Tudor Ltd are a very successful company that has been operating in Birmingham for a number of years. The company have been producing mainly designer shoes and sells throughout UK and Europe. From its establishment, Tudor Ltd has dealt with XY company as the main supplier for the leather they use to produce their designer shoes. XY company is located in Scotland and is amongst the best raw and processed leather suppliers in the UK. However, XY company occasionally faces stockouts and when this occurs Tudor Ltd is forced to buy the leather from other suppliers at higher prices. The Directors of Tudor Ltd have held their positions for several years and have contributed to the success of the company. During that time, they have being managing from the top down, being reluctant to involve or consult staff in any decisions. The directors are now considering the production of safety boots, a shoe that has a protective reinforcement in the toe which protects the foot from falling objects or compression. Meanwhile, they intend to continue with XY company for supplying the leather they will use to produce the new boots. The production of the safety boots requires Tudor to buy a new machine. The new machine requires an immediate investment of 200,000, while its useful life is expected to be 4 years. It is also expected that the machine can be sold for 15,000 at the end of its useful life. The machine is expected to produce 5000 pairs of boots each year. The selling price and variable cost are expected to be 60 and 33 per pair of boots respectively. The fixed cost, comprising mainly of the maintenance cost is expected to be 40,000 per year. Considering this information and that Tudor Ltd uses a discount factor of 10%, a decision needs to be made whether to invest in this machine. Required: a) Calculate and comment on the Net Present Value (NPV) of the project and the usefulness of NPV as an appraisal method. ANSWER: (8 marks) b) Define Big Data and discuss how it can be employed to enhance the appraisal of the new project (Investing in the machine) when NPV is used. (10 ma c) Evaluate the sensitivity of the project's net present value to a change in following, then discuss the use of sensitivity analysis in the decision to invest in the machine and identifying any areas of concern. I. Sales price II. Variable cost III. Fixed cost ANSWER: (10 marks) Prior to the investment progressing, further research has been undertaken and has been identified that the market for the product is uncertain and is affected by the reaction from competitors. Given this uncertainty, there is a need for reconsidering the selling price. The research suggested three possible selling prices for the pair of boots and forecast profit for each price considering the different possible reactions from competitors. This information is presented as follows: Competitors reaction Selling prices and forecast profit 60 57 54 Strong 50,000 55,000 65,000 Medium 70,000 77,000 65,000 Weak 95,000 85,000 65,000 Required: d) Identify the expected selling price using the minimax regret method and discuss its effect on viability of the project considering the sensitivity of the project's NPV to the change in the selling price. (10 marks)