Reference no: EM132963507

Project details: AnteoTech Ltd (ADO, formerly Anteo Diagnostics Limited) is engaged in the development and commercialisation of its intellectual property which allows for specialised surfaces which can be used in life sciences, diagnostic and energy markets. It has three products it is developing being AnteoCoat, AnteoBind and AnteoRelease which are used in the energy, diagnostic and medical device markets respectively.

AnteoTech Limited (ADO.AX) is considering embarking on a new project to introduce a new product SARS-CoV-2 Antigen Rapid Diagnostic Test (Antigen RDT). The project is expected to last ten years. Over the last 2 years (2019 and 2020), ADO has already spent 0.2 million on R&D to optimise the design of the new product Antigen RDT. If the company would decide to go ahead with the project, the necessary equipment requires an investment equal to 250% of the company's Property, Plant, and Equipment (PPE), as per the fiscal year ended 30 Jun 2020. Additional shipping and installation cost to purchase the equipment is $0.1 million. This equipment will be depreciated over 10 years using the prime cost method. It is believed that the equipment can be sold at the end of the project with a liquidation value of about 10% of the initial investment.

First-year revenue for the new product is expected to be 50% of total Revenue and other income for ADO's fiscal year ended 30 June 2020. The new product's revenue is expected to grow at 25% for the second year, then 20% for the third, 15% for the fourth year, 10% for the fifth year and after that decline by 5% annually for the final 5 years of the expected life of the product.

If the ADO can manufacture the new product, the variable costs for the new product account for 45% of the sale price. Annual fixed costs excluding depreciation will be $0.25 million. Net working capital (NWC) will be 15 percent of the annual sale of the project, and will be contributed at the beginning of each year. All NWC will be liquidated at the termination of the project. ADO has a 30 percent corporate tax rate. The ASX200 expected return is 8 percent per annum, the relevant risk-free return is 1 percent per annum.

Your team will have to determine the rest of the cash flows associated with this project. Here are some tips to guide your analyses:

1) Obtain AnteoTech Limited's (ticker code: ADO.AX) financial statements. Download the annual income statements, balance sheet and cash flow statements for the last four fiscal years. Make sure to get the annual financial statements, instead of the quarterly.
2) You are now ready to determine the free cash flow. Compute the free cash flow for each year. Set up the timeline and computation of the free cash flow in separate columns for each year of the project life. Be sure to make outflows negative and inflows positive.
3) Assume that the project's cost of capital will be equal to the cost of equity of the company. The company is not using debt.
4) Provide a clear overview table which shows the calculation of all cash flows, and determine the NPV and the IRR of the project.

Instructions
1. The results of your analyses will have to be presented to the AnteoTech Limited executive management team. Your boss will expect a very impressive and professional presentation. They might not have a finance background so they could potentially benefit from your clear explanations of how the free cash flows were computed, what issues the capital budgeting team had to deal with, and what choices were made in the computations, what are your recommendations and why? For the risk analysis, you need to consider what if some of the cash flows over the life of this project turn out to be different than expected? What would happen to the NPV of the project? You might want to consider the optimistic and pessimistic scenario.
2. Please submit the Video presentation and PowerPoint slides via LEO using Turnitin.
3. Submission by other means (e.g., email) will attract no marks.

Structure

The PowerPoint slides should be organised as:

1. Title slide: Includes the topic, and names and student identifications of the members (name, student ID, campus).

2. Introduction: provides an overview of the project.

3. Main body: Covers cash flow projections, capital budgeting techniques, investment decision, and risk analysis.
3.1. Cash flow projections: Covers initial investment, operating cash flows, terminal cash flow, and free cash flows.
3.2. Capital budgeting techniques: Presents net present value and internal rate of return.
3.3. Investment decision: Makes investment decision.
3.4. Risk analysis: Summarises the results of sensitivity and scenario analyses.

4. Conclusions: Concludes by comparing the risk and reward of the project.

Attachment:- Project details.rar