The objective of this assignment is to encourage the students to use excel spreadsheets to aid in problem solving. Students are asked to solve a capital budgeting problem using an excel spreadsheet.
Format: The assignment is a problem solving exercise using an excel spreadsheet with additional discussion on findings considering both quantitative measures and qualitative issues.
Documents: Students should submit the following documents IN HARD COPY SUBMISSION:
· an assignment COVER sheet <Student will forfeit assignment mark if cover sheet is not correctly submitted>
· a copy of the FORMAL report
· a copy of the EXCEL spreadsheet displaying VALUES
· a copy of the EXCEL spreadsheet displaying excel FORMULAS
Online Submission: Link and details will be available on Canvas.
For online submission on Canvas via Turnitin, submit ONLY ONE FILE including ONLY the Assignment Cover Page along with the copy of Formal Report.
Details of Assignment
Assume that you are an adviser at HITECH Ltd, which is analysing the introduction of a new game console named NEUROFORCE. This system can be connected with human brain functions and still very much controversial for claimed but yet to be confirmed adverse impacts on human behaviour after prolonged application. Health conscious groups are also lobbying against introduction of such games with probable detrimental effects.
The project manager of HITECH Ltd needs a detail analysis on this exciting NEUROFORCE project. She comes into your office, drops a consultant’s report on your desk, and complains, “We paid these consultants $1 million for this report, and I am not sure their financial analysis makes sense, though their estimations seem to be correct. Before we spend $30 million on
buying new equipment needed for this project, look it over and give me your opinion.” You open the report and find the following information and estimates:
The project will continue for next 7 years, by that time more reliable information on possible adverse impacts of using NEUROFORCE will be available. It is projected that equipment will have economic life of 10 years. After buying the equipment, it requires to renovate the production bay at HITECH Ltd and install the equipment at a total cost of $1 million. These renovation and installation costs are to be considered as capital expenditures. Staff training cost of $100,000 is to be incurred initially at the start of the project.
The equipment will be procured from SWEDEN and HITECH Ltd has to pay 8% import duty on purchase price, whereas the supplier will pay transportation costs of $70,000. These property, plant and equipment (PPE) would be depreciated over its useful life of 10 years using a tax allowable straight-line rate of 10%. However, the company is planning to sell the equipment at the end of the project for an estimated price of $6 million.
Consultants estimate that 48,000 NEUROFORCE consoles can be sold in the first year with an expected increase by 25% in each year for next two years; afterwards sales are expected to decrease by 20% in each year until the end of the project due to a number of actions by the competitors in the market. Variable operating costs will be 50% of sales. Beginning selling price per console will be $500 that will be dropped by 10% in the 4th year for rest of the project life. Annual fixed operating cost, excluding depreciation, will be $500,000.
Existing facilities to be used for the NEUROFORCE project are coming from another production line that earns net $10,000 per month. That production line will be discontinued on the commencement of NEUROFORCE project. For the duration of the project, HITECH is also planning to take the service of a market analyst at a cost of $5,000 per month.
It is also estimated that the new production line will require an initial increase in investment for
$610,000 in stock (inventories) and $380,000 in debtors (accounts receivable) that are offset by an increase in creditors of $290,000 (accounts payable). There will be no further investment in net working capital (NWC) until its final recovery at the end of project life.
The company uses required rate of return considering its weighted average cost of capital (WACC) that varies from 16 to 22 per cent in recent time. The analyst is confused about the rate to be effective for the project; however, she has decided to use 16 per cent required rate to evaluate this project. Corporate tax rate is 30%. The required discounted payback period is 5 years.
The project manager hesitates to take the final decision because of unexpected growth in game industry with technological advancement in different directions. As an alternative, HITECH has an offer to introduce an upgraded version of a safe traditional game console, the IQPOWER. Initial total investment for this IQPOWER project would be the same as NEUROFORCE project and projected net future cash flows (after all adjustments) would be as follows:
Year-1: $15,200,000; Year-2: $14,600,000; Year-3: $9,850,000; Year-4: $8,750,000; Year-5: $7,600,000; Year-6: $5,000,000;
Before taking final decision in the upcoming meeting, the project manager of HITECH Ltd requires a clear explanation of all relevant issues relating to the NEUROFORCE project. Particularly a FORMAL REPORT is enquired by the project manager to include a detail analysis of cash flows and explanations of results of capital budgeting methods that are commonly used in evaluating projects. Furthermore, in a separate section in the report, the project manager is interested to review a detail comparison between NEUROFORCE and IQPOWER projects with respect to the results of applicable capital budgeting methods using both 16 and 22 per cent required rates, crossover rate and all relevant factors that can assist in taking final decision.
Using Excel Spreadsheet prepare a full analysis to be presented to the Project Manager of HITECH Ltd to assist in evaluating whether either project should be started or not. Your analysis should include the following
· Table of cash flows (show all digits, do not convert amounts to $ in million or thousand).
· Use of ‘excel formulae’ where appropriate (refer eLearning video of Week-6)
· A written report (1500 words, +/- 10%) outlining your recommendation as to whether HITECH Ltd should proceed with either project. Justify your recommendations using quantitative and qualitative issues and your analysis of probable risks and benefits relating to the project. Comparison statement is to be presented in a separate section in the report.
Marks will be awarded for:
· Set out of spreadsheet (watch eLearning video of week-6)
i. Ease of reading spreadsheet
ii. Use of excel formulae in organised spreadsheet
iii. Correct application of theoretical model
· Overall presentation of answer including the written report.
* Carefully read the Report Format Guide (on page-5) and Marking Rubric (on page-5) for required components and presentation of formal report.
Semester 1 2019
Total Marks for the assignment = 20 marks
Organised Excel Spreadsheet = 10 marks and
Concise Formal Business Report (1500 +/- 10% words) = 10 marks
The attached marking rubric (Excel Assignment Information Page-5) should be considered by students when preparing their assignment for submission.
Students are asked to solve a capital budgeting problem using an excel spreadsheet. HARD COPY SUBMISSION:
Submit a hard copy of your assignment
· Containing (i) assignment cover sheet; (ii) a copy of the formal report; (iii) a copy of the excel spreadsheet displaying values; and (iv) a copy of the excel spreadsheet displaying excel formulas.
· EITHER directly to your tutor in tutes in the WEEK BEGINNING Monday the 6th of May,
· OR into the assignment drop box on Level-11 BA Building, clearly indicating the name of your tutor and tutorial time. All assignments will then be forwarded directly to the respective tutors for marking. Assignment box will remain open from 06 to 10 May (to be closed at 5:00pm on the 10th of May).
SOFT COPY SUBMISSION:
Submit soft copy of your assignment via Canvas TURNITIN submission under ASSIGNMENT folder:
· By FRIDAY the 10th of May 5:00 pm AEST.
· Submit ONLY ONE FILE containing the cover sheet and required Report only.
· Submit final assignment by using the FINAL SUBMIT option.
Late assignments will be determined based on the SOFT COPY SUBMISSION time as recorded in TURNITIN. Late Assignments will not be accepted unless an arrangement has been made directly with the convenor.
Should you be unable to submit your assignment due to ill health then you will need to contact Miraj Ahmmod on email@example.com (indicating who your tutor is) to make alternative arrangements.
SUGGESTED FORMAT FOR ASSIGNMENT REPORT
Components of a FORMAL report are expected in the assignment structure. Following table shows one example of major sections: (other sections may be added, if needed)
COVER PAGE [ Must be correctly filled in; otherwise, you will forfeit marks]
Executive Summary Table of Contents Body
2.1 Quantitative (with explanation of results)
3. Recommendations and Justifications
4. Detail Comparison and Further Recommendations 5.Conclusion
Exact Copy of Excel Spreadsheet displaying values (not edited in Word doc)*
Exact Copy of Excel Spreadsheet displaying Excel formulas (not edited in Word doc)*
* Only the sizes of font and columns of the Excel Spreadsheet can be edited in Word Doc.
Carefully read the following Marking Rubric for required components and presentation of formal report.
FREQUENTLY ASKED QUESTIONS and SUGGESTIONS:
Q1. Do I have to upload the soft copy of the same file as I submit for hard copy?
A. NO. Soft copy submission requires ONLY ONE FILE including the Cover Page and the Report only.
Q2. Can I upload more than one file via Turnitin?
A. NO. You can upload ONLY ONE FILE via Turnitin.
Q3. Can I get any help in understanding the assignment question?
A. Whilst we (the members of the Finance teaching panel) understand your concern, we cannot answer to any direct query you may ask relating to the assignment. The problem has specifically been included in the assignment for students to ponder and respond. It is expected that you have clarified all assumptions you may have made in your assignment report.
Q4. Are there specific resources that can help me understand the assignment questions?
A. YES. Issues relating to assignment are discussed in relevant lectures (Week-5 & 6) for multiple times and/or in different ways. To assist you with understanding the concepts of finding Net Cash Flows, it is suggested that you review the lecture illustrations discussed on relevant topics (4a & 4B). You can also check relevant past exam questions and solutions, Sunburst Case and solutions, as well as your text and lecture materials for that topic. All these resources, included recorded lectures and notes written in lectures, are available on Canvas site of the unit. eLearning video of week-6 will guide about the way to prepare cash flow table using Excel.
Q5. I don’t know how to take print out of Excel spreadsheet displaying Formulas only.
A. Google it! For different versions of Excel, different ways are there. All you can find in Google and Youtube.
Q6. Can I send my works on assignment to any teaching staff for having any comment and/or guidance?
A. NO. Assignment is an individual assessment item and members of the Finance teaching panel can neither view the spreadsheet nor make comments on it before submission.
Q7. What would be the content and structure of my report?
A. A sample of format is provided on page-5 and that is followed by a marking rubric on page-5. If you go through these documents, it will give you the idea about the structure and content expected in your report. You are required to provide necessary calculations, results, logical explanations of findings and justifications to convince the manager of the firm to support your recommendations.
Q8. Can I submit hard copy of assignment in the drop box?
A. YES. If you don’t submit hard copy of your assignment to you tutor, you can submit it in the drop box on Level-11 BA Building by 5:00 pm on the 10th of May. If you do not mention your TUTOR’s NAME and Tutorial Time correctly on the cover page, you will forfeit the marks of assignment.
Q9. How do I know the name of my tutor?
A. Tutorial timetable with tutor’s name and contact email are available on Canvas site for this unit.
Q10. What will happen if my assignment is similar to another submission?
A. Both of the similar assignments will be sent to a review committee for identifying the probable case of plagiarism. In the case of identified plagiarism, further steps would follow the University Policies.