What is the minimum price per component

Reference no: EM132230195

Assignment -

PART A - Dismayed Limited has been working on compiling a tender to supply electrical components to an aircraft manufacturer. The contract requires Dismayed to supply 800 components per year over five years. You have been asked to calculate the minimum price per component that should be submitted in the tender. The following information has been assembled to assist you.

1. An initial investment of $4,200,000 will be required in new equipment to support the initiative. The equipment will be depreciated on a straight-line basis over the five-year period to a zero book value.

2. An initial investment of $1,600,000 in working capital will also be required to support the project, and this will be recovered at the end of the initiative.

3. To date, Dismayed has incurred $200,000 in research and other costs related to compiling the tender document.

4. Operating expenses related to the initiative are estimated to be $750,000 per year.

5. Should the initiative proceed, manufacturing will occur in a part of Dismayed's existing facilities that currently generate cash flows of $358,645 per year. Given fixed capacity within the facility, it won't be possible for Dismayed to continue with this product line.

6. An internal head office charge of $150,000 per year will be applied to this initiative. This reflects use of the company's brand in submissions and finished products.

7. The company tax rate on profits is 30% per annum. Inflation is expected to be zero. Assume all items occur at the end of the year in which they occur, other than the initial investments. The hurdle rate for initiatives of this type is 10%.

Required -

1. What is the minimum price per component that Dismayed should submit in the tender?

2. Suppose you are advised that an additional up-front investment in equipment with a five-year life of $500,000 will enable the working capital requirement to be reduced to $1,000,000. Should this investment be undertaken? Explain.

3. While the cost of financing this initiative is 10%, management advise that they want to earn an internal rate of return of 11% on this project. What would be the new tender price per component under these circumstances?

Please list any assumptions you are making and the basis for these assumptions.

PART B - Presented below are adjusted financial reports for a company over the last seven years.

Drawing on whatever analytical tools and measures you deem appropriate, provide a narrative on the company in terms of its financial performance over the period. As a guide, you should consider the following:

The overall financial performance of the company over time.
The actions management appear to have taken in light of the performance of the company in certain periods.
The extent to which management action appear to have been successful.
Any other factors you deem relevant.

Note you do not need to know the name of the company to conduct this exercise, nor do you need to identify it. The aim is to demonstrate your ability to analyse and interpret the financial reports of a company (that is, to 'tell the story' in the financials in a meaningful way).

To assist, the data has been put into an Excel file and will be uploaded on Canvas.

Your report on the company should not exceed 3,000 words (excluding tables and appendices).

Attachment:- Assignment Files.rar

Reference no: EM132230195

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