The objective of this assignment is to encourage the students to use excel spreadsheets to aid in problem solving. Students are asked to solve a capital budgeting problem using an excel spreadsheet.
Details of Assignment
FINEHEALTH Inc. has spent $2 million in the last year in research and development (R&D) for a next generation energy drink for athletes. Although it costs $2 million in the first year's R &D, it is predicted that achieving a target result in this research may take another 4 to 6 years' time. In the meantime, despite huge controversy, the company is planning to introduce the revolutionary pre-version of this drink, called X-TRM, which might cause long-term health hazards for some users due to unknown reasons. The General Manager (GM) of FINEHEALTH Inc. is asking for a detail analysis on X-TRM project. If the project is initiated, it will require an annual expenditure on R&D of 2% of the above amount spent for R&D in the first year.
After renovating one existing section of the factory, the production line for X-TRM can be started. The project is expected to run for six years when the target drug will be ready to introduce. Required renovation can be conducted immediately at a cost of $220,000 that includes installation cost of new plant and equipment (P&E). The company has decided to capitalise total renovation costs to new P&E. The company has decided to capitalise total renovation costs to new P&E.
Required
Using Excel Spreadsheet prepare a full analysis to be presented to the GM of FINEHEALTH Inc. evaluating whether the X-TRM project should be started or not. Your analysis should include the following
- Table of cash flows
- Use of excel formulae where appropriate (refer eLearning video of Week-6)
- A written report (1200 words, +/- 10%) outlining your recommendation as to whether FINEHEALTH INC should proceed. Justify your recommendation using quantitative and qualitative issues and your analysis of probable risks relating to the project.
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 following Marking Rubric on page-4 for required components and presentation of formal report.