Finance for Managers, Assessment 4 Page 1 of 5Assessment 4, Finance for Managers SP5 2021Total 50 marksDue Date: 13 October 2021, 11PMIn this assignment, you will undertake a capital investment analysis, and describe and appraise capitalstructure/payout policies. The marking criteria and performance level standards are shown in therubric at the end of this document. Your submission must be less than +10% of the 1,500 word-countfor this assessment (excluding Task 2 appendix showing cash flow details and an assignment referencelist). Words beyond this limit will not be marked.Task 1: Capital Structure and Payout Policy AnalysisFor this task, use your case study company (chosen for Assessment 3).For each policy area, use the following broad approach:a) Describe the company’s capital structure and payout policies based on annual historical data.b) Evaluate either the company’s capital structure or payout policy using factors to be considered insetting such policy as they apply to the company’s context.Your analysis will be mostly qualitative but some basic quantitative measures should be used indescribing the company’s policies. Using well labelled graphs in your description is highlyrecommended (also saves on word count!)Task 2: Capital Investment AnalysisThis task is based on the case information below.Hotels International Ltd (a fictional company) owns and operates two chains (set up as separatedivisions) of three- and four-star hotels in Australian cities. The COVID-19 pandemic has led to adramatic fall in demand. In planning for a new “COVID normal”, the board wants a thorough reviewof all equipment and processes to ensure best practice COVID safety measures are met.A small group of the company’s managers (“the new normal team” or “NNT”) has been put togetherto develop a capital investment project in line with the board’s directive. The CEO has asked you toundertake a financial analysis of the project based on a five-year life and assuming no terminal value.You will provide your analysis in the form of a memo. NNT has provided you with the followinginformation about the project.The project involves a complete upgrade of HVAC (heating, ventilation and air-conditioning) across allthe company’s buildings (“Project HVAC+”) in one of its chains. After clear indications from thescientific community1 that the COVID-19 virus can be transmitted through the air, it has become clearthat improvements in HVAC systems are vital to ensuring the safety of both customers and staff.Project HVAC+ would also include implementation of a range of new cleaning methods, maintenanceand other procedures, certifications, training and a major internal and external marketing campaign.1 Morawska, L & Milton DK 2020, ‘It is time to address airborne transmission of coronavirus disease 2019(COVID-19)’, Clinical Infectious Diseases, vol. 71, no. 9, pp. 2311-2313. This paper, supported by 239scientists, is available at https://academic.oup.com/cid/article/71/9/2311/5867798.Finance for Managers, Assessment 4 Page 2 of 5Therefore, the project is not just an equipment upgrade (quickly and easily copied by competitors) buta complete package to support a competitive advantage for that chain in customer safety. Ifsuccessful, the project could be replicated in its other chain.Very recent research by a university PhD student suggests cleanliness and COVID safety measures topthe list of the major factors now considered by Australian consumers in choosing accommodation andleisure facilities. Based on this country-wide research, the NNT has tentatively estimated that ProjectHVAC+ could increase existing forecast annual divisional sales revenue within current capacityconstraints by $15 million in the project’s first year. In line with existing divisional revenue forecasts,this benefit is expected to grow by 2% per year (Australian economists’ consensus forecast inflationrate) in the remaining years of the project.Based on existing divisional forecasts, variable operating costs associated with sales revenue are 30%and no material change in other existing forecast costs are expected, except as noted below. Aninvestment in net working capital equal to 11% of each upcoming year’s sales revenue forecast willalso be required, a forecast again in line with existing divisional information. The investment inworking capital associated with the project will be fully recovered in the last year of the project.The project requires an upfront investment in plant and equipment, which based on quotes alreadyreceived, will be $12 million. Costs will be depreciated to a zero book-value using the prime costmethod over five years (useful life from the tax office). However, at the end of the project, some ofthis equipment will be sold for scrap at a total of $1 million.Other additional costs directly associated with the project are: (1) marketing and training costs of $6million (an NTT “guesstimate”) in the first year only; and (2) maintenance and administration costs of$5 million (a reasonably certain estimate) in the first year, increasing by 3% per year (NTT“guesstimate”) for the life of the project. NNT has already spent $0.5 million on reviews of existingequipment, policies, methods and procedures for the project.Hotels International’s investment bankers advise that the company’s weighted average cost of capitalis 10%. The company has a 30% income tax rate. (For the purpose of this case analysis, all taxes arepaid in the year of income to which they relate.)Required:Analyse the project and prepare a memo to the CEO of Hotels International that summarises your keyresults and provides recommendations on the project. Note carefully the following points:• Analyse base case (expected) cash flows and their potential uncertainty.• For your base case analysis, calculate the five investment decision criteria focused upon in theWeek 4 PERCI content.• If you make any assumptions beyond those given in the case information, briefly explain them(this can be in the appendix with your base case cash flows – see second last dot point below).• Recommendations should address the decision suggested by your base case, along with furtherfollow up or other matters that the company should consider prior to making a final decision.These additional recommendations should be based on an aspect of your analysis and/or the caseinformation.Finance for Managers, Assessment 4 Page 3 of 5• Include an appendix to the memo that provides a clear screenshot(s) or table of your base casecash flows, the purpose of which is to allow the CEO (your marker) to see line item detail ifneeded.• Within the memo body, you are advised to use tables and/or figures to assist decision makers inquickly seeing main points and to visualise your analysis results. However, ensure the key point(s)of each table or figure is self-evident, discussed or explained.Finance for Managers, Assessment 4 Page 4 of 5 MARKINGCRITERIAExcellent50Very Good42Good33Satisfactory25Developing12.5Inadequate0Task 1adescription15%The company’s capitalstructure and payoutpolicies are very welldescribed, payout policyin terms of level, formand stability. Supportedby relevant qualitativeinformation andquantitative measuresthat are clearly andconcisely presented(tables, charts) andcorrectly interpreted.The company’s capitalstructure and payoutpolicies are welldescribed, payout policyin terms of level, formand stability. Supportedby relevant qualitativeinformation andquantitative measuresthat are clearly andconcisely presented(tables, charts) andcorrectly interpreted.The company’s capitalstructure and payoutpolicies are described,payout policy in termsof at least two of level,form and stability.Supported by somerelevant qualitativeinformation andquantitative measuresthat are mostlycorrectly interpreted.The company’s capitalstructure and payoutpolicies are described,payout policy in termsof at least one of level,form and stability.Supported by somerelevant qualitativeinformation andquantitative measuresthat are mostlycorrectly interpreted.While an attempt hasbeen made to describethe policies, it isextremely limited orunsupported by relevantand accurate data orcontains mostlyincorrect interpretations.Largelyinaccurate,incomprehensibleor unattemptedTask 1bevaluation15%Several relevant factorshave been correctlyapplied based on thecompany’s context tomake appropriate andwell explainedjudgements on the policyin a way thatdemonstrates surprisinginsight. Synthesisesjudgements to make anoverall evaluation of thepolicy.Several relevant factorshave been correctlyapplied based on thecompany’s context tomake appropriate andwell explainedjudgements on thepolicy. Synthesisesjudgements to make anoverall evaluation of thepolicy.At least two relevantfactors have beencorrectly applied to thecompany’s context tomake appropriate andwell explainedjudgements on itspolicy and an overallevaluation isattempted.One relevant factor hasbeen correctly appliedto the company’scontext to make anappropriate judgementon the policy. Someother relevant factorshave been noted butadequately applied orexplained.Some relevant factors insetting the policy havebeen noted butapplication to thecompany’s context islacking, not clearlyexplained or incorrect.Largelyinaccurate,incomprehensibleor unattemptedTask 2: Estimationof relevant basecase cash flowsand five decisioncriteria25%All relevant base casecash flows have beenaccurately incorporated.All net cash flows anddecision criteria arecorrect.Nearly all relevant basecase cash flows havebeen accuratelyincorporated and alldecision criteria arecorrect based on the netcash flowsMost relevant basecase cash flows havebeen accuratelyincorporated anddecision criteria aremostly correct basedon the net cash flows.About half the relevantbase case cash flowshave been accuratelyincorporated anddecision criteria aremostly correct based onthe net cash flows.Less than half therelevant base case cashflows have beenaccurately incorporated,or decision criteria maybe mostly incorrectbased on the net cashflows.Largely incorrect,incomprehensibleor unattempted,or providesinsufficient detailof cash flows toassess. Finance for Managers, Assessment 4 Page 5 of 5 MARKINGCRITERIAExcellent50Very Good42Good33Satisfactory25Developing12.5Inadequate0Task 2: Analysisof uncertainty15%Accurately analysesproject uncertainty usingappropriate techniques.Insightful and judiciousinput choices are wellexplained and linked tocase facts. The analysis isvery easy to follow.Accurately analysesproject uncertainty usingappropriate techniques.Judicious input choicesare mostly wellexplained and linked tocase facts. The analysis iseasy to follow.Mostly accuratelyanalyses projectuncertainty usingappropriate techniquesInput choices aremostly explained andreasonable. Theanalysis is easy tofollow.Mostly accuratelyanalyses projectuncertainty using atleast one appropriatetechnique. Inputchoices may beunreasonable/lackingexplanation or theanalysis may be hard tofollow.Attempts to use at leastone appropriatetechnique but withunjustified/unreasonableinput choices in a hard tofollow analysis or thereare major inaccuracies.Largelyinaccurate,incomprehensibleor unattempted.Task 2Judgement:Interpretationandrecommendations20%Succinctly and accuratelyinterprets base casedecision criteria anduncertainty analysis.Based on the results,provides insightfulrecommendations thatincorporate multiplesubtleties within the casecontext.Accurately interpretsbase case decisioncriteria and uncertaintyanalysis. Based on theresults, providesappropriaterecommendations welllinked to case context.Mostly accuratelyinterprets base casedecision criteria anduncertainty analysis.Based on the results,provides appropriaterecommendations thatgo further than simplyaccepting or rejectingthe project but may begeneral or not welllinked to case context.Mostly accuratelyinterprets base casedecision criteria.Provides an appropriateaccept/rejectrecommendation onthe project. Casecontext largely ignoredor misunderstood.Mostly inaccuratelyinterprets base casedecision criteria or norecommendations havebeen made orrecommendations donot follow from theresults or interpretation.Largelyinaccurate,incomprehensibleor unattempted.Communication10%Very well organised andpresented. Use oflanguage makes meaningconsistently clear.Outstanding attention tospelling, punctuation,grammar and syntax(virtually error free). Allsources are appropriatelyreferenced.Very well organised andpresented. Use oflanguage nearly alwaysmakes meaning clear.Only a few minor errorsin spelling, punctuation,grammar and syntax. Allsources are appropriatelyreferenced.Well organised andpresented. Use oflanguage mostly makesmeaning clear. Severalminor errors in spelling,punctuation, grammarand syntax. Mostsources areappropriatelyreferenced.Fairly well organisedand presented. Use oflanguage mostly makesmeaning clear. Errors inspelling, punctuation,grammar and syntaxbut readability is nothampered. Mostsources are referenced.Disorganised and untidilypresented, or readabilityis hampered by errors,or most sources are notreferenced.Largely incorrect,incomprehensibleor unattempted.
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