Assignment
Your tasks:
Based on the information in the case study, Catherine has asked you to write a report to TMR's management advising them as to the best course of action regarding this project. Your report should address the following specific questions asked by TMR's management:
• Discuss which costs are relevant for the evaluation of this project and which costs are not. Your discussion should be justified by a valid argument and supported by references to appropriate sources
• How are possible cannibalization and opportunity costs considered in this analysis?
• Determine the initial investment cash flow.
• Estimate all cash flows associated with the project over 5 years. It is assumed that where relevant, capital expenditures and marketing costs are expended throughout the year, while cash flows relating to revenue and operating costs occur at the end of the year. You will need to broadly describe the method used for determining those cash flows.
• Calculate the project's payback period. Assuming the business could be sold at the end of the five years for $1 million. This figure includes the value of the car fleet, premises and capital gain from the business. Ignore any possible tax consequences of selling the business and also ignore the time value of money for this particular calculation. Briefly comment on your results
• Estimate the Net present value (NPV) of the project, assuming that the initial investment could be sold at the end of the five years for $1 million. This figure includes the value of the car fleet, premises and capital gain from the business. Ignore any possible tax consequences of selling the business. Briefly comment on your results and make appropriate remarks on the assumptions made for these calculations if necessary.
• Using sensitivity analysis, recalculate NPV using the scenario of a decrease in project sales by 10% annually. Briefly comment on your results.
• In view of your answer to Point 5 to point 7 above, advise TMR's management as to whether they should go ahead with the investment project. In your recommendations, you may wish to suggest possible refinements in the method used for evaluating this project.
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.
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