Reference no: EM132504254

ACC211 Business Finance - University of the Sunshine Coast

REPORT PROJECT TASK

Neptune Electronics Ltd. has spent $1.1 million developing a prototype of a Wearable Smart Phone which was given the nickname ‘Wispr'. The company has spent an additional $600,000 on a feasibility study which confirmed that Neptune was ahead of its competitors in bringing Wispr to market.

The production manager of Neptune has devised some estimates of operational data. Specifically, the numbers comprise: variable costs of $320 and fixed costs are expected to be $4.3 million per year. Sales volume is expected to be 85,000 units in Year 1; 105,000 units in Year 2; 185,000 units in Year 3; 95,000 units in Year 4; 85,000 units in Year 5. The retail price of Wispr will be $680. The necessary manufacturing equipment will cost $88.5 million and will be depreciated straight-line over a useful life of eight years. Its expected value at the end of Year 5 is $20.5 million.

Total net working capital (NWC) for the Wispr project is $900,000 and will occur in Year 1. There will be no other changes to NWC until the project terminates and the NWC is recovered.

Neptune's after-tax cost of capital is 9.5% pa, and the company has a tax rate of 28%.

Question 1. What is the non-discounted payback period of the project?

Question 2. Calculate the net Accounting Rate of Return. (ARR/AAR)

Question 3. Calculate the NPV and IRR of the project.

Question 4. Quantify the NPV's sensitivity to a 10% increase in price and a 10% decrease in quantity sold. In your answer, refer to the NPV's volatility in relation to changes in price and changes in quantity sold. (500 - 700 words).
• In addition, demonstrate and explain forecasting risk; and the implications for how a project is managed.

Question 5. Advise the company on whether it should undertake this investment project.

Question 6. "A positive NPV indicates a project is expected to give a return greater than the market requires." Discuss in relation to the efficient market hypothesis (EMH).

Question 7. What effect, if any, would a positive NPV investment project have on the market value of the corporation?

The REPORT

• Present your answers in a word document and please use language and presentation style appropriate to a business report.
• Structure your answers around the following headings:
1. A brief description of the Discounted Cash Flow method of asset valuation(200 words)
2. The body: which comprises your answers to Questions: 1, 2, 3, 4, 5, 6 and 7
3. Conclusion: a brief summing up of your findings (200 words)
4. Appendix
• Use Excel to solve the calculation problems and only show and report on the results in the Body of the report.

The detailed spreadsheet including the Excel calculations may be included in the Appendix of your report.

• If you need some tips and examples on how to write in a formal report-style, then the book entitled the "Communication skills handbook" by Jane Summers and Brett Smith, is a good one. It is available at Sunshine Coast Library, Level 2, Call Number PE1408 .C65 2010, Shelf Range; and, at Caboolture Reserve Collection (808.02 Fac) and other locations. (The book is published in Milton, Qld. John Wiley and Sons Australia, Ltd. And there are various editions available).

Attachment:- Business Finance.rar