Odd Semester 2022

(Assignment Group)

Coursework information

Course Code FINC6001005

Course Title Financial Management
Course Coordinator Dr. Rahmat Siauwijaya S.E., M.M
Coursework format Microsoft Word
Weighting 40%
Action to be taken if time limit is Assignment will not be marked if beyond
exceeded the time limit
Submission date 23.59, Thursday 03rd November

Instruction:

There are 62 students in class LD21. Make into groups of eight. There were six
groups of 8 people and two group of 7 people.

You need to work on one of the following cases:

1. Accurately calculate all the criteria.
2. Provide recommendation based on your analysis.
3. Answer in Indonesian, if there are questions in the form of recommendations or
decisions or opinions.
4. Include screenshots of meeting results when discussing group assignments.

Case 1

The Austin Saddle Company Expansion (ASC) is considering expanding its

tannery facilities, increasing its production capacity by 20 percent. The ASC brought
in the marketing, production management, procurement, capital investment, and
accounting department to formulate estimates of the initial cost of the expansion, as
well as future cash flow that can be used to evaluate this expansion. The
procurement and capital management teams expect that the expansion will require
$10 million initially, with the first year’s operating cash flow of $2 million. The
operating cash flows are expected to grow at a rate of 5 percent each year for 3
years, but then to slow to a 3 percent growth thereafter.
The ACS has a cost of capital of 8 percent, and the expansion project is
expected to have risk similar to ACS’s typical project.
a. Should ACS expand? Explain your reasoning.
b. If ACS’s cost of capital increased to 10 percent, would your recommendation
change?
c. At what cost of capital, if any, would your recommendation change? Indicate
your decision on a net present value profile of this investment decision.
d. If the growth rate were to be 3 percent, ad infinitum, would your decision
change? Explain

Case 2

Damon Corporation, a sports equipment manufacturer, has a machine currently

in use that was originally purchased 3 years ago for $120,000. The firm depreciates
the machine under MACRS using a 5-year recovery period. Once removal and
cleanup costs are taken into consideration, the expected net selling price for the
present machine will be $70,000.
Damon can buy a new machine for a net price of $160,000 (including
installation costs of $15,000). The proposed machine will be depreciated under
MACRS using a 5-year recovery period. If the firm acquires the new machine, its
working capital needs will change: Accounts receivable will increase $15,000,
inventory will increase $19,000, and accounts payable will increase $16,000.
Earnings before depreciation, interest, and taxes (EBDIT) for the present
machine are expected to be $95,000 for each of the successive 5 years. For the
proposed machine, the expected EDBIT for each of the next 5 years are $105,000,
$110,000, $120,000, $120,000, and $120,000, respectively. The corporate tax rate
(T) for the firm is 40%.
Damon expects to be able to liquidate the proposed machine at the end of its 5-
year usable life for $24,000 (after paying removal and cleanup costs). The present
machine is expected to net $8,000 upon liquidation at the end of the same period.
Damon expects to recover its net working capital investment upon termination of the
project. The firm has a 40 percent corporate tax rate and a 10 percent required
return.
Create a spreadsheet to answer the following:
a. Create a spreadsheet to calculate the initial investment.
b. Create a spreadsheet to prepare a depreciation schedule for both the proposed
and the present machine. Both machines are depreciated under MACRS using
a 5-year recovery period. Remember that the present machine has only 3 years
of depreciation remaining.
c. Create a spreadsheet to calculate the operating cash flows for Damon
Corporation for both the proposed and the present machine.
d. Create a spreadsheet to calculate the terminal cash flow associated with the
project.
e. Determine the payback period of the project?
f. Determine the profitability index of the project?
g. Determine the IRR of the project with discounted rate 5% and 10%?
h. Determine the NPV of the project?
i. Provide the recommendation based on your analysis on those criteria

CASE 3

Conch Republic Electronics is a midsized electronics manufacturer located in

Key West Florida. The company president is Shelley counts, who inherited the
company. When it was founded over 70 years ago, the company originally repaired
radios and other household appliances. Over the years, the company expanded into
manufacturing and is now a reputable manufacturer of various electronic items. Jay
McCandless, a recent MBA graduate, has been hired by the company’s finance
department.
One of the major revenue-producing items manufactured by Conch Republic is
a personal digital assistant (PDA). Conch Republic currently has one PDA model on
the market, and sales have been excellent. The PDA is a unique item in that it come
in a variety of tropical colors and is preprogrammed to play jimmy buffet music.
However, as with any electronic item. Technology changes rapidly, and the current
PDA has limited features in comparison with newer models. Conch Republic spent
$750,000 to develop a prototype for a new PDA that has all the features of the
existing PDA but adds new features such as cell phone capability. The company has
spent a further $200,000 for a marketing study to determine the expected sales
figures for the new PDA.
Conch Republic can manufacture the new PDA for $155 each in variable costs.
Fixed costs for the operation are estimated to run $4.7 million per year. The
estimated sales volume is 74,000, 95,000, 125,000, 105,000, and 80,000 per each
year for the next five years, respectively. The unit price of the new PDA will be $360.
The necessary equipment can be purchased for $21.5 million and will be depreciated
on a seven-year MACRS schedule. It is believed the value of the equipment in five
years will be $4.1 million.
As previously stated, Conch Republic currently manufactures a PDA.
Production of the existing model is expected to be terminated in two years. If Conch
Republic does not introduce the new PDA, sales will be 80,000 units and 60,000
units for the next two years, respectively. The price of the existing PDA is $290 per
unit, with variable cost of $120 each and fixed costs of $1,800,000 per year. If Conch
Republic does introduce the new PDA, sales of the existing PDA will fall by 15,000
units per year, and the price of the existing units will have to be lowered to $255
each. Net working capital for the PDAs will be 20 percent of sales and will occur with
the timing of the cash flows for the year; for example, there is no initial outlay for
NWC, but changes in NWC will first occur in year 1 with the first year’s sales. Conch
Republic has a 35 percent corporate tax rate and a 12 percent required return.
Shelly has asked Jay to prepare a report that answer the following question.
QUESTIONS
a. Determine the payback period of the project?
b. Determine the profitability index of the project?
j. Determine the IRR of the project with discounted rate 12% and 25%?
c. Determine the NPV of the project?
d. Provide the recommendation based on your analysis on those criteria

Assessment criteria
1. Students are required to demonstrate their reasoning and thinking skills.
2. They should be able to show understanding of the topic and the calculation
result is correct.
3. Provide evidence appropriately and accurately.
Document creation
1. Please use this file naming convention: GroupID_CourseCode_CaseNumber.
e.g. Group1_FINC6001005_Case2. If your choice is case number 2.
2. The file type must be. docx.
Referencing and bibliography
You should reference your sources appropriately and list these in a bibliography.
Student conduct
Plagiarism
You must adhere to the University’s rules regarding plagiarism which are based on
the premise that ‘all work submitted by group for assessment is accepted on the
understanding that it is the group's own effort or together with a predetermined
group’. More specifically, you must avoid plagiarism in the following forms:
 Copying from sources without ‘formal and proper acknowledgement’.
 Inappropriate collaboration-working with other group to produce group
coursework or copying work produced by another group.
Uploading your document to Binus Maya
1. You will upload your document to forum Binus Maya
2. Try to upload your document at least 30 minutes before the deadline (page 1) in
case you encounter any technical issues. You will be able to resubmit the
document as often as you like until the submission deadline.
Only assignments that are submitted through Binus Maya outside of that will
not be accepted.