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BUS704 Task 1: Project Evaluation Case Study University of the Sunshine Coast Page 1 of 3 BUS704 Finance and Accounting for Managers Session 6, 2024 Assessment Task 1 : Project Evaluation Case Study Case Study Description: Sunshine Coast Pty Ltd manufactures construction equipment such as excavators, articulated dump trucks, compact track loaders, and skid steers. Having been in the business for over thirty (30) years , th e business has established a large client base. The ir major clients include training institutions, hire businesses and large residential builders. In J uly 2024 , Sunshine Coast Pty Ltd surveyed some of their major clients to identify what areas they could improve upon in relation to meeting their clients ’ needs . The feedback from survey indicated three key areas for improvement: 1. Clients would like to see more q uality of products ( Sunshine Coast Pty Ltd currently has relatively old production machines) . 2. Ease of placing and tracing orders ( Sunshine Coast Pty Ltd IT system is nine years old); and, 3. Delivery by Sunshine Coast Pty Ltd is not as timely as it was initially due the company not increasing its delivery fleet to match sales growth. Sunshine Coast Ltd has around $1,800,000 to invest to undertake one of the following projects: Project A: Commissioning a new production machinery. Initial investment cost is $1,800,000 . Additional maintenance cost s will oc cur $38 0,000 in Year 2 and $450, 000 in Year 3 of the project. It is expected this machinery will improve sales at a sum of $ 708 ,000 per year over a six -year period. Sunshine Coast Ltd has assessed this project as moderately risky and have therefore decided a discount rate of 11.2 0% will be appropriate. Due Date: Sunday 8 September 2024 at 11.59pm AEST (Week 4 ) Product: Excel based feasibility study with short answer questions Assessment Weight: 50% of your total marks for this course 2,000 -word Case Study BUS704 Task 1: Project Evaluation Case Study University of the Sunshine Coast Page 2 of 3 Project B: Upgrade Sunshine Coast’s IT infrastructure with an initial cost of $1, 098 ,000 . Annual maintenance costs are estimated at $120,000 in Year 1 and are expected to increase grow at 9.50% p.a. for the remainder of the five -year life of this project. It is expected sales will increase initially by $3 60,000 per year, increasing at a rate of 12.60% per year thereafter. This project is assessed as low risk, therefore a discount rate of 8.70% has been assigned to this project. Project C: Purchase t hree new trucks for $ 1,6 80 ,000 with annual maintenance costs initially in Year 1 of $ 210,000 (which decreases by $12,000 per year) over the project’s life of a five -year period . At the end of f ive years, it is expected the vehicles could be sold for $82 0,000. It is also estimated that this option will increase sales by 12.75% starting in Year 1, and then continue to grow at that rate until the end of the project and then no more. The current revenues ( Year 0) of Sunshine Coast Ltd are $1, 355,000. The risk associated with this option is relatively high, so the project has been assigned a discount rate of 1 4.40% . Requirements: You are required to build a discounted cashflow model, using excel, to assist in answering the following five questions. Questions: 1. Which project would provide the best return based on Net Present Value (NPV)? Which project would provide the best return based on the Internal Rate of Return (IRR)? Explain in detail why one project should be selected over another. 2. What other aspects (besides financial) should be taken into consideration? 3. In determining the estimates of increased sales, expenses, and risk, what should Sunshine Coast Ltd take into consideration? Show how this could impact the NPV. 4. If you were to use other project evaluation methods, would you recommend a different project? 5. What issues would you need to consider if you were to use a different method of deciding, on a financial basis, determining which project to recommend? BUS704 Task 1: Project Evaluation Case Study University of the Sunshine Coast Page 3 of 3 Further Information: References: • Any materials used in this assignment must be acknowledged and appropriately referenced. • Please use the Harvard referencing style: https://www.usc.edu.au/current - students/student -support/academic -and -study -support/referencing -guides -and - academic -integrity/harvard Excel document: • The excel document should be also attached to the submission. • If you are having trouble attaching the document s to the submission, please contact Wen Hua Sharpe ( [email protected] ) for further assistance. Submission Instructions: • This assignment is to be submitted online only. • The completed assignment must be submitted into Assessment Task 1 Submission link on Canvas on or before the DUE DATE. • Once submitted you cannot take your assignment back, but you can submit another version. The most recent version submitted will be marked. However, this must be submitted before the DUE DATE . • Please refer to the rubric for a guidance on the marking structure. Assessment Feedback: Students who submit their work by the due date will receive their marks and feedback on Moodle site within 15 working days of the assignment submission due date.