ASSESSMENT 1 – INVESTMENT APPRAISAL ASSIGNMENT MODULE: FE2035-FUNDAMENTALS OF FINANCE Assignment Brief: The James Company is considering initially one investment for their bottle production operations. This investment is in a new machine that costs & #163;300,000 and has a 5-year life with no residual value at the end. This machine is expected to generate & #163;35,000 per year for 5 years. Is there a case for investing in such a project? Elaborate with an example. Alternatively, the company can go for two other much cheaper machines, Kips and Queens. These have different technical specifications to each other but cost exactly the same, namely & #163;50,000. Both these alternative machines have an estimated life of 5 years with no scrap value. Their cash flows (before depreciation) are depicted below: Year Kips Queens 1 & #163;25,000 & #163;5,000 2 & #163;20,000 & #163;15,000 3 & #163;15,000 & #163;25,000 4 & #163;10,000 & #163;25,000 5 & #163;5,000 & #163;20,000 Once again, you are asked to evaluate whether there is a case for investing in such projects. If yes, what is the highest cost of capital at which these two projects would be acceptable? The company’s General Manager asked you (the financial manager) the following in order to help him make a decision. i) Average Annual Profits ii) Return on initial capital employed iii) Return on average capital employed iv) Payback period v) Display all tables of calculations with reference to the issues above clearly In addition, the general manager is in negotiations with banks with regards to the loans that must be issued in order to finance the acquisition of such machine. Currently he is negotiating a loan at 10% interest and another one with 20% owed to the company’s lack of publishes financial statements. He is worried about whether his company will be able to secure the 10% rate loan and wants also to know the worst case scenario in order to pan ahead. Hence, he asked you again to provide him with estimates of NPV at 10% and 20%. In addition, he also asked for the projects’ IRR in order to compare financial performance. In the end you were also asked to produce a written report to your manager outlining the following: i) Explain your methodology regarding project appraisal which involves: advantages and disadvantages of using ROI, Payback Method, NPV and IRR and Average Profits ii) Provide a recommendation to your manager based on the above analysis Structure of the assignment The assignment should not exceed 1,500 words, excluding the Appendices. Please indicate word count and attach the turn-it-in report. It should be word-processed. It should include a title page, a contents page, an. Pages should be numbered, and should be divided into sections, each with a heading and number. The contents page should show the headings for each section and the page number of the section. Indicative grading criteria The following guidance is to advise you regarding the standard you need to attain to earn the various classifications. Specifically for this assignment you may care to note that: A piece of work in the First Class category (70% plus) will be characterised by: • Comprehensive referenced reading sourced from both textbooks and Journals in the area of the assignment. • Excellent application of theory to assist with quantitative calculations • Critical appraisal of theory used in the assignment Evidence of misconceptions and basic errors in any of theoretical models used in the assignment.