Reference no: EM13287950

Format: The assignment is a problem solving exercise using an excel spreadsheet with additional discussion on findings Details of Assignment Vienna Orthopedics Pty Ltd is a recently established medical business supplying orthopedic boots as an alternative to traditional plaster casting methods for stable ankle and leg fractures. The business has successfully established its first retail hire outlet centre in Sydney and is now looking to establish itself in the Melbourne market. The following financial information about the planned expansion into Melbourne is available. Revenue Forecast: 150 rental casts hired per week at $40 per cast (assume a 50 week year). It is expected that the number of casts hired will increase by 10% per year (the fee will stay constant) over the next three years and then stabilise. Direct expenses: Estimated at 20% of rental revenue. These expenses are all variable. Cash Overheads: Estimated at $125,000 in the first year and forecast to grow at 5% per year for the first three years before stabilising. These costs include wages for supervisory staff, rent, utilities and advertising. Capital Expenditure Requirements 1. New testing and cast fitting machine will cost $50,000. This is estimated to have a 5 year depreciable life for taxation purposes and are to be depreciated using prime cost method.. Estimated salvage value is $5,000. 2. Furniture and Fittings. These will cost $25,000, have a five year depreciable life for taxation purposes and are to be depreciated using prime cost method. Estimated salvage value is zero. Working Capital Requirements An estimated $10,000 of working capital (debtors and inventory of consumables) will be required. This is fully recoverable on termination of the project in five years. This expansion project is estimated to have a five year life as by then it is expected that new technology will make the current casts non-competitive. The firm has a 12 % cost of capital and is subject to a 30 % tax rate Required: Using Excel prepare an analysis to be presented to the Chief Executive Officer of Vienna Orthopedics Pty Ltd evaluating the proposed expansion project. Your analysis should include the following • Table of cash flows • Use of formulae where appropriate • A written report (no more than 500 words) summarising your recommendation as to whether Vienna Orthopedics Pty Ltd should proceed with its planned expansion Marks will be awarded for • Set out of spreadsheet i. Ease of reading spreadsheet ii. Use of formulae in spreadsheet iii. Correct application of theoretical model • Presentation of answer including the written report