FINC71-600
Managerial Finance
Case Analysis
管理财务报告代写 Description: In-depth case analysis report requiring students to apply tools and theories covered throughout the subject and make recommendations.
Description: In-depth case analysis report requiring students to apply tools and theories covered throughout the subject and make recommendations.
Weight: 20%
Due Date: 5pm Thursday 2 2021 (Week 12).
Learning Outcomes:
- Applyconcepts of cash flow analysis, evaluation techniques and the cost of capital to make a sound capital budgeting decision.
- Demonstrate the ability to produce a written report that demonstrates higher order understanding of key concepts in managerial finance.
Assessment Details: 管理财务报告代写
This case analysis requires students to apply the skills and knowledge they have learnt within the subject and make recommendations based on a thorough analysis of the information provided, while outlining any relevant limitations. The report is marked out of 100 in total. Part A: Cost of Capital is worth 25 marks, Part B: Asset Expansion is worth 30 marks, Part C: Asset Replacement is worth 25 marks, and Part D: Discussion of Limitations is worth 20 marks.
It is recommended students work on this assessment progressively throughout the later weeks of the semester as we progress through the required material:
- Week 9: Read the case analysis and compute the specific cash flows (NINV, NCF, etc.) detailed in the case (Part B and Part C). Reflect on issues, risks, missing information,etc.
- Week 10: Apply initial capital budgeting decision models for the projects detailed in Part B and Part C. Reflect on issues, risks, missing information,etc. 管理财务报告代写
- Week 11: Compute the cost of capital in Part A and utilise this value to evaluate the projects detailed in Part B and Part C. Make an accept/reject decision and provide a necessary rational.
- Week 12: Outstanding work includes an analysis of capital budgeting and risk. Review Topic 11 (refer to chapter 11 of prescribed textbook) and use simulations and sensitivity analysis to assess financing and investment computations. Detail any apparent limitations to the recommendations provided throughout the report in Part D.
Academic Integrity:
Upon submission of this assessment, you acknowledge and agree to the following:
- I declare that I am the person as indicated by the student identification number associated with this assessmentsubmission;
- I acknowledge and agree that I have read and understood the University’s Academic IntegrityPolicy and Discipline Regulations, and that the submitted work is my own and does not breach these regulations;
- I will not share this assessment or my answers at any time, even after the conclusion of the assessment and 管理财务报告代写
- I acknowledge that the assessormay:
- Communicatea copy of this assessment item to a plagiarism checking service whichmay then retain a copy of the item on its database for the purpose of future plagiarism checking; and
- Submit the assessment item to other forms of plagiarism checking.
Report Formatting: 管理财务报告代写
The submitted report should include (at least) the following components: title with student number, executive summary, review of the workings required to compute cost of capital and evaluate the two projects, list of assumptions made in each part, interpretation of relevant computations, discussion of any given recommendations, and a discussion of any relevant limitations to the provided recommendations.
This is a professional report and should be formatted as such – failure to do so can result in a penalty of up to 20% of marks in each part. Students are recommended to take into consideration the APA style formatting guidelines. Reports should not exceed 10 pages, including the appendix. Excel worksheets will not be accepted for marking, however any relevant tables and graphs developed in Excel may be included in the report if they are embedded (i.e., no pictures).
Assessment Access & Submission Information:
- Assessment Format: iLearn Assignment Tool.
- Assessment Availability: 9am Tuesday 9 November 2021 (AESTGMT+10).
- Assessment Due Date: 5pm Thursday 2 December 2021 (AESTGMT+10).
- Lead Educator: Dean
- Lead Educator Contact Details:
- Create a Word document and name it as: ‘Case Analysis 213_studentnumber’.
- Save the final Word document as an Adobe PDF, with the same file name.
- Upload this PDF document using the submission link located on the iLearn page used to access and download is assessment.
- The submission link will become unavailable at the advised due date. Late submissions, or emailed submissions, will not be accepted.
- Excel worksheets may be included in the submission, however they will not bemarked.
Case Details
You have recently been employed by Golden Barrel Distillery – a publicly listed Australian company known for producing single malt whisky and rum products. The business has several operations around Tasmania’s hinterlands, with their head office located in Hobart. You have been appointed to the senior financing team and have been tasked with evaluating the profitability of proposed capital investments.
Part A: Cost of Capital [25 Marks] 管理财务报告代写
The latest annual reports and market data provides the following information regarding the current financial structure of Golden Barrel Distillery:
- Unsecurednotes offering investors a 8% per annum coupon rate, paid semi-annually. The 181,200 outstanding unsecured notes mature in 18 years, exhibit traditional $1,000 face values, and are currently trading for $1,015 each.
- Debentures maturing in 12 years with $1,000 denominations, trading for $995 each. The 64,000 outstanding debentures pay bondholders annually, based on a 5.2% per annum coupon rate.
- Cumulative Class A preferred stock trading for $26.47 each, with 315,000 outstanding in total. These preferred stocks have a stated annual dividend of $2.40 per share. 管理财务报告代写
- Cumulative Class B preferred stock trading for $92.78 each, with 28,000 outstanding in total. These preferred stocks have a current dividend of $4.93 per share, which areindexed annually with inflation.
- Commonstock trading for $7.13 each, with 58,120,000 outstanding in Golden Barrel Distillery has seen an average growth of 7.2% per annum over the past few years due to growing demand for Australian made whisky. This growth is expected to continue for the next four years, before stabilising at a more moderate 3% to 4% thereafter. The company directors have just paid a dividend of $0.67 per share for the last 12 months.
The Reserve Bank of Australia has indicated inflation rates are expected to remain stable at roughly 2% per annum for the foreseeable future. Golden Barrel Distillery is subject to a 27.5% corporate tax rate.
What is Golden Barrel Distillery’s weighted average cost of capital (WACC)?
Part B: Asset Expansion Project [30 Marks] 管理财务报告代写
You have recently been informed that Golden Barrel Distillery is considering the development of a new product offering, specifically the launch of a 20-year-old double barrel single malt whisky. The new product is a critical feature in a draft competitive bid being prepared by the company to exclusively supply a national alcohol retailer. You are required to evaluate the project before it is submitted before the CFO for final review.
Essential information relating to the project has already been prepared by the financing team, alongside the assistance of operational managers. The project calls for Golden Barrel Distillery to produce and deliver 508,250 bottles of the new 20-year-old whisky over a 12-year exclusivity period. The proposed selling price to the retailer, inclusive of shipping fees, is fixed at $98 per bottle.
The product is anticipated to be sold by the retailer at a recommended retail price (RRP) of $140 per bottle but may be discounted to increase product awareness.
While Golden Barrel Distillery would be required to supply the retailer for a 12-year period, lead times in developing and finalising the new product are estimated to be an additional three years – thus sales relating to the project will not commence until year four of the projects 15-year life. Golden Barrel Distillery is proposing to supply the following quantities per year to the national retailer: 管理财务报告代写
| Year | Units | Year | Units |
| 1 | 0 | 9 | 45000 |
| 2 | 0 | 10 | 47250 |
| 3 | 0 | 11 | 49000 |
| 4 | 43500 | 12 管理财务报告代写 | 48250 |
| 5 | 31250 | 13 | 46000 |
| 6 | 34500 | 14 | 43250 |
| 7 | 37250 | 15 | 41000 |
| 8 | 42000 | Total | 508250 |
While you have previously evaluated projects in other industries before, this bid is unusual in a few ways. First, if accepted by the national retailer, this project would commit Golden Barrel Distillery to a fixed-price long-term contract. Second, producing the new single malt whisky would require a significant upfront investment to purchase machinery, bottle mouldings, necessary casks, and refurbish one of Golden Barrel Distillery’s existing buildings/plants.
Other details relevant to the appraisal of the project include:
- The negotiated price paid by the national retailer per bottle is fixed for the duration of the contract, along with the specified quantities each year.
- Theexcise duty on spirits is currently $88.91 per litre of pure alcohol – thus, Golden Barrel Distillery would be required to pay roughly $27.07 (700ml bottled at 5%) per bottle sold, in addition to the marginal tax paid on annual net income.
- Cost of goods includes fixed costs of $600,000 per year plus variable costs of $10.50 per bottle. These costs are expected to increase at the annual inflation rate. 管理财务报告代写
- Working capital is expected to average about 15 percent of annual sales.
- Theplant to be utilised for this project (titled Refined Grain Estate) was purchased in 1964and is now idle, due to the company previously centralising their production The plant has been fully depreciated, except for the original purchase price of $160,000.
- Theidle plant is in a valuable agricultural valley, with recent valuations estimating Refined Grain Estate could be sold immediately, or in the near future, for $10.8 million (inclusive of the land). Estates in the area are projected to appreciate roughly 2.25% per annum over the next 20 years.
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Refurbishing the plant is anticipated to cost $3.2 million and would be depreciable on a straight-line basis over the next 20 years.
- The necessary machinery and equipment are projected to cost $2.6 million in total and would be depreciated on a straight-line basis over the next 15 years.
- Theadditional casks required to be purchased for the new product are estimated to cost $240,000 in total and would also be depreciated on a straight-line basis over 15 years.
- The refurbished plant, machinery, equipment, and casks are all expected to last for many yearsif However, due to is strong competition in the single malt whisky market, it is unclear whether a subsequent supply agreement with this national retailer, or another, could be obtained once this proposed contract ends. The capital investments required for this project are specialised for this new product offering, and hence the resale value at the end of 15 years is estimated to be zero at this stage.
Golden Barrel Distillery’s business development manager has recently received a confidential letter of interest. It contains the details of a proposed offer from a start-up distillery to purchase the Refined Grain Estate (land and plant) for $8.7 million – although, you have noticed the offer is subject to Council approval for development of the land and merger of titles with an adjacent property. 管理财务报告代写
Should you recommend submitting the bid for this competitive tender at the proposed price of $98 per bottle, or make a counteroffer? Comment on critical issues to be considered, including the offer from the start-up distillery. Given the stature of the client for this proposed contract, the annual sales aspect is considered low risk and hence it is believed the discount rate used for evaluation purposes could be 2% lower than Golden Barrel Distillery’s standard WACC.
Part C: Asset Replacement Project [25 Marks] 管理财务报告代写
Golden Barrel Distillery also has an existing operation producing unbranded grain whisky, which is marketed to local distilleries as a base for their blended whisky products. The company currently uses specialised production machines and storage equipment to produce this base grain whisky,which were all purchased seven years ago.
This capital investment is being depreciated on straight- line basis over 10 years; have three years of remaining life, and a current collective book value of $825,000. It is estimated these machines could be sold today for $586,000. Replacement machines could be purchased today at a cost of $3,250,000. The replacement machines have an estimated useful life of 10 years, and an estimated collective salvage value of $230,000 at the end of their useful life. These machines can be depreciated for tax purposes over an eight-year straight-line schedule.
The division manager expects, although with voiced uncertainty,
that the replacement machines would permit an output expansion of 54,568 units in the first year, 63,926 units in the second year, 73,786 units in the third year, 78,152 in the fourth year, and 82,472 units each year thereafter – from the current annual average output of 124,800 units. It is also anticipated this additional outputcan be sold for a current average price of $8.95 per unit. 管理财务报告代写
While the division manager has expressed some reservations regarding the possible revenue gained from these new machines, one of the big advantages of this project is greater operating efficiency. Again, without total certainty, the managing director expects to save $2.46 per unit in current dollars off the current operating costs over the longer term, but in the first two years the savings would only be half this expected amountper unit (while workers learn how to effectively use the new machines). This project would require Golden Barrel Distillery to initially increase inventories by $130,000, while accounts payable would simultaneously increase by $60,000.
You are required to evaluate whether Golden Barrel Distillery should undertake the proposed replacement project? Comment on critical issues to be considered.
Part D: Discussion of Limitations [20 Marks]
Given the uncertainty expressed towards many of the critical case factors, comment on any limitations to the cost of capital developed in Part A or the recommendations provided in Part B and Part C – along with any assumptions made. Make sure you comment on how uncertain factors impact your valuations and demonstrate the use of recommended techniques to address these concerns.
