Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 31 views

    Case CF

    Uploaded by

    Taha Shahbaz
    - Organo-Foods is proposing a new organic juice division requiring £6.3 million for equipment and £1.2 million working capital. - The division is forecast to sell 900,000 cases annually at £18 per case, with variable costs of 65% of sales. - The project cash flows, cost of capital, NPV, and IRR must be calculated to evaluate the project.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd

    Case CF

    Uploaded by

    Taha Shahbaz
    31 views1 page
    - Organo-Foods is proposing a new organic juice division requiring £6.3 million for equipment and £1.2 million working capital. - The division is forecast to sell 900,000 cases annually at £18 per case, with variable costs of 65% of sales. - The project cash flows, cost of capital, NPV, and IRR must be calculated to evaluate the project.

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    - Organo-Foods is proposing a new organic juice division requiring £6.3 million for equipment and £1.2 million working capital. - The division is forecast to sell 900,000 cases annually at £18 per case, with variable costs of 65% of sales. - The project cash flows, cost of capital, NPV, and IRR must be calculated to evaluate the project.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    31 views1 page

    Case CF

    Uploaded by

    Taha Shahbaz
    - Organo-Foods is proposing a new organic juice division requiring £6.3 million for equipment and £1.2 million working capital. - The division is forecast to sell 900,000 cases annually at £18 per case, with variable costs of 65% of sales. - The project cash flows, cost of capital, NPV, and IRR must be calculated to evaluate the project.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 1

    Term project of Corporate Finance

    Organo-Foods is a medium-sized organic food producer. It is a quoted stock market company. The Company has brought a range of traditional foods to retailers since it was first set up over 10 years ago. However, growth in the main organic food market is relatively slow compared to segments of the organic juice market. Organo-Foods wants to take advantage of these growth areas. It has commissioned a feasibility study to look into demographic projections for the next 10 years and likely trends in leisure activities. The company is proposing to launch a range of exotic organic juices, like beetroot juice. The company is setting up a separate division to handle this project. New equipment is needed for this project, and will cost 6.3 million. Additional working capital for the project of 1.2 million will be needed. Fixed costs associated with the project amount to 3.15 million per annum. Once operational, it has been forecasted that the division will be able to achieve sales of 900000 cases of organic juice per annum at a price to retailers of 18 per case. It has been estimated that the variable costs associated with the project will be at a level of 65% of sales. The equipment purchased will have an expected life of 7 years, and will be depreciated to zero net book value by that time on a straight line basis. At the end of the 3rd and 5th years the equipment will need servicing; this costs 120000 and is done during the Christmas holidays so no output is lost. The project is expected to end at the end of 7 years, and the equipment is expected to be sold for 450000. The tax rate is 30%, the firm has a seven year 7% coupon bond outstanding, which has a price in the market of 103.25, and the firm has 30% debt in its capital structure. The equity has a beta of 1.4, the risk free rate of interest is 5% and the market risk premium is 6.25%. Required: A. Layout the cash flow schedule for this project, calculate the cost of capital and then calculate the NPV and IRR of the project. B. You have been appointed as a consultant to the project and a number of items have been brought to your attention by the manager in charge of the project. He is comfortable with accounting figures and payback as a technique, but not with discounted cash flow. How should these items be dealt with in the cash flow capital appraisal? What difference do you think they would make to the project? State clearly your reasoning in each case. i. The feasibility study, costing 50000. ii. A loan has been taken out to finance the project, how do we deal with the interest payments? iii. The buildings to be used are owned by the parent company, are currently unused, and are worth 3 million on the open market. iv. There is an increase in debtors due to the project being undertaken. C. In going over the figures, you notice that no mention has been made of inflation. You raise this point and the manager says that inflation is currently under 1% in the economy, and they are happy ignoring it. But from your analysis there is a local labour shortage, which you predict will result in labour costs rising by 3% per annum over the project life. Also the commodity cycle has turned against the company and raw materials are forecasted to rise at 5% per annum for the company. Because of the competitive nature of the sector, sales prices will only rise by the general rate of inflation. Inflation poses a problem in cash flow analysis. In general, how is it dealt with, and in this exam describe how would you conduct the analysis to deal with inflation?

    On top of the above requirements you are required to make a financial model of the above case in Microsoft Excel. Submission date: 17th May, 2012 .till 5:00pm!!! Best of Luck!!!!

    You might also like