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Question 1: Explain the theoretical rationale for...

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Question 1: Explain the theoretical rationale for the NPV approach to investment appraisal and compare the strengths and weaknesses of the NPV approach to two other commonly used approaches. After reading the ?Laurentian Bakeries? case study, answer the following question: Question 2: Appraise Laurentian Bakeries? expansion into the US frozen pizza market. You should answer Question 1 of this assignment in no more than 1000 words. The examiner would expect to see a detailed discussion of the theoretical rationale for the NPV rule. Note that describing the properties of NPV does not count as an explanation of the theoretical rationale. For Question 2, the examiner would be keen to find out if you have a clear understanding of the case study and the technique for calculating the NPV of a project. On the next page is a copy of the assessment sheet the examiner will use in order to arrive at a mark. You should answer Question 2 in no more than 1500 words.,I would like to get a good grade.,Dear Rachel, Pls see the attachment for the grading criteria.,Dear Rachel, Pls advise the progress of the assignment. Thank you and Best Regards. Don Heng,Dear Rachel, Pls advise the following: 1. How to derive the stock beta of 0.85 and market risk premium of 6% under the WACC? 2. It is kind of confusing on the calculation of cash flows on the third row where, 0.5*0.7*0.019*6.54m. What exactly is this calculation? 3. As for the Working Capital Requirements, I am confuse how come the Account receivables is 7 ? And the last sentence of "this has to be adjusted for cut of two days from average inventory age." Can you explain more in detail. 4. Am I missing some parts as there is no conclusion and NPV calculation after the working capital requirements? Thank you and Best Regards. Don Heng,Dear Rachel, I have further questions that would required your assistance: 1. Why is the Eligible CCA deduction not used? 2. Sales qty, you indicate it is 60% of expansion multiple by 10.9 million =6.54 million. However, in page 5, second paragraph that the frozen pizza sales would increase rapidly, adding 2.2 million units in fiscal 1996, another 1.8 million units in 1997, then 1.3 million additional units to reach a total of 5.3 million additional units by fiscal 1998. Therefore , can I assume the sales qty for the 10 years is as follow assuming that they can sell 100% of what is produced in the new facility: 1996- 2.2 million 1997- 4.0 million 1998 to 2006- 5.3 million Is my understand correct? 3. Why is it the $223,000 in fixed salaries and $40,000 in sales staff time not included in your calculation? 4. Can I know what is the purpose of calculating working capital requirement? How the two days cut from average inventory age impact on the $11.2 million? 5. In your answer, I could not see any indication of cash outflow after year 1. Pls explain. Thank you and Best Regards. Don Heng,Dear Rachel, As my assignment is due very soon, I would appreciate that you could provide more detail analysis and conclusion for question 2. Thank you and Best Regards. Don Heng,Dear Rachel, Just like to know whether question 2 would required us to do a decision tree as a instructive way to identify and illustrate real options? Or we need to do any sensitive analysis? Looking forward on your reply soon. Best Regards. Don Heng,Dear Rachel, I have gotten the answer for the following question 1 and 2, kind of miss it when reading the case. Pls advise the following: 1. How to derive the stock beta of 0.85 and market risk premium of 6% under the WACC? 2. It is kind of confusing on the calculation of cash flows on the third row where, 0.5*0.7*0.019*6.54m. What exactly is this calculation? Thank you and Best Regards. Don Heng",Dear Rachel, Just like to know the progress, are you still working on it. Than you and Best Regards. Don Heng,Dear Rachel, I am still unclear how to derive the cash outflow, as in your answer it doesn't seems you have calculate any production cost or so call cash outflow. Thank you and Best Regards. Don Heng,Dear Rachel, Pls see below question: 1. I am pretty uncertain on the NPV calculation, and would like you to give me your actual working and the correct answer. As we always see in most text, they question or example, they will give us is the total cash outlay in the first year and then follow by the expected cash inflow for the entire project life, and also the discounted interest rate for the entire project. Now the question is I am able to derive the cash outflow for the first year, how am I going to derive the cashflow going forward, is it Sales- cost of production + all non-cash item, to derive the net cash inflow or outflow for that particular year. In the case, I am unable to find the cost of production and therefore still pretty stuck there. 2. By calculation the WACC, is that mean we need to calculate the NPV using the WACC, to derive whether the company meets the requirement of positive NPV. I would very much appreciate you could work out all the answer so that I could compare it against my answer. Appreciate your soonest reply. Thank you and Best Reagards. 2.,Dear Rachel, Can you pls advise whether the Class 2 hurdles rate of 18% is the benchmark for the IRR rate? Do we need to calculate the IRR? Hope for your prompt reply. Thank you and Best Regards. Don Heng,Dear Rachel, I would appreciate that you could provide me the model answer for the Laurentian's case. Would really appreicate your help as my assignment is due very soon. Thank you and Best Regards. Don Heng,Dear Rachel, I have a bit of confuse on the following: In your answer, the benefits from reduced production cost is shown in the below table as: Cashflow = 0.5 * 0.7 * 0.019 * 6.54 million=$43491 ( I understand that 0.7 is the 70 per cent of increased efficiency would be realised in the first year. 0.5 is the 50 per cent of these savings could actually be achieved. $0.019 is the reduced plant wide unit cost. ) But why in your table there is also another Probability of 0.5. This is the part I cannot understand. Thank you and Best Regards. Don Heng,Dear Rachel, I would very much appreciate that you could reply to those queries I have posted and also provide a model answer for the case. As my assignment is going to due very soon from now. Thank you and Best Regards. Don Heng,Dear Rachel, Pls advise the progress, I need your reply urgently. Best Regards. Don Heng,Dear Rachel, Pls reply asap. Thank you. Don Heng,Dear Rachel, You calculation of working capital requirements of $11.2 million seems not correct. This amount relates to 3 business (pizza, cakes and Pies)and what we need to calculate is for the expansion of the pizza business only, the working capital should be lower, am I right to say that?,Dear Rachel, Can you pls reply soon, am still waiting for your model answer for the case study .,Dear Rachel, As per your answer the Cost of Equity = Stock Beta +Market risk Premium + Risk free rate on 10-year Govt bonds = 0.85 + 6% + 8.06% = 14.91% or is it =0.85*6% +8.06%=8.111% (reason being 0.85 is not in percentage) Pls advise whether my understanding is correct. Thank you and Best Regards. Don Heng

 

Paper#3897 | Written in 18-Jul-2015

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