purchases.

$$ The project has an anticipated economic life of $10$ years.

$$ The Company plans to spend $$2,300,000$ on advertising campaign to boost sales.

$$ The Company$$s interest expense each year will be $$1,280,000.$

Page $|1$

Approved: Version $1$

$$ The Company is required to purchase a new machine to produce the new product. The machine$$s initial cost is $$12,700,000.$ The machine will be depreciated on a straight $$ line basis over $6$ years. The Company anticipates that the machine will last for $15$ years; the salvage value after $10$ years is $$1,200,000.$

$$ Six months ago, the Company also paid $$870,000$ to a firm to do research regarding new product.

$$ If the Company goes ahead with the new product, it will influence on the Company$$s net operating

capital. The forecasted net working capital will be $$1,000,000($at time zero$)$

$$ The new product is expected to generate sales revenue of $$3,800,000$; $$5,700,000$; $$6,800,000$; $$8,800,000$; $$10,600,000$; $10,500,000$; $9,600\mathrm{.}000,9,600,000,8\mathrm{.}600\mathrm{.}000$ and $8,580,000$ from years $1$ to $10,$ respectively. Each year the operating cost $($not including depreciation$)$ expected to equal $30$

percent of sales revenue.

$$ In addition, the Company expects with introduction of new product, sale of other snacks products

increases by $$1,290,000$ after taxes each year.

$$ The Company$$s overall WACC is $10\mathrm{.}9\%.$ However, the proposed project is riskier than the average

project; the new project$$s WACC is estimated to be $9\mathrm{.}5\%$

$$ The Company$$s tax rate is $27\mathrm{.}5\%($being a base rate entity$).$

Required:

i$.$ Calculate the net present value, internal rate of return, discounted payback, and profitability index of the proposed project. Based on your analysis should the project be accepted?

ii$.$ Conduct a sensitivity analysis if $($i$)$ Each year the operating cost $($not including depreciation$)$ expected to equal $25$ percent of sales revenue; $($II$)$ project$$s WACC is estimated to be $7\mathrm{.}55\%$ and $($iii$)$ Company$$s tax rate is $30\%($being a non$-$base rate entity$).$

$[$You are required to use Excel program to complete this project. You must use formulae in excel and must print out the formulae that has been used in completing this part.$]$

Section $2$: Write an essay by answering the following questions: $(10$ marks$)$

$($i$)$ What approaches can be considered to valuing a business? Explain the valuation in the context of private and public sector. $(1000$ words$)$

$($ii$)$ Explain the dividend irrelevance policy as advanced by F$.$ Modigliani and M$.$ Miller. Explain as to why double taxation policy has been abolished in Australia. Provide example on recent debate on dividend imputation by Australian politician including superannuation taxation debate. $(1,000$ words$)$

You must use at least $5$ authentic academic and professional references for this Section $2.$

Additional instruction: The research must be presented with a Reference List at the end of the paper. You should also check the accuracy of the responses before using them and reference the sources used for this verification.

Part B $($presentation$)$: $($Appx$.10\%$ of the total grade$)$

The individual presentation is in the form of a PowerPoint presentation of $15-20$ PowerPoint slides. This is a mix of visual representation of contents, data, and images to build an argument on corporate governance and characteristics on your sensitivity analyses.

The $15-20$ minutes presentations will be recorded by the student individually using PowerPoint record function. The recording will then be uploaded to YouTube or One Drive with the link submitted via Moodle. Instructions on how to do this will be made available.

Page $|2$