In answering the questions below you should submit TWO documents: a. A Word or PDF document where the questions are answered (report) and, b. An excel spreadsheet with the data collected and your workings. You MUST identify the TWO documents (word/Pdf and excel spreadsheet) with Student Number and your name

Greenwich Plc manufactures bicycles in the UK. The company aims to compete in the global markets and strive for excellence in their bicycle business. The company also provides bicycle training sessions for the community. Corporate Social Responsibility (CSR) is at the core of the sessions. You are a financial analyst in the company. The relevant financial information for the current year is provided below.

Details	Total Par Value (Million )
Ordinary share capital (1 par value)	7.5
8% Preference shares (1 par value)	5.0
10% irredeemable bond (100 par value)	7.5

The ordinary shares are currently traded at a price of 2.95 and the preference share is 1.08 per share. The company has a reliable history of dividend payments and is expected to pay dividends annually for the foreseeable future. The annual dividend paid by the company on its ordinary shares has grown from 0.34 per share ten years ago to the present level of 0.50 per share and is expected to continue to grow at a similar rate in the future. The companys bonds pay an annual coupon of 10%. The bonds are currently trading at a market price of 103. The company is now considering a new modified mountain bicycle project in France. The project life is ten years and needs an initial capital investment of 300 million. The BNP Bank kindly agreed to provide a 10-year loan of 50 million to the company to cover the initial working capital at an interest rate of 3.5% per year. The loan is to be repaid in full at the end of the ten year. It is expected that the initial working capital is to be recovered at the end of the ten-year period. The scrap value of the investment at the end of project life would be 10% of the original investment cost. This new project would bring annual sales revenue of 275 million in the first year. After the first year, the annual sales are expected to grow at a real rate of 7.5% per year. The annual inflation rate is expected to be 2.0% each year. It is expected that the gross profit margin is 30% every year. The new project will have other indirect annual operating expenses, which is estimated to be 2.0% of its annual sales. It is estimated that a further 1.8 million per year of Greenwich Plcs existing indirect overhead costs are to be apportioned to the new project. As part of the evaluation of the project, the company had paid a consulting firm 0.85 million to perform a test marketing analysis. The expenditure was made last year but is yet to be paid. All the profits are remitted from France to Greenwich Plc in the UK at the end of each year. The current tax rate in France is 20% whereas the tax rate in the UK is 30%. France and the UK have a double taxation treaty. The tax rate is expected to remain unchanged during the life of the project and the taxes are to be paid in the same year in which the profit arises. The current and expected exchange rate between and are as follows:

Year	0	1	2	3	4	5	6	7	8	9	10
/	1.10	1.15	1.17	1.18	1.19	1.20	1.21	1.22	1.24	1.23	1.25

At the companys board meeting, Greenwich Plcs CEO asked you to evaluate the new project to see whether it can add value to the whole company. The CEO thinks the main source of financing the new project would be debt. So the coupon rate of 10% per annum on the companys existing debt should be used as the cost of capital for the project evaluations. But the companys Project Manager thinks that the weighted average cost of capital (WACC) would be more appropriate. The CEO was concerned whether the new project would be vulnerable to the fluctuations in the initial investment cost, the sales revenue, or the cost of capital. So the CEO has asked you to address this concern by conducting the appropriate analysis. The depreciation method applied for the project is decided to be a straight-line depreciation approach. Required:

1. Evaluate the new project with the Net Present Value (NPV) technique. You need to explain your reasons for including or excluding any of the information provided in this case study. You also need to comment on what other aspects could be considered in the project evaluation.

2. Explain how you could address the CEOs concern on the impact of the estimated initial investment cost, the sales revenue, and the cost of capital on the new project. Demonstrate how you would calculate your answer.