Assessment 4: Case Study 2 ACC91210 SP3 2019 1 ACC91210 Finance for Managers (Online) Study Period 3, 2019 Assessment 4: Case Study 2 Due date: 12 June 2019, 11PM This assignment has a 50% weighting...

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Finance for Managers, there are 2 Assessments attached. Assessment 3 Case Study 1 Finance for Managers AND Assessment 4 Case Study 2 Finance for Managers with supporting documentations from Week 1 to 6. Please review and let me know ok.


Assessment 4: Case Study 2 ACC91210 SP3 2019 1 ACC91210 Finance for Managers (Online) Study Period 3, 2019 Assessment 4: Case Study 2 Due date: 12 June 2019, 11PM This assignment has a 50% weighting in your overall mark for this unit and focuses on content from Weeks 4, 5 and 6. The assignment will be marked out of 50. It consists of two main tasks and marks will be allocated as indicated in the rubric for each task at the end of this document. Your total assignment submission should not exceed 2000 words (excluding Task 2 appendix showing cash flow details and an assignment reference list). Task 1: Capital Structure and Payout Policy Analysis (20 marks total) For this task, you are required to describe and evaluate the capital structure and payout policies of your case study company (chosen for Case Study 1). For each policy area, use the following broad approach: 1. Describe the policy (which may or may not be explicit) based on current and historical data. 2. Evaluate the policy, drawing on theory and practical considerations covered in the unit and applied to the company’s current characteristics and situation. Your analysis will be mostly qualitative but some basic quantitative measures should be used in describing the company’s policies. Marks for this task will be awarded as per the Task 1 rubric (see below). Task 2: Capital Budgeting Task (30 marks total) This task is based on the case information below. The company and financial data are fictional1 but the background context is not. Companies increasingly face challenges and opportunities to run more environmentally and socially responsible businesses whilst growing value for shareholders. Case background OnePack Limited operates in the packaged food industry, selling mainly stocks, sauces, snacks, drink powders and salad dressings. All its products are sold in plastic packaging and a significant proportion in small multi-layer sachets (or pouches)2 in Asian countries. Managers at OnePack are acutely aware of the increase in world plastic production and the environmental impact of plastic waste ending up in landfills, rivers and oceans. For example, 1 UniLever and its research and development in the area of multi-layer sachet recycling provides the inspiration for this case but all facts related to the financial analysis are fictional. 2 While not necessary for attempting this case study, you will better understand the plastic packaging in this case context if you go to https://www.plasticpackagingfacts.org/blog/multi-layer-pouch-packaging-a-sustainable-story-animated/ and watch the video on multilayer plastic pouches. Although many improvements to this packaging have been made, as pointed out in the video, there remains much to do in reducing the impacts of waste pouches on the environment. https://www.plasticpackagingfacts.org/blog/multi-layer-pouch-packaging-a-sustainable-story-animated/ Assessment 4: Case Study 2 ACC91210 SP3 2019 2 researchers3 estimate that 8 million metric tons of plastic entered the ocean in 2010 and this annual amount is predicted to more than double by 2025 with major increases in South Asia. To help develop a closed-loop system related to the company’s products, OnePack has invested $25 million in soft plastic recycling research, development and pilot testing. The outcome is a new and efficient method for recycling sachet waste. In fact, their recycling method is more energy efficient than producing virgin sachet plastic, reducing energy usage by 83%. The output plastic is of such high quality it can be used in food grade packaging applications. Currently, no other recycling method in the market can achieve this. The company now faces a decision: should it build a commercial scale plant and produce recycled sachet plastic for use in packaging its own products? The CEO has asked you to undertake a financial analysis of the options and present your recommendations in a memo. Financial projections for recycling sachet waste Moving to full recycling production requires an upfront investment in plant and equipment of $30 million, which will be depreciated to a zero book value on a straight-line basis over 6 years. Financing for the plant and equipment will be via a new debt issue, resulting in interest costs of $1.2 million payable at the end of each year. The plant will provide sufficient capacity to meet the company’s forecast plastic packaging needs over the period of its life. After this, it is expected that the plant will be updated using new technology but some of the older equipment will be sold to metal recyclers for $1.5 million. The plan is to replace use of virgin plastic in packaging with the new recycling plant’s output. The upcoming year forecast of total variable plastic packaging costs based on virgin plastic is $27 million and this is expected to grow by 2% per year after that. Replacing externally-sourced virgin plastic with internally-produced recycled plastic is expected to result in some reduced variable packaging costs. First, the energy efficiency of the recycling method will reduce costs compared to virgin plastic production and this is estimated to decrease the company’s annual forecast packaging costs by 10%. Second, a virgin plastic supplier margin equivalent to 8% of annual forecast packaging costs will be avoided but this benefit is expected to be offset by a new cost associated with paying a partner to supply plastic waste raw material for recycling. In addition to benefits related to cost savings, the company’s sales and marketing executives have argued that sales revenue of the company’s products will increase due to consumer demand for environmentally responsible products. Excluding this potential benefit, the company’s forecast sales revenue for the coming year is $440 million and this is expected to grow by 2% each year after that. The executives have estimated that with an additional $13 million in marketing costs in the first year of the project to inform the public of the company’s recycled packaging, annual sales revenue will be 2.5% higher than existing forecasts for the life of the project. An additional $4 million annually in administrative and general expenses directly related to the project (excluding depreciation) will be incurred. Furthermore, an upfront additional investment will be required in net working capital. This will be equal to 1% of the total first year sales revenue forecast 3 Estimates from Jambeck, J.R., Andrady, A., Geyer, R., Narayan, R., Perryman, M., Siegler, T., Wilcox, C., Lavender Law, K. (2015) Plastic waste inputs from land into the ocean, Science, 347, p. 768-77. Assessment 4: Case Study 2 ACC91210 SP3 2019 3 under the project assumptions and will be fully recovered in the last year of the project. Apart from these changes, the general consensus of the champions of the project is that all other costs will be equivalent to existing forecasts. Other case information: OnePack has a 9% weighted average cost of capital and is subject to a 30% tax rate on its income. Required: Prepare a financial analysis of the proposed project and present it to OnePack’s CEO in the form of a memo. In the memo, briefly explain and justify your chosen methods, inputs and any assumptions made, summarise your findings and present recommendations on the proposed project. Ensure you not only address base case cash flows but also analyse potential uncertainty. Recommendations should address the decision to be made, along with any further follow up or other matters the company should consider prior to making a final decision. Include an appendix to the memo that includes details of your base case figures. Within the memo body, you may provide tables and figures that assist decision makers understand your methods, findings and their implications for decision making but ensure the tables and figures are discussed and/or explained. Assessment 4: Case Study 2 ACC91210 SP3 2019 4 TASK 1 MARKING CRITERIA Excellent Very Good Good Satisfactory Poor Description of capital structure and payout policies (7 marks) The company’s capital structure and payout policies are succinctly and well described, payout policy in terms of level, form and stability. The description is directly supported by relevant current and historical qualitative information (e.g. quotes from company sources) and quantitative measures that are clearly and concisely presented (tables, charts) and correctly interpreted. (7 marks) The company’s capital structure and payout policies are well described, payout policy in terms of level, form and stability. The description is mostly supported by relevant current and historical qualitative information and quantitative measures that are clearly and concisely presented (tables, charts) and correctly interpreted. (6 marks) The company’s capital structure and payout policies are described, payout policy in terms of at least two of level, form and stability. The description is supported by some relevant qualitative information and quantitative measures that are mostly correctly interpreted. (5 marks) The company’s capital structure and payout policies are described, payout policy in terms of one of level, form and stability, supported by some relevant qualitative information and quantitative measures that are mostly correctly interpreted. If more than one aspect of payout policy is described, it is mostly incorrectly interpreted or without adequate supporting data (4 marks) The description is missing or extremely limited or unsupported by relevant and accurate data or contains mostly incorrect interpretations. (0 to 3 marks) Evaluation of capital structure policy (6.5 marks) Several relevant factors in setting a target capital structure have been correctly applied to the company's current characteristics and situation to make appropriate and well explained judgements on its capital
Answered Same DayApr 21, 2021ACC91210Southern Cross University

Answer To: Assessment 4: Case Study 2 ACC91210 SP3 2019 1 ACC91210 Finance for Managers (Online) Study Period...

Shakeel answered on May 16 2021
141 Votes
Sheet1
        Given Data
        Initial investment in Plant and Equipment ($M)    30        Calculations
        Life of P
lant and Equipment (Years)    6            Year 1    Year 2    Year 3    Year 4    Year 5    Year 6
        Book value after 6 years    0        Sales (Based on virgin plastic)    440.00    448.80    457.78    466.93    476.27    485.80
        Depreciation per year ($M)    5        Sales (Based on recycled plastic)    451.00    460.02    469.22    478.60    488.18    497.94
        Interes payment each year ($M)    1.2        Incremental Sales due ot recycled plastic    11.00    11.22    11.44    11.67    11.91    12.14
        Salvage value of Equipment ($M)    1.5
        Variable packaging cost for Virgin plastic in 1st year ($M)    27        Variable packaging cost for virgin plastic    27.00    27.54    28.09    28.65    29.23    29.81
        Yearly growth rate in variable packaging cost    2%        Variable packaging cost for recycled...
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