Reference no: EM132312719 , Length: word count : 2200

Assignment

Learning Outcome(s) Assessed

Learning Outcome Four: Evaluate financing options relevant to business operations.

Learning Outcome Five: Integrate financial management techniques for strategic planning
purposes.

Learning  Outcome Six: Critically review, analyse, and interpret financial and non-financial information to inform strategic decision making.

Analyse Break down and carefully examine the most important parts showing how they are related, whether they work together and why are important.

Critically evaluate Give an in-depth and logical judgment of something. Support your judgment with reliable evidence and/or authoritative views.

Examine in detail. Explore alternatives, challenging and questioning.

Discuss strengths and weaknesses (for and against).

Demonstrate Use clear thinking to either:

Prove by using statistics and reliable evidence etc., or

Explain to show you understand, by using examples and/or experience.

Discuss Examine carefully and completely. Give reasons for and against, or examine a range of views. Come to a conclusion.

Explain Give reasons; describe how something happens.

Interpret Explain the meaning of something in a clear way. Give examples or comment on a subject.

Justify Give evidence which supports an argument or idea. Show why decisions or arguments were made and consider objections that others may make.

PART A

YOU ARE REQUIRED TO:

Using an Excel spreadsheet and preparing all answers to two decimal places:

1 Calculate the initial investment if Janine purchases the coffee machine.

2 Calculate the ‘net operating cash flows after tax’ if Janine purchases the coffee machine.

3 Calculate the NPV of the project using the Excel function.

4 Calculate the IRR of the project using the Excel function.

5 Performing a sensitivity analysis on the sales targets. Calculate the NPV as if the expected revenue is 15% less than initially thought and then only grows at the rate of 3% per year. All other variables remain the same.

6 Use the Excel function to calculate the payment required to pay off the loan in equal year instalments. Prepare the two spreadsheets required to calculate the present value cost of using a six-year loan from the bank to purchase the coffee machine.

Note: Use the after tax cost of debt to calculate the present value.

7 Calculate the present value cost of leasing the coffee machine from Pukeko Ltd for six years. Note: Use the after tax cost of debt to calculate the present value.

8 Presentation

Tables printed landscape.

Font: Calibri size 11.

Each table fits on a page (no reduction of font size by print reduction).

PART B

YOU ARE REQUIRED TO:

Write a report of 2000-2500 words for Janine, providing advice and recommendations on the feasibility of the project, the preference for lease or purchase, and the risks associated with both the project and her business in general.

Your report should be structured as follows:

1 Introduction

1.1. Outline brief background about Rerehua Ltd that will help a reader understand the context in which it is written.

1.2. Provide a brief outline the purpose of your report.

2 Overview

Explain how the Net Present Value (NPV) and Internal Rate of Return (IRR) methods are used to determine the feasibility of a project. (In general terms, not specific to this report).

3 Findings and recommendations

3.1 Analyse the project’s feasibility using both the NPV and the IRR calculations in Part A, Q 1-4. Provide recommendation(s) as to whether Rerehua Ltd should go ahead with installing a coffee machine in her shop based solely on this financial data.

3.2 Explain what is meant by a sensitivity analysis and analyse the project’s feasibility when the Sensitivity Analysis data is considered in Part A Q5.

3.3 Analyse the calculations in Part A, Q6 and Q7. Make a recommendation as to whether Rerehua Ltd should lease or purchase the coffee machine. Consider all financial and non-financial factors, not just the results of your calculations.

4 Analysis: Risk Factors

4.1. Define internal business risk. Assess whether the Rerehua project will increase or decrease the business risk. Explain your answer.

4.2. Define internal financial risk. Explain how financial risk may increase through a new project. Identify whether the Rerehua project has high or low financial risk. Explain your answer.

4.3. Identify and explain external risk factors that Rerehua Ltd should consider. (Note: You must consider at least three (3) of the PESTEL factors and specifically explain how this factor may impact the business).

4.4. Explain one (1) externality that the new project could create. Define the ‘shared value approach’ to externalities. Suggest one (1) approach Rerehua Ltd could take that would encompass a share value approach to externalities.

4.5. Rerehua Ltd is considering purchasing their coffee beans direct from Brazil rather than using a local supplier. Explain what is meant by indirect and direct exchange rates. Research the current exchange rate for NZD: BRL. If 10 kg of coffee costs BRL400 find out what would be the NZD cost of coffee under the different exchange rates that have applied over the past year (make one calculation per month and state the date and rate you used). Discuss the implications of your findings.

4.6. Explain the operating exposure of Rerehua Ltd if they decide to buy the coffee direct from the overseas supplier. Explain two (2) strategies they could use to overcome operating exposure and whether these would be viable options for Rerehua Ltd.

5 Financing options

Compare and contrast Rerehua Ltd using a long-term loan to purchase the coffee machine with your proposal to issue shares to you as an alternative financing option for Rerehua Ltd. Discuss both the advantages and disadvantages. You do not need to do any further calculations for this section. Justify why you believe this would be a good option for Rerehua Ltd.

6 Conclusion

Summarise:

Your recommendations made in Section 3 above.

The risks associated with the business discussed in Section 4 above.

Your proposal outlined in Section 5 above.

7 Bibliography and/or References

Do not use any references other than the class textbook. Reference this in APA format using both in-text citations and here as a listed reference.

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