18 Jun DISCUSS THEIR OPTIONS FOR SOURCING THESE FUNDS.
Following advice from an agent in Vietnam TNA have an opportunity to purchase a majority interest in a small local firm that manufactures equipment for the food processing and packaging industry. This firm has a factory in a convenient location close to the ports and transport routes and a loyal and hardworking workforce. Unfortunately the factory has outdated equipment and a relatively high cost structure and the firm is increasingly falling behind its competitors. However the Agent’s advice may provide an opportunity for TNA to establish a production facility in the heart of Asia without the problems and lead time involved in developing a Greenfield facility.
Following further enquiries TNA management determine that they could complete the takeover of the Vietnamese company that owns the factory for an investment of $A 10 million, $A 6 million of which would be to purchase 100% of the Vietnamese company and $A 4 million in the form of capital equipment to replace some of the aging factory infrastructure.
If TNA proceed with the takeover they estimate that they can be operational by beginning 2017. They further consider that the existing contracts from the Vietnamese company will provide underpinning revenue equivalent to A$ 200,000 per month at current exchange rates. They are also confident of rapidly gaining additional food processing and packaging business because of the superiority of their new equipment. Their estimates of the value of sales growth per annum in the Vietnamese market are shown in the following table.
YEAR
Year 1 Year 2 Year 3 Year 4 Year 5
20% 30% 30% 20% 10%
Total costs are assumed to 60% of revenue in the first year and 50% of revenue for subsequent years. The exchange rate at September 18th 2016 is 17160.76Vietnamese Dong per Australian dollar and it is assumed that the inflation rate will be 3% higher in Vietnam than Australia.
Based on the information provided and further research answer the following questions:
Q1. The management of TNA are undecided about their best option for sourcing the $A10 million required for the transaction. Discuss their options for sourcing these funds.
Q2. Carry out a capital budget evaluation of the proposed takeover assuming a 5 year timeframe and an estimated residual value of A$ 200,000 for the capital equipment at the end of the 5 years. Assume that TNA use a weighted average cost of capital of 10% in their financial evaluations. Does the takeover represent a good investment for TNA based on your evaluation? What would be the situation if the investment required was only A$ 7 million?
Please Note
This assignment is worth 40% of the assessment marks for this subject.
The number of words 4000.
Your report needs to be clearly written, well-structured and well-presented showing all calculations. You should acknowledge all sources used and provide references where appropriate. References must be presented in approved standard form (e.g. Harvard) and the reference list presented alphabetically by author. Please note that the software program Turnitin may be used in assessing your assignment.
All assignments must be submitted with an RMIT coversheet and must be submitted both with BB and as an email attachment.
Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax.
About Writedemy
We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.
How It Works
To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Are there Discounts?
All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.