Case Study 2: Chapter 11 (page 397-398). Answer question (a) and (c) only.
RWE Enterprises: Expansion Project Analysis RWE Enterprises, Inc. (RWE) is a small manufacturing firm located in the hills just outside Adelaide, South Australia. The firm is engaged in the manufacture and sale of feed supplements used by cattle raisers. The product has a molasses base but is supplemented with minerals and vitamins that are generally thought to be essential to the health and growth of beef cattle. The final product is put in 50-kg or 90-kg tubs that are then made available for the cattle to lick as desired. The material in the tub becomes very hard, which limits the animals’ consumption. The firm has been running a single production line for the past five years and is considering the addition of a new line. The addition would expand the firm’s capacity by almost 120% since the new equipment requires a shorter down time between batches. After each production run, the boiler used to prepare the molasses for the addition of minerals and vitamins must be heated to 85° C and then must be cooled down before beginning the next batch. The total production run entails about four hours and the cool-down period is two hours (during which time the whole process comes to a halt). Using two production lines would increase the overall efficiency of the operation since workers from the line that is cooling down could be moved to the other line to support the ‘canning’ process involved in filling the feed tubs. The second production line equipment would cost $3 million to purchase and install and would have an estimated life of 10 years at which time it could be sold for an estimated after-tax scrap value of $200 000. Furthermore, at the end of five years the production line would have to be refurbished at an estimated cost of $2 million. RWE’s management estimates that the new production line would add $700 000 per year in after-tax cash flow to the firm. The 10-year cash flows for the line are as follows:
YEAR CASH FLOW
0 –$3 000 000
1 700 000
2 700 000
3 700 000
4 700 000
5 –1 300 000
6 700 000
7 700 000
8 700 000
9 700 000
10 900 000
(a) If RWE uses a 10% discount rate to evaluate investments of this type, what is the net present value of the project? What does this NPV indicate about the potential value RWE might create by purchasing the new production line?
(c) Calculate the payback and discounted payback for the proposed investment. Interpret your findings.
Please present the answers as a report format. No Executive Summary or Index page is required. A short introduction and a short conclusion will be ideal. Word count for Case 1 should be approximately 1,500 words (or not longer than 4 pages). Case 2 requires you to show calculation. Excluding the calculation, the word count for the analysis of both parts to this case should be approximately 750 words (or no longer than 1 1/2 pages). Students are to write essay type responses in your own words. Marks will be awarded for clarity of explanations and paraphrasing from other sources including the textbooks. Concise description and correctness of answers are also important together with any diagrams or figures where applicable.
For calculation, marks will be awarded for the accuracy, showing the right formulae used, the steps in arriving at the answers, the correct answers and any diagrams/timeline as required. Correct answers alone will give you 50% of the total mark.
Where copying from other sources results in high % similarity, marks will be deducted as shown on the marksheet. Therefore, proper use of in-text referencing is important and avoid direct quotes. Turnitin will be used to check % similarity. Please do not copy the questions to be answered from the textbook as it would be reflected as part of the % similarity. As a guide, % similarity in excess of 20% will not be awarded the full mark for this category. There is a tendency for students to upload the assignment to check % similarity using Turnitin. Please note that once you upload the assignment, you cannot delete it. If another member of the group is to upload the final version, this could result in 100% similarity. Remember if you have done the work yourself, there is no need to check as allowing up to 20% similarity without penalty is very reasonable.
Under extenuating circumstances where high % similarity indicates copying from written works of other students in CQU (from previous terms) or other universities or any other institutions world-wide, the assignment will be reviewed by academic misconduct board for appropriate actions.
The assignment will be marked out of 80 marks but will be scaled down to 20 marks. Penalty for late submission is 5% per calendar day, ie, 1 mark per calendar day (including Saturday and Sunday).
Mark Sheet for Assignment 2
Please note marks allocated in the cell highlighted in yellow. Correct answers normally give you 50% of the mark.
Name:_________________________ Campus:__________ Student ID_________
Name:_________________________ Campus:__________ Student ID_________
Number Requirements Max Marks Marks Marks for each Q
Case Study 1
Question 1
(10 marks) Explain at least 3 types of investment projects 5
Clarity in explanation & good presentation 2
Degree of % similarity & proper referencing 3
Case Study 1
Question 2
(10 marks) Explain at least 3 activities 5
Clarity in explanation & good presentation 2
Degree of % similarity & proper referencing 3
Case Study 1
Question 3
(10 marks) Discuss at least 3 explanations 5
Clarity in explanation & good presentation 2
Degree of % similarity & proper referencing 3
Case Study 1
Question 4
(10 marks) Explain at least 3 types of accountabilities 5
Clarity in explanation & good presentation 2
Degree of % similarity & proper referencing 3
Case Study 2 Part (a)
(20 marks)
Correct Calculation with right formula, timeline. 6
Analysis of potential RWE 6
Clarity in explanation & good presentation 4
Degree of % similarity & proper referencing 4
Case Study 2 Part (c)
(20 marks)
Correct Calculation with right formula, timeline. 6
Interpret your findings 6
Clarity in explanation & good presentation 4
Degree of % similarity & proper referencing 4
Total out of 80 80
Total out of 20 20
Marks deduction for late submission (1 mark per day)
Total mark after deduction for late submission