Finance Assignment - RIVERLEA SWINE
AmazingExpertRiverlea Swine is considering a proposal to manufacture high-protein pig feed.The project would make | ||||||
use of an existing warehouse, which is currently rented out to a neighbouring firm.The next year's rental charge | ||||||
on the warehouse is $100,000, and thereafter the rent is expected to grow in line with inflation at 4 percent a | ||||||
year.In addition to using the warehouse, the proposal envisages an investment in plant and equipment of | ||||||
$1.2 million.
This could be depreciated for tax purposes straight-line over 10 years.However, Riverlea Swine expects | ||||||
to terminate the project at the end of eight years and to resell the plant and equipment in year 8 for $400,000. | ||||||
Finally, the project requires an initial investment in working capital of $350,000. | ||||||
Year 1 sales of pig feed are expected to be $4.2 million, and thereafter sales are forecast to grow by | ||||||
5 percent a year, slightly faster than the inflation rate.Manufacturing costs are expected to be 90 percent of | ||||||
sales, and projects are subject to tax at 30 percent.The cost of capital is 12 percent | ||||||
Required
Using Excel prepare an analysis to be presented to the Chief Executive Officer of Riverlea Swine evaluatingthe proposed project. Your analysis should include the following
- Table of cash flows
- Use of formulae where appropriate
- A written report (no more than 500 words) summarising your recommendation as to whether Riverlea Swine Pty Ltdshould proceed
- Marks will be awarded for
- Set out of spreadsheet
i. Ease of reading spreadsheet
ii. Use of formulae in spreadsheet
iii. Correct application of theoretical model
Presentation of answer including the written report
11 years ago
Purchase the answer to view it
report_on_river_lea_swine.docx- solution.xlsx
