This assignment is designed to assess the following learning outcomes:
- Students should be able to apply and demonstrate an understanding of capital investment appraisal.
This assignment is an individual assignment.
This assignment requires you to:
a) Calculate ARR , Payback, NPV and IRR for the two investment projects (replacement options)
b) Carry out a research on ‘investment financing methods’ and identify and discuss them, their advantages and disadvantages, how appropriate each them is to the company within the current economic environment and provide your opinion and advice to help company managers taking financing decision.
c) Write a report to the managers presenting main finding and explaining your recommendation.
The word count is 1,500 words. This is applicable only to all sections; part a), part b) and part c) of the coursework requirement, combined. You are recommended to include both parts a and b discussions in the report and enclose the calculations in the appendices.
There will be a penalty of a deduction of 10% of the mark (after internal moderation) for work exceeding the word limit by 10% or more.
The word limit includes quotations, but excludes the bibliography.
How to submit your assessment
The assessment must be submitted by 18.00:00 on 17/11/2017. No paper copies are required. You can access the submission link through the module web.
Your coursework will be given a zero mark if you do not submit a copy through Turnitin. Please take care to ensure that you have fully submitted your work.
All work submitted after the submission deadline without a valid and approved reason (see below) will be given a mark of zero.
Extensions of up to two calendar weeks can only be given for genuine "force majeure" and medical reasons, not for bad planning of your time. Please note that theft, loss, or failure to keep a back-up file, are not valid reasons. The extension must be applied for on or before the submission date. You can apply for an extension by submitting an Examination/ Coursework Deferral/Extension Application Form. Application Forms along with the supporting evidence should go to the relevant Student Support Office. For a longer delay in submission a student may apply for a deferral.
Students MUST keep a copy and/or an electronic file of their assignment.
Checks will be made on your work using anti-plagiarism software and approved plagiarism checking websites.
GUIDELINES AND BACKGROUND TO THIS ASSIGNMENT
As part of your study you will be involved in carrying out research and using this when writing up your coursework. It is important that you correctly acknowledge someone else’s writing, thoughts or ideas and that you do not attempt to pass this off as your own work. Doing so is known as plagiarism. It is not acceptable to copy from another source without acknowledging that it is someone else’s writing or thinking.
This includes using paraphrasing as well as direct quotations. You are expected to correctly cite and reference the works of others. The Centre for Academic Writing provides documents to help you get this right. If you are unsure, please visit www.coventry.ac.uk/caw. You can also check your understanding of academic conduct by completing the Good Academic Practice quiz available on Moodle.
Moodle includes a plagiarism detection system and assessors are experienced enough to recognise plagiarism when it occurs. Copying another student’s work, using previous work of your own or copying large sections from a book or the internet are examples of plagiarism and carry serious consequences. Please familiarise yourself with the CU Harvard Reference Style (on Moodle) and use it correctly to avoid a case of plagiarism or cheating being brought. Again, if you are unsure, please contact the Centre for Academic Writing, your Academic Personal Tutor or a member of the course team.
Return of Marked Work
You can expect to have marked work returned to you within 15 working days for level 1 and 2, 10 working days for level 3 and M level). If for any reason there is a delay you will be kept informed. The coursework will be marked online with marks released to students online. Feedback will be provided online/in class/face to face. Marks will have been internally moderated only, and will therefore be provisional; your mark will be formally agreed later in the year once the external examiner has completed his / her review.
281ACC 2017-18 COURSEWORK
WE DELIVER LTD
We deliver Ltd (WD) is a UK based privately owned company with revenue of £36 million per annum, and 350 employees. The current general downturn in the economic environment caused WD to experience a revenue reduction of about four per cent per annum. The company was founded by the Wight family in 1995, Richard Wight who is the CEO retains 60% control of WD and Danny Wight, his brother owns the remaining 40% of shares.
WD is well established as a logistics company within the UK, currently operating a fleet of 300 lorries. The main activity of WD is providing logistics services for a large number of small and medium manufacturing companies, some of whom have been clients of WD for over twenty years. The current fleet of lorries has been procured over the last twenty years, and traditionally WD have always kept up with the latest advances in lorry technology. This has fed into their corporate image of being innovative and technologically advanced and this is believed to have been a major factor in securing many of the current contracts.
Sixty two (62) old lorries in the fleet which have an average age of over 15 years and an average lifetime mileage of 1,728,000 miles start to show their age and compared to our competitors they do not give the best impression of WD. They also experienced high frequency of breakdowns recently, causing delays in deliveries and damaging the image of WD. The maintenance bill of this portion of the fleet has also risen considerably over the last 4 years.
It is expected that the 62 lorries will require significant maintenance during January, at the cost of £8,700 a unit, to ensure that they are road legal for beyond the end of March 2018 until they go out of commission in 2 years’ time. The lorries will still need their standard maintenance each year of £6,400. With this maintenance, their reliability will remain unchanged and would still require replacing in two years’ time, the end of March 2020.
The Fleet Manager has recommended that the 62 lorries be replaced with 62 brand new state of the art lorries (Superio), designed and manufactured by a leading German automobile company. The Superio is considerably more advanced than the current fleet, with its’ expected reliability and fuel consumption improvements highly noted. Following are the details of the new lorries.
- The new lorries cost £148,000 each, which is considerably higher than the original cost of the existing lorries.
- Annual maintenance cost = £9,000. Annual fuel cost = £42,000. Based on completing 274 jobs a year.
- Projected timescale: Provided the order is placed before 31st January 2018, the lorries will be delivered for 1st April 2018. With the purchase price payable 31st March 2018, the last day of WD’s tax year.
Each old lorry is costing about £81,000 a year on fuel, plus the probability of each lorry breaking down is about 50% in the next 12 months, when they do breakdown it they cost about £6,000 in parts. Once they are fixed, there is still a 50% chance they will breakdown again in the following 12 months. Scraping them in March without the emergency repairs gets the company £600 a unit.
The new Superios are considerably more fuel efficient than current lorries and are expected to only require £42,000 of fuel annually, and they are much more reliable. The probability of the new lorries’ breakdown is only 15% each year, however due to these being much more technologically advanced each will cost £15,000 on average in parts when do breakdown. Additionally, the new lorry should increase the company’s capacity for an extra 24 jobs a year each on the maximum 250 the old lorry can achieve. The average revenue from the job is £480 and drivers wage on each job is £100.
If the company managers chose to wait for another 2 years before replacing these lorries, the company could purchase the Superio’s at a lower price of £120,000 each in current terms.
- All cash flows (other than initial investment) are assumed to occur at year end.
- WD Ltd pays corporation tax at 30%. Tax is paid one year in arrears.
- Capital investment would qualify for writing-down allowances for the first five years at 20% per annum on a reducing balance basis. Balancing allowance can be claimed if applicable.
- The company’s cost of capital is estimated at 10%.
- The company uses the straight line method for depreciation and the residual value (salvage value) for the new lorries is £1,000.
Font size : 12 pt (preferably Arial or Calibri)
Line spacing : 1.5 lines
References : Coventry Harvard style
a) You are required to calculate the forecast profit of the two investment options of WD (regarding the 62 lorries replacement) and subsequently appraise them by undertaking calculations for each of the following: ARR, Payback Period, NPV and IRR.
NB: You are positively encouraged to use Excel for your calculations. Paste your Excel workings and/or calculation into the Word file under the appendices. There is no need to show the Excel formulae used.
b) Research, identify and discuss possible financing methods for the chosen investment project.
c) Based upon your calculations in part (a) and research in part (b), Prepare a business report, including all calculations in the appendices, to advice WD management regarding the lorries replacement and financing this investment. Ensure you supply a full explanation supporting your decision. Ensure that the content, format and style of the report conform to good practice and is suitable for the board of directors to make a decision.
Plus 5 marks for correct Coventry Harvard referencing. Total 100 marks.