Critically review, analyse and interpret financial and non-financial information to inform strategic decision making
Instructions:
Learning Outcome(s) Assessed
Learning Outcome 4: Evaluate financing options relevant to business operations
Learning Outcome 5: Integrate financial management techniques for strategic planning
purposes
Learning Outcome 6: Critically review, analyse and interpret financial and non-financial
information to inform strategic decision making
Instructions for assessment:
For this assessment you are required to create an Excel spread sheet and write an investment
review for the following case study.
YOU ARE REQUIRED TO:
Write an investment review of approximately 2,000 to 2,500 words to the General Manager of
Blue Swan Winery Ltd providing advice and recommendations on the feasibility of these projects,
the financing options available to them, the impact of foreign exchange risk and how shared value
principles can be incorporated into the decision making.
Your investment review should be structured as follows:
1 Introduction
1.1 Provide a short summary of the company and the issues it faces.
(2 marks)
1.2 Briefly outline the purpose of the investment review.
(2 marks)
2 Overview
2.1 Explain how the Net Present Value (NPV) and Internal Rate of Return (IRR)
methods are used to determine the project feasibility.
(4 marks)
3 Findings and Analysis
3.1 Calculate using an Excel spread sheet a feasibility analysis to determine which
project the company should accept. For each project you will need to calculate
the:
initial investment
terminal value
net after tax cashflows for years 0 to 10
net present value
internal rate of return
Please note:
Show all your calculations to two decimal places.
All calculations must use Excel’s built-in functions, time value of money tables must not be used.
(10 marks)
3.2 Analyse your results from question 3.1 regarding the feasibility of these two (2)
projects. Explain how financial factors can increase the risk of achieving the results you calculated in 3.1. 3.3 Further, analyse your results from question 3.1 regarding the feasibility of Project
Big by performing a sensitivity analysis on the exchange rate as follows:
Re-Calculate new NPV’s and IRR’s (to two decimal places) as if the exchange
rate changes in six-months-time to each of the following:
1 NZD = 0.90 AUD
1 NZD = 0.85 AUD
1 NZD = 0.80 AUD
1 NZD = 0.75 AUD
Education and Applied Research Division Department of Business
AMIF603 NZDB603 DAB603 Assess 2 Sem 1 2018.docx 8/05/2018 Page 7
© Ara Institute of Canterbury
Present the results in a table and explain how exchange rate changes can affect
your conclusions in section 3.2.
(7 marks)
3.4 Explain how selling some wine in Australia, under Project Big, would create a natural hedge and how this affects exchange rate risk. 3.5 A merger between Blue Swan and Longneck has also been suggested as an alternative to project Big. Critically evaluate how a merger may, or may not, increase the wealth of Blue Swan’s current shareholders.3.6 Critically evaluate projects Small and Big from a shared value perspective.
Explain which project is better and why is it better when you consider social and environmental factors? Discuss whether including a shared value perspective affects the results of your NPV and IRR analysis. 3.7 Use Excel’s IRR function to calculate the implied interest rate for the lease.
Calculate the after tax cost of debt assuming the cost of debt is the same as the
interest rate on the loan. Using the after tax cost of debt calculate the present
value of the lease versus purchase options for the plant. Show your Excel spread
sheets in an appendix. Include separate schedules showing the annual interest
and principal repayments for the lease and the loan for years 1 to 10 and
schedules of net cash flow for the lease and the loan.
Please note:
Show all your calculations to nearest whole dollar.
All calculations must use Excel’s built-in functions 3.8 Analyse the lease versus purchase option for the plant. Consider both financial
and non-financial factors. Explain whether the company should lease or purchase the plant if they choose Project Small. Discuss whether the lease analysis affects the choice between projects Big and Small. Support your analysis with calculations.
Answer preview for Critically review analyse and interpret financial and non-financial information to inform strategic decision making
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