Corporate Finance

Details of Assignment
FASTOUT Corporation is an automation company that invests heavily in research and
development (R&D) before introducing any new machine, which are mostly innovative labour
saving alternatives. Manufacturing firms in the industry are customers of FASTOUT
Corporation. Recently, FASTOUT spent $130,000 to innovate an automatic food processing
machine AFP20 to reduce wastage; however, the machine AFP20 is not fully ready yet for the
market due to its occasional imperfection in separating residue and fine output, as reflected in a
few random trial runs. Such infrequent failures require long reset time. Firms installing AFP20
may experience significant production loss during reset time. Nonetheless, due to the pressure
of severe competition, FASTOUT managers are planning to introduce this machine AFP20 in the
market before any new offer from competitors. The company is expecting that the final version
of reliable machine AFP20-M would be available for production in four years’ time.
Required machineries for building the plant to manufacture machine AFP20 can be procured
from a local importer at a cost of $6,200,000. FASTOUT Corp. has to incur additional
transportation cost of $50,000 and installation costs of $250,000; whereas the local importer
FIN20014 Financial Management: Individual Assignment Sem-1, 2020
2 | P a g e
will pay the import duty of $500,000. The plant would have economic life of five years and will
be depreciated for tax purposes using straight line rate of 20 per cent per year. At the end of this
project, the plant would be transferred (i.e., sold) to another project at a price of $700,000.
The Marketing manager of FASTOUT Corp has projected that 300 units of the machine AFP20
can be sold in the first year and that sales will drop by 25 units every year during the life of the
project. Expected sales price would be $50,000 per unit. Variable cost of production is estimated
to be 60% of sales revenue as long annual production is at least 200 units. Fixed factory
overhead of $1,800,000 per year would be allocated to this production plant.
It is estimated that the project will require an initial investment in stock (inventory) of
$320,000. Moreover, $140,000 will be tied up with debtors (accounts receivables) due to
increasing sales; however, it would be partially offset by $60,000 increase in creditors (accounts
payable). The project manager has the plan to maintain the same level of net working capital
(NWC) throughout the life of the project (i.e., no further investment in NWC during the project
life) before final recovery of NWC at the end of four years. There will be pre-launching expenses
of $100,000 to be incurred initially for this project.
New plant will occupy a portion of factory space that is currently being used for storage
purposes in generating monthly net revenue of $10,000, but it will discontinue due to
installation of the plant. Furthermore, selling machine AFP20 will reduce FASTOUT’s
automation consultation fee income by $50,000 per year where associated cost is 40 per cent of
such fee income.
Firms buying machine AFP20 from FASTOUT will ultimately replace many of their unskilled and
semi-skilled workers by a few skilled workers for improving production efficiency. An
Association of Labour Unions opposes the probable installation of AFP20 by the firms as many
workers will be losing their jobs due to not having sufficient skill. Considering the issue raised
by the Association, the managers of FASTOUT have identified another project that will produce
semi-automatic machine FP19, which will require both semi-skilled and skilled workers. Initial
total investment for this FP19 project would be the same as AFP20 project and projected future
cash flows (after all adjustments) for this five-year project would be as follows:
Year-1: $2,100,000; Year-2: $2,600,000; Year-3: $3,500,000;
Year-4: $3,300,000; Year-5: $1,400,000;
The company uses required rate of return considering its weighted average cost of capital
(WACC) that varies from 14 to 19 per cent in recent time. Management has decided to use both
rates to evaluate this project. Corporate tax rate is 30%. FASTOUT uses a target discounted
payback period of 3.5 years.
Before taking final decision in the upcoming meeting, the Chief Financial Officer (CFO) of
FASTOUT Corp requires a clear explanation of all relevant issues relating to the machine AFP20
project. The CFO also asks for a FORMAL REPORT with detail analysis of cash flows and
explanations of results using appropriate capital budgeting methods that are usually used in
evaluating projects.
Furthermore, in a separate section in the report, the CFO is interested to review the details of
the comparison between AFP20 and FP19 projects with respect to the results of appropriate
capital budgeting methods using both 14 and 19 per cent required rates, crossover rate and all
relevant factors that can assist in taking final decision.
FIN20014 Financial Management: Individual Assignment Sem-1, 2020
3 | P a g e
Required
Using Excel Spreadsheet (as explained in the eLearning video of Week-6), prepare a full analysis
to be presented to the CFO of FASTOUT Corp. in evaluating whether either project should be
started or not. Your analysis should include the following
 Table of cash flows (Show all digits, do not convert amounts to $ in million or thousand)
 Use of excel formulae where appropriate (refer eLearning video of Week-6)
 A formal report (1500 +/- 10% words excluding table of content, executive summary,
tables, references and appendices) outlining your recommendation as to whether
FASTOUT Company should proceed with either project. Justify your recommendations
using quantitative and qualitative issues and your analysis of probable risks and benefits
relating to the project. Comparative statement using 14 per cent and 19 per cent
required rate is to be presented in a separate section in the report.
Marks will be awarded for:
 Set out of spreadsheet (watch eLearning video of week-6)
i. Ease of reading spreadsheet
ii. Use of excel formulae in organised spreadsheet
iii. Correct application of theoretical model
 Overall presentation of answer including the written report.
* Carefully read the Report Format Guide (on page-4) and Marking Rubric (on Canvas) for
required components and presentation of formal report.
Submission Guidelines for Excel Assignment
Total Marks for the assignment = 20 marks
Organised Excel Spreadsheet = 10 marks and
Concise Formal Business Report (1500 +/- 10% words) = 10 marks
Students are asked to solve a capital budgeting problem using an excel spreadsheet.
SOFT COPY SUBMISSION ONLY: [NO HARD COPY SUBMISSION] Submit soft copy of your assignment
 Containing (i) assignment cover sheet; (ii) a copy of the formal report; (iii) an exact
copy of the excel spreadsheet displaying values (screen print image is acceptable);
and (iv) an exact copy of the excel spreadsheet displaying excel formulas (screen
print image is acceptable).
 Submit by 10:00pm on 17 May Sunday using the link provided on Canvas.
 Submit ONLY ONE DOC FILE containing all required documents.

Late assignments will be determined based on the SOFT COPY SUBMISSION time as
recorded in TURNITIN. Late Assignments cannot be uploaded unless an arrangement has
been made directly with the Unit Convenor, Miraj Ahmmod (sahmmod@swin.edu.au)
FIN20014 Financial Management: Individual Assignment Sem-1, 2020
4 | P a g e
SUGGESTED FORMAT FOR ASSIGNMENT REPORT
Components of a FORMAL report are expected in the assignment structure. Following table
shows one example of major sections: (other sections may be added, if needed)
Structure Example
COVER PAGE [ Must be correctly filled in; otherwise, you will forfeit marks] Executive Summary
Table of Contents
Body
1. Introduction
2. Findings
2.1 Quantitative (with explanation of results)
2.2 Qualitative
3. Recommendations and Justifications
4. Detail Comparison and Further Recommendations
5.Conclusion
References
Appendix
Workings
Exact Copy of Excel Spreadsheet displaying values (not edited in Word doc)*
Exact Copy of Excel Spreadsheet displaying Excel formulas (not edited in Word doc)*
* Only the sizes of font and columns of the Excel Spreadsheet can be edited in Word Doc. Screen print
images of excel spreadsheet attached in doc file is acceptable.
Carefully read the Marking Rubric provided on Canvas under Excel Assignment
for required components and presentation of formal report.
FIN20014 Financial Management: Individual Assignment Sem-1, 2020
5 | P a g e
FREQUENTLY ASKED QUESTIONS and SUGGESTIONS:
Q1. Do I need to submit a hard copy of the assignment?
A. NO. Only soft copy submission would be marked. Hard copy submission would not be marked.
Q2. Can I upload more than one file via Turnitin?
A. NO. You can upload ONLY ONE FILE via Turnitin on Canvas. You cannot change the file once uploaded.
Q3. Can I get any help in understanding the assignment question?
A. Whilst we (the members of the Finance teaching panel) understand your concern, we cannot answer to
any direct query you may ask relating to the assignment. The problem has specifically been included in
the assignment for students to ponder and respond. It is expected that you have clarified all assumptions
you may have made in your assignment report.
Q4. Are there specific resources that can help me understand the assignment questions?
A. YES. Issues relating to assignment are discussed in relevant lectures / collaborate sessions (Week-5 & 6)
for multiple times and/or in different ways. To assist you with understanding the concepts of finding Net
Cash Flows, it is suggested that you review the lecture illustrations discussed on relevant topics (4a & 4B).
You can also check relevant past exam questions and solutions, Sunburst Case and solutions, as well as
your text and lecture materials for that topic. All these resources, included recorded lectures and notes
written in lectures, are available on Canvas. eLearning video of week-6 will guide you about the way to
prepare cash flow table using Excel.
Q5. I don’t know how to take copy-paste from Excel spreadsheet to Doc file.
A. Google it! For different versions of Excel, different ways are there. All you can find in Google and Youtube.
Q6. Can I send my works on assignment to any teaching staff for having any comment and/or
guidance?
A. NO. Assignment is an individual assessment item and members of the Finance teaching panel can neither
view the spreadsheet nor make comments on it before submission.
Q7. What would be the content and structure of my report?
A. A sample of format is provided on page-4 and the marking rubric is available on Canvas under Excel
assignment. If you go through these documents, it will give you the idea about the structure and content
expected in your report. You are required to provide necessary calculations, results, logical explanations
of findings and justifications to convince the manager of the firm to support your recommendations.
Q8. Can I submit hard copy of assignment in the drop box?
A. NO. There will be no drop box. Hard copy submission is not required.
Q9. How do I know the name of my tutor?
A. Tutorial timetable with tutor’s name and contact email are available on Canvas under Modules >>> Unit
Information.
Q10. What will happen if my assignment is similar to another submission?
A. Both the similar assignments will be sent to a review committee for identifying the probable case of
plagiarism. In the case of identified plagiarism, further steps would follow the University Policies.