Unit Learning Outcomes addressed:
1. Understand the basic concepts and theories of financial management.
2. Explain the goal of financial decisions and the importance of financial information.
3. Calculate financial ratios and interpret the outcome.
4. Examine financial instruments and their valuation.
5. Relate time value of money, risk and return and cash flow to making
informed business decisions including capital budgeting._________
Assessment Description: • ¦
Students are required to work in a group of 3.5 stud
4 and 5 and are not allowed to change grou ntsandmustregisterfortheirgroupwiththelecturerin week analyse the following calculation based busine rnem^ erS w'thout the lecturer's permission. Students need to methods of calculations need to be pre SCenario and present the finding in a form of business report;
n 6 . Note. Refer to ALS guideline on preparing a business report.
Contact Manufacturing Ltd is consider'
a major renovation of the comnan W° alternatlve investment proposals. The first proposal calls for obsolete pieces of equipment in the SeC°nd inV°'VeS reP'aCine
but it will not do both. The cash fi» ,ty- The company will choose one project or the other this year, project cash flows at 15% WS aSS0C,ated with each Project appear below and the firm discounts
Year Renovate Replace
0 -$9,000,000 -$2,400,000
1 3,000,000 2,000,000
2 3,000,000 800,000
3 3,000,000 200,000
4 3,000,000 200,000
5 3,000,000 200,000
• Calculate the payback period of each project and based on this criterion, indicate which project you would recommend for acceptance.
• Calculate the net present value (NPV) of each project and based on this criterion, indicate which project you would recommend for acceptance.
3. • Calculate the internal rate of return (IRR) of each project and based on this criterion, indicate which
project you would recommend for acceptance.
A. • Calculate the profitability index (PI) of each project and based on this criterion, indicate which project you would recommend for acceptance.
• Overall, you should find conflicting recommendations based on the various criteria. Why is this occurring?
G. • Chart the NPVprofiles of these projects. Label the intersection points on the x- and y-axes and the crossover point.
7. • Based on this NPVprofile analysis and assuming the WACC is 15%, which project would you
recommended for acceptance? Why?
g • Based on this NPVprofile analysis and assuming the WACC is 25%, which project is recommended? Why?
9. • Discuss the important elements to consider when deciding between these two projects.
This is a group activity and students are required to work with their respective group members. No individual submission will be accepted.
You will not receive any marks for this assignment if your group members collectively report against you for non-participation or non-cooperation. You have to nominate someone as your group leader to coordinate the assignment submission. The report will be submitted online in Moodle by one member of the team ONLY on or before to the deadline.
Version 2:11th October, 2019
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