Order Corporate Financial Management Assignment

December 23, 2022

Order Corporate Financial Management Assignment

Order Number	636738393092
Type of Project	ESSAY
Writer Level	PHD VERIFIED
Format	APA
Academic Sources	10
Page Count	3-12 PAGES

Instructions/Descriptions

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Scenario

Branson Ltd. is a public listed tour company that is based in Melbourne. One of its main operating businesses is to provide tourists with hot-air balloon flights over the city. As their current balloons are due to be retired, they must decide whether to replace them with a large or small model. New balloons have an expected life of 8 years, after which salvage values are $70,000 for the large balloons and $45,000 for the small balloons. Market research has estimated that there is a 60% probability that demand will be high throughout the useful life of the balloons, and a 40% probability that demand will be low throughout the useful life of the balloons.

The large model is expected to cost $900,000, with an extra installation and shipping cost of $80,000. The small model is expected to cost $650,000, with an additional installation and shipping cost of $45,000. The company’s accounting policy is to depreciate using the reducing balance approach of 20% per annum.1 There is also an initial increase in net working capital of $70,000 for the large model, and $40,000 for the small model. The net working capital is recoverable at the end of their useful life.

In the event of high demand, the company expects a yearly operating revenue of $800,000 for the large model, and a yearly operating revenue of $330,000 for the small model. If the demand is low, yearly operating revenue is forecasted to be $700,000 for the large model and $280,000 for the small model. Annual variable and fixed costs associated with operating these balloons are expected to be $400,000 for the large model and $150,000 for the small model. In addition, if the large model is preferred over the small model, the company needs to rent an additional warehouse to store the large balloons. A new warehouse’s rental cost is expected to be $150,000 per year. At the end of year four, there is also an option to cease operation and thus sell the large balloons for $500,000 and the small balloons for $400,000 if the business is not profitable.

The company requires you to calculate an appropriate discount rate using the company’s weighted average cost of capital. The company’s capital structure has remained fairly stable, with a debt-to-equity ratio of 1.2. The company has no plan to adjust its capital structure in the future. Given that the company is listed on the stock exchange, you are able to obtain the historical returns over the last 20 years for the company, the market portfolio and the risk-free asset as tabulated in Table 1. The company debentures have a face value of $1000 and a coupon rate of 10%. They mature in 10 years’ time. Similar debentures are currently yielding 12%. The company tax rate is 30%.

1 As discussed in Week 5, ignore residual value in the calculation of yearly depreciation.

Table 1

Year

Branson

Market

Risk-free

1999

23.13%

13.81%

6.01%

2000

19.55%

12.77%

6.31%

2001

10.08%

7.65%

5.62%

2002

-19.35%

-10.64%

5.84%

2003

25.01%

14.61%

5.37%

2004

29.21%

29.48%

5.59%

2005

28.41%

23.83%

5.34%

2006

22.29%

20.93%

5.59%

2007

-5.68%

1.73%

5.99%

2008

-68.09%

-33.58%

5.82%

2009

48.21%

33.84%

5.04%

2010

12.39%

8.03%

5.37%

2011

-6.54%

-6.43%

4.88%

2012

15.28%

18.56%

3.38%

2013

-1.12%

10.38%

3.70%

2014

17.98%

11.67%

3.66%

2015

-15.44%

-6.43%

2.71%

2016

26.23%

16.29%

2.34%

2017

0.20%

5.70%

2.72%

2018

10.53%

-3.40%

2.54%

You are to prepare a report to present to the CEO, showing the various cash flows based on the different scenarios. Your submission should include the following:

· The use of Excel to evaluate whether the company should proceed with the purchase of large or small balloons, taking into consideration the different scenarios presented earlier.

· A written report stating any assumptions made and outlining your recommendation as to whether the company proceed with the purchase of large or small balloons. Excel tables must be included in the main body and/or appendix of the report.

· All workings in the appendix of the report.

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RUBRIC

Excellent Quality

95-100%

Introduction

45-41 points

The context and relevance of the issue, as well as a clear description of the study aim, are presented. The history of searches is discussed.

Literature Support

91-84 points

The context and relevance of the issue, as well as a clear description of the study aim, are presented. The history of searches is discussed.

Methodology

58-53 points

With titles for each slide as well as bulleted sections to group relevant information as required, the content is well-organized. Excellent use of typeface, color, images, effects, and so on to improve readability and presenting content. The minimum length criterion of 10 slides/pages is reached.

Average Score

50-85%

40-38 points

More depth/information is required for the context and importance, otherwise the study detail will be unclear. There is no search history information supplied.

83-76 points

There is a review of important theoretical literature, however there is limited integration of research into problem-related ideas. The review is just partly focused and arranged. There is research that both supports and opposes. A summary of the material given is provided. The conclusion may or may not include a biblical integration.

52-49 points

The content is somewhat ordered, but there is no discernible organization. The use of typeface, color, graphics, effects, and so on may sometimes distract from the presenting substance. It is possible that the length criteria will not be reached.

Poor Quality

0-45%

37-1 points

The context and/or importance are lacking. There is no search history information supplied.

75-1 points

There has been an examination of relevant theoretical literature, but still no research concerning problem-related concepts has been synthesized. The review is just somewhat focused and organized. The provided overview of content does not include any supporting or opposing research. The conclusion has no scriptural references.

48-1 points

There is no logical or apparent organizational structure. There is no discernible logical sequence. The use of typeface, color, graphics, effects, and so on often detracts from the presenting substance. It is possible that the length criteria will not be reached.