Great Deal! Get Instant $10 FREE in Account on First Order + 10% Cashback on Every Order Order Now

Part A (40 Marks)Saturn Petcare Australia and New Zealand is Australia’s largest manufacturer of pet care products. Saturn have been part of the Australian and New Zealand pet care landscape since...

1 answer below »
Part A (40 Marks)Saturn Petcare Australia and New Zealand is Australia’s largest manufacturer of pet care products. Saturn have been part of the Australian and New Zealand pet care landscape since opening their first manufacturing facility in Albury Wodonga in 1966. Since then they have expanded their manufacturing footprint to include other sites in regional Australia and New Zealand including a world-leading manufacturing site opened in Bathurst, NSW in 2015. Saturn Petcare Australia New Zealand manufactures both for the domestic markets as well as exporting products to more than 26 countries. Saturn Petcare is part of the larger overall Saturn Group which is globally one of the largest privately held manufacturing companies and operates in a range of different fast moving consumer goods (FMCG) sectors including manufacturing well-known chocolate, confectionary, and food brands as well as pet food and pet care products.Saturn have undertaken externally commissioned market research at a cost of $250,000 which has identified that a market exists for a new premium dog snack to be manufactured under their ‘Optimal’ premium pet food label. The Saturn marketing department have estimated that the new product will achieve sales of AUD$30 million in the first year and that sales will be expected to increase by 10% pa year on year for at least 10 years.If Saturn proceed with this product launch a manufacturing production line must be constructed at an estimated cost of $27.5 million. To house the new production line Saturn have the opportunity to construct a purpose built facility alongside its existing dry food factory in Bathurst for a cost of $8 million. Alternatively, the production line could be built within an existing vacant factory space at the Wodonga head office site. When operational the new production facility is expected to create full time employment for an additional 20 staff. In addition you are advised that the Bathurst City Council has decided to offer as an incentive if the new facility is built in Bathurst a 100% rebate of the council municipal rate on Saturn’s Bathurst site (valued at $500,000 per year). In addition, the Bathurst City Council has negotiated a one-off regional infrastructure grant from the NSW state government of $2.5 million payable when construction of the facility commences. The existing factory space where the plant is planned to in Wodonga, Victoria is unused and there is no opportunity cost associated with it. It is expected that the production line plant and equipment will be depreciated on a straight line basis over its expected useful life of 10 years. The new building in Bathurst will have a useful life of 25 years and will be depreciated on a straight line basis. Saturn are an international company and pay Australian tax at the rate of 30% on profits. The capital budgeting analysis should be conducted on an after tax basis.

You have been asked by Nathan Quinlivan the Demand and Strategy Finance director for Saturn Petcare Australia New Zealand to conduct a capital budgeting analysis of the two options. Saturn have a global target return on investment of 22% pa. Margin after Conversion (MAC) for this new product is budgeted at 30% of gross sales.

Nathan Quinlivan advises you that he is concerned about three issues:

  1. That the possibility of product cannibalisation has not been considered;
  2. Marketing estimates of year on year sales increases are high; and
  3. He believes that the original $6 million cost of the vacant Wodonga factory space should be considered in the analysis.

Required:

For both the Bathurst and Wodonga production options calculate the following:

  • After-tax cash flows (6 marks).
  • Payback periods (4 marks).
  • Net present values (6 marks).
  • Profitability index (4 marks).

What recommendation would you make regarding the projects? Discuss any further information that you may require to help you make the accept/reject decision about either of these projects (5 marks).

Define ‘product cannibalisation’ in capital budgeting decisions and address Nathan’s concerns that it should be considered (5 marks).

Address Nathan’s concerns that Saturn’s marketing department’s budgeted sales estimates may be too high. What capital budgeting options are available to compensate for such an error? (5 marks)

Address Nathan’s concerns that the original value of the vacant Wodonga factory should be included in the analysis (5 marks).

Part B (60 Marks) Report

Guidelines:
For this assignment, you are encouraged to use the information provided on the firm's corporate websites together with the following sources:

  • OneSource: Global Business Browser (available through Library Databases: http://library.csu.edu.au/services/find-books-and-other-resources/databases/subject/business)
  • Australian Stock Exchange http://www.asx.com.au/
  • Yahoo Finance https://au.finance.yahoo.com/
  • Reutershttp://www.reuters.com/finance/markets
  • News sources such as those secured through the Library's ANZ Newsstream and Factiva databases are also likely to be relevant (http://library.csu.edu.au/services/find-books-and-other-resources/databases).

Your report should include:

  • A brief executive summary.
  • Introduction.
  • Body (use appropriate headings and sub-headings as relevant sign-posts).
  • Conclusion

Required:

ARB Corporation Limited designs, manufactures, distributes, and sells off road motor vehicle accessories and light metal engineering works in Australia, the United States, Thailand, the Middle East, and Europe. The company operates approximately 61 ARB stores in Australia. ARB Corporation Limited was founded in 1975 and is headquartered in Kilsyth, Australia. ARB is listed on the Australian Stock Exchange and reported total revenue for the 2017 financial year of almost $385 million.
As part of the finance team of ARB Corporation you have been tasked with reviewing and preparing a report on the capital structure of the firm and critique whether the firm has been successful in maximising wealth generation for shareholders.
Your report should be 1000 words and cover the following areas:

(i) Using data from the firm's 2017 financial year annual report and other sources assume that the firm ARB has a Beta of 0.89 (Reuters) and that capital return on the market for 2017 was 8.54%:

  • Categorise the firm's current capital structure into debt and equity.
  • Calculate the firm's after-tax Weighted Average Cost of Capital.
  • Using the CAPM calculate whether the firm is providing an appropriate return given its risk

(ii) Compare the firm's capital structure with at least one other firm operating within a similar industry.

(iii) Critically analyse other key financial ratios for ARB.

(iv) Outline any significant changes to have occurred to the firm's capital structure during the past three years.

(v) Critically evaluate the extent to which the firm has been successful in maximising wealth for shareholders in the past three years. In doing so discuss why it is important for the firm to minimise their cost of capital.

(vi) Recommend possible ways in which the firm could adopt an alternative capital structure and lower their cost of capital.

Answered Same Day Apr 23, 2020

Solution

Aarti J answered on May 02 2020
148 Votes
Finance – Assessment 3
Course Name
Course date
Student’s name
FINANCE – ASSESSMENT 3        8
Part A
For both the Bathurst and Wodonga production options calculate the following:
· After-tax cash flows (6 marks).
· Payback periods (4 marks).
· Net present values (6 marks).
· Profitability index (4 marks). 
 
    Bathurust site
    yea
    0
    1
    2
    3
    4
    5
    6
    7
    8
    9
    10
    Cost of the equipment
    -27500000
    
    
    
    
    
    
    
    
    
    
    Cost of building
    -8000000
    
    
    
    
    
    
    
    
    
    
    Off regional cost
    -2500000
    
    
    
    
    
    
    
    
    
    
    Sales
    
    30000000
    30000000
    30000000
    30000000
    30000000
    30000000
    30000000
    30000000
    30000000
    30000000
    Margin
    
    9000000
    9000000
    9000000
    9000000
    9000000
    9000000
    9000000
    9000000
    9000000
    9000000
    Depreciation expense - equipment
    2750000
    2750000
    2750000
    2750000
    2750000
    2750000
    2750000
    2750000
    2750000
    2750000
    Depreciation expense - Building
    
    320000
    320000
    320000
    320000
    320000
    320000
    320000
    320000
    320000
    320000
    Income before taxes
    
    5930000
    5930000
    5930000
    5930000
    5930000
    5930000
    5930000
    5930000
    5930000
    5930000
    Tax @ 30%
    
    1779000
    1779000
    1779000
    1779000
    1779000
    1779000
    1779000
    1779000
    1779000
    1779000
    Income after taxes
    
    4151000
    4151000
    4151000
    4151000
    4151000
    4151000
    4151000
    4151000
    4151000
    4151000
    Add: Depreciation
    
    3070000
    3070000
    3070000
    3070000
    3070000
    3070000
    3070000
    3070000
    3070000
    3070000
    Cash flows
    -38000000
    7221000
    7221000
    7221000
    7221000
    7221000
    7221000
    7221000
    7221000
    7221000
    7221000
    Cumulative cash flows
    -38000000
    -30779000
    -23558000
    -16337000
    -9116000
    -1895000
    5326000
    12547000
    19768000
    26989000
    34210000
    PVIF @ 22%
    1
    0.8196721
    0.6718624
    0.550706887
    0.451399
    0.369999
    0.303278
    0.248589
    0.203761
    0.167017
    0.136899
    Present value
    -38000000
    5918852.5
    4851518.41
    3976654.434
    3259553
    2671765
    2189971
    1795058
    1471359
    1206032
    988550.9
    Wodonga production
    yea
    0
    1
    2
    3
    4
    5
    6
    7
    8
    9
    10
    Cost of the equipment
    -27500000
    
    
    
    
    
    
    
    
    
    
    Sales
    
    30000000
    30000000
    30000000
    30000000
    30000000
    30000000
    30000000
    30000000
    30000000
    30000000
    Margin
    
    9000000
    9000000
    9000000
    9000000
    9000000
    9000000
    9000000
    9000000
    9000000
    9000000
    Municipal cost
    
    500000
    500000
    500000
    500000
    500000
    500000
    500000
    500000
    500000
    500000
    Depreciation expense - equipment
    2750000
    2750000
    2750000
    2750000
    2750000
    2750000
    2750000
    2750000
    2750000
    2750000
    Income before taxes
    
    5750000
    5750000
    5750000
    5750000
    5750000
    5750000
    5750000
    5750000
    5750000
    5750000
    Tax @ 30%
    
    1725000
    1725000
    1725000
    1725000
    1725000
    1725000
    1725000
    1725000
    1725000
    1725000
    Income after taxes
    
    4025000
    4025000
    4025000
    4025000
    4025000
    4025000
    4025000
    4025000
    4025000
    4025000
    Add:...
SOLUTION.PDF

Answer To This Question Is Available To Download

Related Questions & Answers