Reference no: EM131645492

Instructions:

This task is to be completed in teams of two.

You should submit your assignment by way of a report outlining recommendations to the client "CaustoFoppi" your report should be supported by an appendix showing calculations of various business financial techniques used. Any financial techniques should be completed in a spreadsheet.

ASSIGNMENT REQUIREMENTS:

You are required to analyse all the information given and provide Causto with an evaluation of the financial performance of his business, making recommendations to his concerns. Specific attention should be focused towards:

1. Management of working capital with objective of easing cash flow problems. Your investigations should therefore cover.

i. Inventory management

ii. Debtors management

iii. Appropriate discount to lure cash sales

2. Whether to proceed with the expansion of the bike service facility

3. Lease, or borrow and buy to acquire the service tools required in any expansion

4. Whether to proceed with the new online sales project. (use the Pure Play approach)

5. Many of the above will require for you to calculate the weighted average cost of capital (WACC).

i. Firm wide WACC

ii. Project specific WACC

6. Ensure that all recommendations are supported by calculations.

1. Determine the Net Present Value  of the projected cashflows related to the online sales project, and advise Causto whether he should proceed.

2. Determine the optimal order size and inventory holding for each type of bike frame

3. Calculate an efficient safety stock level for both Carbon and Steel frames. Base expected sales on last years figures. Assume the weekly sales of both bike frames follow a normal distribution, and that there is no variation in the lead time. Causto is aiming at a 95% service level for both frame types

4. Compare current inventory holding with optimal calculated above.

5. Determine current debtors turnover and compare with planned level.

6. Calculate a recommended percentage discount rate to be applied in order to prompt cash sales. This discount would lead to earlier realisation of cash without exceeding the current cost of credit sales.

7. If required suggest relevant changes to working capital, explain how your suggested changes will assist to alleviate cash flow problems

8. Determine the cost of debt (required return on debt)

9. Determine the cost of equity (required return on equity). Note: you do not have dividends nor shares as we are not dealing with a company. Can you solve this problem by using an appropriate proxy?

10. Combine the various elements of the cost of capital above and calculate the weighted average cost of capital for the firm

11. Determine the relevant cash flows for the capital budgeting decision (Bike repair and servicing project)

12. Evaluate the capital budgeting decision (Expansion of bike servicing facility) and comment on whether the project should proceed.

13. Complete the lease schedule

14. Determine the relevant cash flows associated with a lease evaluation

15. Evaluate the lease and comment (in report) on whether they should lease the asset or borrow and buy

16. Complete a pro forma Balance Sheet. What would this statement look like if your recommendations were implemented?

17. Make any necessary assumptions where required. Ensure that you clearly stipulate what these are in your report.

18. Provide a report to Causto pointing out your recommendations (based on the workings) be sure to point out how specifically the recommendations would alleviate his problems

19. Include all calculations, charts, workings, assumptions used to come to your recommendations above in an appendix to your report

20. In addition you must complete a SWOT matrix outlining in bullet point format the Strengths, Weaknesses, Opportunities, and Threats associated with the existing bike frame manufacturing project and include this as an appendix to your report. See this link for assistance with a SWOT matrix.

21. Ensure you use appropriate referencing where required.

22. All files; The business report, along with spread sheet file containing calculations, minutes of team meetings and team log must be submitted via Blackboard in the "Assignment Tasks" "Holistic Assignment (Drop Box)" The same folder from which you extracted these documents.

23. The report is completed on time.

Attachment:- Assignment File.rar