FIN20014 Financial Management\

FIN20014 Financial Management\ Required Using Excel Spreadsheet prepare a full analysis to be presented to the Project Manager of ADVTECH Ltd evaluating whether the NEUROFORCE project should be implemented. Your analysis should include the following • Table of cash flows based on Excel spreadsheet • Use of excel formulae where appropriate • A written report (1200 words, +/- 10%) outlining your recommendation as to whether ADVTECH Ltd should proceed. Justify your recommendation and your analysis of risk. Marks will be awarded for: • Set out of spreadsheet (watch eLearning video of week-6) i. Ease of reading spreadsheet ii. Use of excel formulae in organised spreadsheet iii. Correct application of theoretical model • Overall presentation of answer including the written report. The objective of this assignment is to encourage the students to use excel spreadsheets to aid in problem solving. Students are asked to solve a capital budgeting problem using an excel spreadsheet. Weighting: 10% of total assessment. Due Date: Tutorial in week beginning Monday 12 October. Submit hardcopy of your assignment to your tutor and softcopy via ‘turnitin’ through Blackboard. Late Submissions: You must contact your Tutor directly and make alternative arrangements should you not be able to submit hardcopy of your assignment in your tutorial. Assignments will not be accepted after 5:00 pm on Friday 16 October unless an arrangement has been made directly with your Tutor. Format: The assignment is a problem solving exercise using an excel spreadsheet with additional discussion on findings, forecast errors and risk. Documents: Students should submit the following documents IN HARDCOPY SUBMISSION: • an assignment COVER sheet • a copy of the FORMAL report • a copy of the EXCEL spreadsheet displaying VALUES • a copy of the EXCEL spreadsheet displaying excel FORMULAS Online Submission: Link and details will be available on BB. Submit ONLY ONE FILE including an Assignment Cover Sheet and a copy of Formal Report. Details of Assignment Assume that you are an adviser at ADVTECH Ltd, which is considering introducing a new game console named NEUROFORCE. This system can be connected with human brain functions and still very much controversial for uncertain adverse impact, which is not yet explored, on human behaviour after prolonged application. The project manager of ADVTECH Ltd needs a detail analysis on this exciting NEUROFORCE project. She comes into your office, drops a consultant’s report on your desk, and complains, “We owe these consultants $1 million for this report, and I am not sure their financial analysis makes sense, though their estimations seem to be correct. Before we spend $25 million on buying new equipment needed from this project, look it over and give me your opinion.” You open the report and find the following information and estimates: The project will continue for next 8 years, when more reliable information on possible adverse impacts will be available. It’s projected that equipment will have economic life of twelve years. FIN20014 Financial Management: Individual Assignment Sem-2, 2015 2 | P a g e After buying the equipment, ADVTECH Ltd will need to renovate its working space and install the equipment at total cost of $3 million. These renovation and installation costs will be considered as capital expenditures. Out of total HR requirement for the project, 50% will be newly recruited and the remaining 50% will be from existing workforce. Initial HR procurement cost of $50,000 will be one-off cost at the beginning. Staff training costs of $40,000 will be incurred initially and a further training will be provided after one year at a cost of $60,000. The equipment will be procured from Germany and ADVTECH Ltd has to pay 8% import duty on purchase price, while transportation costs of $0.60 million will be charged to the supplier. The equipment would be depreciated over its useful life of twelve years using a tax allowable straight line rate of 8%. However, the company is planning to sell the equipment at the end of the project for an estimated price of $6 million. Consultants estimate that 48,000 NEUROFORCE consoles can be sold in the first year and sales will increase by 25% in the next three years; afterwards sales will decrease by 20% in each year until the end of project due to fierce competition in the market. Variable operating costs will be 50% of sales. Selling price per console will be $300 that will be dropped by 10% after 5 years. Annual fixed operating cost, excluding depreciation, will be $600,000. Existing workforce who will be transferred to NEUROFORCE project are coming from another production line where they could earn net $5,000 per month. That production line will be discontinued on the commencement of NEUROFORCE project. For the duration of the project, ADVTECH is also planning to take the service of a market analyst at a cost of $3,500 per month. It is also estimated that the new production line will require an initial increased investment of $48,000 in stock and $29,000 in debtors that are offset by an increase in creditors of $27,000. The firm has a 14% weighted average cost of capital (WACC) and is subject to a 30% tax rate. The required discounted payback period is 5 years. Considering associated risks of the project, the Project Manager also asks whether or not the discount rate should be increased or is the WACC appropriate? The project manager hesitates to take the final decision because of unexpected growth in game industry with technological advancement in different directions. ADVTECH has an offer to sell the NEUROFORCE project to another competitor for $2,000,000; however, the market price of project has not been verified yet. Required Using Excel Spreadsheet prepare a full analysis to be presented to the Project Manager of ADVTECH Ltd evaluating whether the NEUROFORCE project should be implemented. Your analysis should include the following • Table of cash flows based on Excel spreadsheet • Use of excel formulae where appropriate • A written report (1200 words, +/- 10%) outlining your recommendation as to whether ADVTECH Ltd should proceed. Justify your recommendation and your analysis of risk. Marks will be awarded for: • Set out of spreadsheet (watch eLearning video of week-6) i. Ease of reading spreadsheet ii. Use of excel formulae in organised spreadsheet iii. Correct application of theoretical model • Overall presentation of answer including the written report. * Carefully read the following Marking Rubric on page-3 for required components and presentation of formal report. FIN20014 Financial Management: Individual Assignment Sem-2, 2015 3 | P a g e Marking Rubric