MGMTSB102 Lecture 1: RISK MANAGEMENT

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amaranthgoose644

8 Mar 2018

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Week 5 project 2 (canada green coffee imports by year, 2018) There will be number from claiming contrast the middle of the indian legitimate framework what"s more canada wild rye legitimate framework. Done india, there may be special case legislature on the great holders kept all canadian need three legislature levels, in any case two need the practically of the force. Coffee is a simple and affordable commodity to import. Most raw food and beverages are tax-free under canada"s excise tax act, meaning that coffee is not only free of duty but also gst. Unlike many other raw food items coffee beans require no permits or licenses, although the beans are subject to the approval of the cfia. Frequently benefits of the business setting off easily and make good looking add up as an exchange. Anyhow due to change to e(cid:272)o(cid:374)o(cid:373)(cid:455), there is effe(cid:272)t o(cid:374) (cid:271)usi(cid:374)ess e(cid:454)(cid:272)essi(cid:448)el(cid:455) a(cid:449)ful.

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Thomson Manufacturing is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs by $90,000 annually. The company would use the 3-year MACRS method to depreciate the machine, and the applicable depreciation rates would be 33%, 45%, 15%, and 7%. The management thinks the machine would have a value of $23,000 at the end of its 5-year operating life. The company estimates that current assets would increase by $ 35,000 and payables increase by $10,000 initially, but the increase of the net working capital would be recovered at the end of projectâs 5-year life. The companyâs WACC is 10% and marginal tax rate is 40%.

Calculate the initial year (i.e. Year 0) project cash flow.

Calculate the annual depreciation charges.

Calculate the projectâs annual operating cash flows.

Calculate the terminal year cash flow.

Calculate the projectâs NPV, IRR, and MIRR. If the project is of average risk, should the project be accepted?

Suppose the CFO is unsure about the cost saving and the machineâs salvage value. She asks you to use the following probability distribution of NPV to study the projectâs risk. Would you recommend the project be accepted? Explain with your calculations of the projectâs risk.

Scenario	Probability	NPV
Worse	35%	-7,664
Base	35%	37,035
Best	30%	81,734

orchidsquirrel788

QUESTION 6 [Total 29 marks]

A listed company has a proposed investment project where the expected cash flows are given in the table below. Market research into a feasibility study for the project was conducted at a cost of $5,000. The risk-free rate of return is given as 2% per annum. The yearly return for the Australian share market is given as 12%. Suppose the company has a beta value of 0.8.

Year 0 Project cash flow $(20,000)

Year 1 Project cash flow $(10,000)

Year 2 Project cash flow $(20,000)

Year 3 Project cash flow $(10,000)

Year 4 Project cash flow $(40,000)

Year 5 Project cash flow $(30,000)

(a) Determine the projectâs discount rate. (4 marks)

(b) Explain what is meant by sunk costs in capital budgeting. State the amount of any sunk costs for the project. (2 marks)

(d) If the maximum acceptable payback period for the project is 3 years, would the project be accepted? What are the disadvantages of the payback period method in making investment decisions? (5 marks)

(e) Explain the difference between the discounted payback period method and the payback period method. Would the project be accepted if the discounted payback period is used instead of the payback period? (5 marks) 5

(f) Explain whether the project would be accepted using the net present value (NPV) acceptance criterion. Explain why the NPV method is considered to be the best method in capital budgeting. (5 marks)

(g) Explain whether the project would be accepted using the profitability index (PI) acceptance criterion. (3 marks)

(h) Explain whether the project would be accepted using the internal rate of return (IRR) acceptance criterion. Explain why the IRR method is widely used in capital budgeting. (3 marks)

harlequincrab844

Read the following case study and then answer the question which follows: CUTCO Corporation, the largest manufacturer and marketer of high-quality kitchen cutlery and accessories in the United States and Canada, celebrated its 60th anniversary in 2009. Over 100 kitchen cutlery products are sold under the CUTCO name as well as a variety of kitchen gadgets, utensils, and flatware. The company also carries a line of cookware, sporting/pocket knives, and garden tools. Boasting over 15 million satisfied customers and annual sales of over $200 million, CUTCO's commitment to quality and innovation is evident throughout the manufacture and marketing of company products. CUTCO stands behind each and every product with a FOREVER satisfaction guarantee. The guarantee has four components: 1. FOREVER Performance Guarantee 2. FOREVER Sharpness Guarantee 3. FOREVER Replace Service Agreement for Misuse or Abuse 4. 15-Day Unconditional Money Back Guarantee The company's FOREVER guarantee ensures that CUTCO cutlery stays in the family for generations to come. Given this backdrop of the company's high-quality product offering in difficult economic times, the company initiated a "going green" effort in 2008. Everyone, from individual consumers to corporate decision makers, is talking about sustainability, going green, and reducing the carbon footprint. However, some companies' efforts are more "greenwashing" than truly intended for the well-being of the environment. Greenwashing is what companies do (e.g., promotional efforts) to make themselves look more environmentally friendly than they really are. For the CUTCO Corporation, however, the plan is not for a "go-green project" or to engage in "greenwashing." Rather, the company is instilling "going green" initiatives that, like the product's FOREVER guarantee, stay with the company forever. In 2008, CUTCO Corporation's marketing coordinator, Pam Bailey, was given the opportunity to create and coordinate a companywide "Going Green" effort. The focus initially was the "low hanging fruit" (things that were easy to do). One year later, Bailey, the Green Team, and CUTCO Corporation had accomplished the following: 1. Implemented computer power management--estimated savings of $41,000 annually. 2. Turned off center row lighting on one floor of administration building--estimated savings of $7,500 annually. 3. Created a recycling program to collect plastic, glass, aluminum, and tin cans as well as reuse or recycling of Cutco product components--all resulting in a 26 percent decrease in trash from all CUTCO facilities. 4. Set company printers to automatically duplex; departments switched to two-sided reports--paper use decreased by 27 percent. 5. Printed company newsletter on 50-percent recycled paper 6. Encouraged its 75 employees to bring their own reusable plates, cups, and utensils to the Christmas lunch--resulting in only two bags of garbage from the party. CUTCO Corporation's "Going Green. Going Forward" effort is part and parcel of the company's internal processes, and the company plans to continually work toward going green. It is not holding itself up as a company that has "gone green," nor is it touting its initiatives externally. Rather, like the CUTCO product, the results will speak for themselves. QUESTION The Cutco case deals with the marketing environment surrounding green initiatives and the skills marketers need in today's changing workplace. You will assume the role of a new marketing manager at a local light bulb manufacturing company. Your boss has read a story about the green initiatives at Cutco and wants you to prepare an executive memo on some initiatives that could be considered for your company. Your memo should address the following questions: 1. What are true green initiatives versus "greenwashing" ideas? 2. What are the ethical and societal issues involved in green initiatives? 3. How have other organizations approached the issue of green initiatives? Develop a response that includes examples and evidence to support your ideas, and which clearly communicates the required message to your audience. Organize your response in a clear and logical manner as appropriate for the genre of writing. Use well-structured sentences, audience-appropriate language, and correct conventions of standard American English.

MGMTSB102 Lecture 1: RISK MANAGEMENT

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