Briefly define an efficient capital market

Assignment Help Managerial Accounting
Reference no: EM131377992

Managerial Finance Assessment Task Project Evaluation

The assignment requires you to prepare answers to the 3 questions below.

Equator Ltd, an Australian manufacturer of laptop computers, is considering expanding its Australian operation into producing tablet computers. The Chief Financial Officer (CFO) of the company, Miss Mandy Morris, believes there will be significant opportunities for growth for the company in the tablet computer market and is therefore looking to construct a new manufacturing plant in North Sydney. Equator Ltd has not manufactured tablet computers before but they have extensively researched the market and believe they can compete successfully.

For this expansion Miss Morris has two options. The first option, Plant A, is a highly automated process that involves significant capital outlays but has lower running costs. Plant B is a more labour intensive facility that has lower initial capital outlays but higher running costs. Plant A and Plant B are mutually exclusive projects.  As Miss Morris's assistant you have been asked to prepare an analysis of the projects to enable her to make a recommendation to the board of directors. To assist your evaluation Miss Morris has provided you with the following information:

i) Sales for Plant A tablet computers amount to 155,000 units per year, starting next year, with sales increasing in line with economic growth.  Sales for Plant B tablet computers amount to 95,000units per year, starting next year, with sales increasing in line with economic growth. 

ii) The Plant Atablet computer has a selling price of $320 next year, increasing in line with inflation.  The Plant B tablet computer has a selling price of $440 next year, increasing in line with inflation.

iii) The nominal economic growth rate is projected to be 5.5% per year.

iv) Plant A is expected to remain in operation for 6years. Plant B is expected to remain in operation for 5.  In the final year of each Plant, the machinery will be sold for 33% of its initial value.  The land and buildings will be retained by the company.

v) Last year, Equator Ltd. paid MacBank $320,000 for a feasibility study that confirmed the manufacturing expansion was economically viable. 

vi) The machinery is considered depreciable for tax purposes and will be depreciated using a straight line depreciation method down to its salvage value. The land, buildings and furnishings are not depreciable for tax purposes.

vii) Plant A will require a provision of $3,500,000 in working capital and Plant B will require a provision of $4,800,000 in working capital. These requirements will remain unchanged over the life of the plants.

viii) There will be additional Sales and Marketing expenses if the project goes ahead. Annually, Project A will incur $1,900,000 and Project B will incur $2,800,000.  These annual costs will increase with inflation. 

ix) Head Office expenses will not increase.  However, a fixed allocation of $350,000 per year will be charged to whichever project goes ahead.

x) All operating expenses are expected to remain constant.

xi) Equator Ltd. is subject to a tax rate of 30%.  Tax is paid in the same year it is incurred. [Do not make any other assumptions about the company's tax liability.]

xii) Both proposals are considered not to be in line with the company's core business and are of different risk.  Equator Ltd's nominal WACC is 13%.  The real WACC used by the Computer Tablet industry is 13.35%. 

xiii) Inflation is projected to be 3.5% per year for the period of each investment.

Other information:

Plant A

Plant B

Initial Costs:

* Land

* Buildings

* Machinery

* Furnishings and fittings

 

$11,650,000

$82,000,000

$26,150,000

$3,200,000

Initial Costs:

* Land

* Buildings

* Machinery

* Furnishings and fittings

 

$11,650,000

$59,500,000

$10,150,000

$2,980,000

Operating expenses:

* Fixed costs

* Variable costs per unit

* Labour costs per unit

 

$600,000

$21.80

$14.20

Operating expenses:

* Fixed costs

* Variable costs per unit

* Labour costs per unit

 

$800,000

$35.80

$25.00

Required:

1. Calculate the NPV, Non-discounted Payback, and the IRR of Plant A and Plant B.  Interpret your results. (If relevant, state any assumptions you have made.)

2. Describe and analyse 4 keys risks associated with the project you recommend (Project A or B).                            

3. Briefly define an 'efficient' capital market.  To what extent is Equator's ability to borrow funds in the capital market dependent upon the capital market operating in an efficient manner? (Your answer should be between a minimum of 500 words and a maximum of 600 words.)

Reference no: EM131377992

Questions Cloud

Do you support net neutrality or why or why not : Do you support net neutrality? Why or Why not?How many bits (not bytes) are there in a 10 page text document?- What services do they provide and what pricing plans do they have for residential users?
Discuss the definition of a superhero : We discussed the definition of a superhero, and the class consensus was that a superhero is someone who acts for the good of others and has superlative power or is somehow extraordinary. Is there anything we need to add to this definition based on..
Determine the numerical value of the transfer function : ECET345- Determine the numerical value of the transfer function, as a complex number, at DC; at 1 radian/sec, and as frequency approaches infinity.
Describe the seven layers in the osi network model : What is a circuit? What is a client? What is a server? Why are network layers important? Describe the seven layers in the OSI network model and what they do.
Briefly define an efficient capital market : ACC511 Managerial Finance Assessment Task Project Evaluation. Briefly define an 'efficient' capital market.  To what extent is Equator's ability to borrow funds in the capital market dependent upon the capital market operating in an efficient manne..
Describe the three stages of standardization : Describe the three stages of standardization. How are Internet standards developed?-  Describe two important data communications standards-making bodies. How do they differ?
Discuss three trends in communications and networking : Name two regional Bell operating companies (RBOCs). Which one(s) provide services in your area?-  Discuss three trends in communications and networking.
How can data communications networks affect businesses : How can data communications networks affect businesses?- Discuss three important applications of data communications networks in business and personal use.
Analyze how the organizational functions at this level : Write a 1,400- to 1,750-word paper in which you identify, compare, and contrast the policing function at the local, state, and federal organizational levels. Analyze how the organizational, management, administration, and operational functions at ..

Reviews

len1377992

1/31/2017 4:34:34 AM

Appraise and compare investment projects using investment evaluation techniques. Show an understanding of the discounted cash flow method of asset valuation. Assess the financial effect of investment risk and return. Show an understanding of the application of the Efficient Market Hypothesis.

len1377992

1/31/2017 4:34:27 AM

The assignment requires you to prepare answers to the 3 questions below. The assignment must be your own individual work, i.e. it is not a group assignment. If it is believed that a student has copied material from another student or any other source without appropriate referencing, the necessary action will be taken under the University’s Student Academic Integrity - Governing Policy/ therefore, it is critical that you provide complete referencing for any and all sources of information that you use in preparing your assignment. This includes both in-text references and a list of references at the end of your assignment. Please contact your local campus lecturer/tutor if you have any queries about referencing.

Write a Review

 

Managerial Accounting Questions & Answers

  Revenue from the sale

Ciolino Co.'s March 31 inventory of raw materials is $ 80,000. Raw materials purchases in April are $ 500,000, and factory payroll cost in April is $ 363,000.

  You have been approached by a potential customer who could

you have been approached by a potential customer who could bring considerable business. she says id like to find an

  Prepare the journal entry to transfer the cost of job

Prepare the journal entry to transfer the cost of job #JK150 out of the work-in-process account at the end of November, What was the under-or over recovered overhead for the year?

  Compute allocated production support cost

Prepare a schedule that shows the gross margin for both products and identify the formula labels, then compute the allocated production support cost.

  Top switch inc designs and manufactures switches used in

top switch inc. designs and manufactures switches used in telecommunications. serious flooding throughout the state of

  Determining cost per equivalent unit

Gunes Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 800 units. The costs and percentage completion of these units in beginning invent..

  Research and find financial statements for two companies

Research and find financial statements for two companies of your choosing. Drawing on information from this module and the course, analyze the statements and write an essay summarizing which of the two is a better investment.

  Access edgar on the internet

What has been the most significant financing activity for the company in requirements 2-6 for another company?

  Preview of financial accountant-forecasting

Generally forecasting and planning is considered the preview of the financial accountant or the forecasting and planning department.

  What additional annual cost is the shop incurring

What additional annual cost is the shop incurring by staying with this order size?  Other than cost savings, what benefit would using the optimal order quantity yield?

  Assume that the company uses the weighted average method

Compute the equivalent units for May's activity for the first department. Determine the costs per equivalent unit for May.

  Compute the amount of cash flow associated

The following accounts and corresponding balances were drawn from Dexter Company's 2014 and 2013 year-end balance sheets:

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd