16 Jun BFA107 Financial Management – Assessment 2
Question
Finance
BFA107 – FINANCIAL MANAGEMENT College of Business and Economic
Semester 1, 2019
Description:
BFA107 FINANCIAL MANAGEMENT
Semester 2, 2018 Assessment 2: Written assignment
Assessment: 15%
Your assignment involves preparing a written report where you will present an analysis of financial information relating to a capital investment project described in the attached case study and provide recommendations that will assist the firm in its decision making.
Length:
1,500 words maximum – this requirement refers to the written analysis section of the assignment only and is a “maximum”. Students will not be penalised for using fewer words and making their report more succinct. If you submit over-length work, there will be an automatic 10% penalty of the total possible marks for this assessment. Title pages, calculations section, reference lists and appendices are included in the word count.
Assessment criteria:
Please see the assessment rubric uploaded on MyLo under assessment 2 folder for information on the assessment criteria which will be applied when marking the assignment.
Percentage weighting: This assignment is worth 15%the final mark for the unit
Due date : Wednesday, 15 May 2019 by 5pm
CASE STUDY
Tasmanian Motor Rental (TMR) is set up as a proprietary company in car rental industry and is considering whether to enter the discount rental car market in Tasmania. This project would involve the purchase of 100 used late model, mid-sized cars at the average price of $15,000. In order to reduce their insurance costs, TMR will have a LoJack Stolen Vehicle Recovery System installed in each car at a cost of $1,500 per vehicle. The rental car operation projected by TMR will have two locations: one near Hobart airport and the other near Launceston airport. At each location, TMR owns an abandoned lot and building where it could sotre its vehicles. If TMR does not undertake the project, the lots can be leased to an auto-repair company for $90,000 per year (Total amount for both lots). The $25,000 annual maintenance cost (total for both lots) will be paid by TMR whether the lots are leased or used for this project. This discount rental car business is expected to result in a fall in its regular car rental business by $20,000 per year.
For taxation purposes, the useful life of the cars is determined to be five years and they will be depreciated using the straight-line depreciation method over 5 years with no residual values at the end. It is assumed that the cars will first be used at the beginning of the next financial year: 1 July 2019.
Before starting this new operation, TMR will need to redevelop and renovate the buildings at each airport locations. This is expected to cost $215,000 for both locations. Assume that TMR is not able to claim any annual tax deduction for the capital expenditure to the renovation of the building until the business is sold. TMR has also budgeted marketing costs which will be spent at the initiation of the project and also during the first two years of operation. The estimated costs are $30,000 per year. These costs are fully tax deductible in the year they are incurred. In addition, if the project is undertaken, a total new injection of $150,000 in net working capital will be required. There will be no additional working capital required from the commencement of the operation until the end of the project. The initial networking capital will be recovered in full by the end of year 5.
Revenue projections from the car rental for the next five years are as follows:
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