Ask Question, Ask an Expert

+61-413 786 465

info@mywordsolution.com

Ask Corporate Finance Expert

Strategic and Financial Decision-making Referral Assignment-

The following assignment is based on HYPOTHETICAL scenarios related to Tesco plc.

Task 1 -

Tesco plc is contemplating introducing a new computer system which it is believed will streamline its supply chain activities. The major savings will occur due to the more efficient movement of goods between suppliers, Tesco central depots and Tesco stores. The new system has been proposed by staff at the Cheshunt Head Office.

The initial investment in the Computer Project would require an outlay of £14.5 million. The following cash flows related to the project (in current terms) are then predicted to arise over the next five years (which has been selected as a prudent time span over which to build an investment model due to the obsolescence factor of IT systems):

Year

1

2

3

4

5

Cash Savings (£million)

4.50

7.00

14.00

12.40

8.75

Cash Operational Outflows (£ million)

1.50

3.00

6.00

5.40

3.75

It is anticipated that over the next 5 years:

  • Inflation on Cash Savings will be 6% per annum
  • Inflation on Cash Outflows will be 4% per annum
  • The general rate of inflation in the economy will be 5% per annum.

The central finance team predicts an annual tax rate of 28% on the net cash flows over the 5 years and the team is aware that the investors will require an overall after tax REAL rate of return of 10.5%.

Required:

a) Calculate the Net Present Value (NPV) and Internal Rate of Return (IRR) of the proposed investment in the computer project, taking into account the impact of inflation and taxation (there are no capital allowances available and tax is payable in the year of the net cash flow). You should also provide a brief comment on your answer indicating whether or not the investment is financially worthwhile.

b) Christine Lampard, a Manager at the Welwyn Garden City Head Office indicates that she and her assistant, Aditya Deokar (who studied finance at undergraduate level) have been looking at an alternative computer project and which confusingly, upon investigation, has a lower NPV and higher IRR, than the Project recommended by the Cheshunt Head Office. Therefore, they are not sure how this is possible or which methodology they should follow.

You are required to provide a considered response to their query.

Task 2 -

At yahoo finance on 3rd July 2018 the beta value for Tesco plc is stated as being 0.49. On the same website, on the same day, the beta value for InterContinental Hotels Group plc is indicated as being 1.18.

You are required to provide a considered discussion as to why there is such a disparity between the beta values of the two companies in question and explain the meaning and the impact of the beta values.

Task 3 -

Tesco plc wants to expand but foresees little exponential growth in its current retail activities. The company has, therefore, decided to utilise their ability to raise funds and their cash generation ability to organically expand into the hotel industry. Tesco feels that the market is open to a new participant and that companies such as Intercontinental Hotels Group plc are not ready for a vibrant new competitor.

Tesco could expand by undertaking 'organic' growth or could undertake the indicated growth by acquisition.

You are required to provide a critical analysis of the relative benefits of the two types of growth (i.e. 'organic' and acquisition) from Tesco's point of view, with regard to the proposed expansion.

Task 4 -

In order to fund the expansion, Tesco could raise additional long term funds by issuing debt or equity.

You are required to provide a critical analysis of the factors that Tesco would need to consider when deciding between issuing more debt or equity. You should relate you discussion to theory wherever possible.

Learning Outcomes Assessed:

  • Recognise the role of accounting and finance within the strategic planning process.
  • Demonstrate problem solving and decision making skills through the selection and application of appropriate tools, and control processes, for strategic project appraisal.
  • Consider the importance of risk assessment at all stages of the investment process and the application of a variety of risk management techniques.
  • Appreciate the importance of the cost of capital, and the influences upon it, within the strategic investment appraisal process.

Corporate Finance, Finance

  • Category:- Corporate Finance
  • Reference No.:- M93137733
  • Price:- $25

Priced at Now at $25, Verified Solution

Have any Question? 


Related Questions in Corporate Finance

Assignment -task this is an individual assignment in which

Assignment - Task: This is an individual assignment in which you are required to form a business and answer some accounting related questions. Assessment Criteria: This task will generally be assessed in terms of the fol ...

Descriptionstudents are required to study undertake

Description: Students are required to study, undertake research, analyse and conduct academic work within the areas of corporate finance. The assignment should examine the main issues, including underlying theories, impl ...

Question - international foods have the following capital

Question - International Foods have the following capital structure: Book Value (sh.) Market Value(sh) Equity capital (2.5 million shares of sh. 10 par) 25,000,000 45,000,000 Preference capital (50,000 shares of sh,100 p ...

Question - assume that the average firm in your companys

Question - Assume that the average firm in your company's industry is expected to grow at aconstant rate of 6 percent and its dividend yield is 7 percent. Your company is about as risky as the average firm in the industr ...

Business finance case study assignment -instructions - you

BUSINESS FINANCE CASE STUDY ASSIGNMENT - Instructions - You must do Questions 1-5a, 8 and 10 on a spreadsheet. Eternal Youth Ltd (EY) is a New Zealand company which produces and sells cosmetics. Its financial year is 1 J ...

Assignment -topic - recent years have seen rapid

Assignment - Topic - Recent years have seen rapid development in Australia's housing market. The effect of high housing prices on Australian families is enormous. Despite those challenges, you would like to buy 3-bedroom ...

Financial and economic interpretation and communication

Financial and Economic Interpretation and Communication Assessment - Wealth report Assessment Description - This assessment requires you to prepare a wealth report for a prospective shareholder that interprets the annual ...

Assignment -part a - saturn petcare australia and new

Assignment - Part A - 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 firs ...

Questions -q1 global auto wants to choose the better of two

Questions - Q1. Global Auto wants to choose the better of two mutually exclusive projects for expanding the firm's production capacity. The relevant cash flows for the projects are shown in the following table. The firm' ...

Questions -q1 fv of ordinary annuity what is the future

Questions - Q1: (FV of Ordinary Annuity) What is the future value of a $50 annuity payment over 20 years if the interest rates are 6%? Q2: (PV of Ordinary Annuity) What is the present value of above annuity? Q3: (FV and ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As