23 Jun The conveyer system NCC Technologies needs to in
The conveyer system
NCC Technologies needs to install a conveyer system as soon as possible because the existing
system, which has no scrap value, is beyond repair. Three different systems are being considered.
The first, System A, is the same type of system as the old one – just a newer model. It will last 10
years and cost $35,000 to purchase and install. The second, System B, will last 10 years and cost
$50,000 to purchase and install. The third, System C, will last 20 years and cost $120,000 to purchase
and install. None of the systems will have any expected salvage value but all will be replaced at the
end of their lives.
A2, Finance S1 2016
Page 2 of 2
After examining all costs, the net cash outflows for each system are: $15,000 per year for System A;
$11,000 per year for System B; and $1,500 per year for System C.
Requirements and marking criteria
Provide NCC Technologies with a memo that provides your recommendations on the two proposals.
Your memo should also include details of your analysis and briefly explain and justify your chosen
methods and any assumptions made. Table format for presenting figures is preferable.
Twelve marks will be allocated to analysis of the device part project and six marks to analysis of the
conveyer system. Marks for each will be awarded for demonstrated understanding of the issues
through: justification of chosen analytical techniques, correct application of those techniques, and
appropriate and insightful conclusions and recommendations.
Question 2: Company analysis (13 marks total)
For this question you are required to further analyse the ASX listed company assigned to you for
Assignment 1.
a) Briefly describe a likely “average” risk capital budgeting project for the company. Consider its
possible life, cash flow pattern and investment size relative to the company. Also hypothesise
the variables to which NPV might be most sensitive and would therefore need the most focus in
project analysis. No quantitative analysis is needed to answer this question. Focus on qualitative
factors. If the company has several business divisions, choose one for this question. (5 marks)
b) Assess the working capital management of your assigned company, focusing on its cash
conversion cycle for each of the past two financial years. Incorporate the companys context
within your evaluation and compare with a competitor or other relevant benchmark. As in
Assignment 1, use DatAnalysis to access your assigned companys financial data.
1
(8 marks)
Question 3: Short-term financing (4 marks total)
No additional research or data is necessary in answering this question. Simply apply your knowledge
from the unit learning materials.
In its 2015 Annual Report, Telstra Corporation Limited stated that (p. 121):
Our commercial paper is used principally to support working capital and short term liquidity.
a) What does the use of commercial paper suggest about the credit risk of Telstra? (1 mark)
b) What asset financing policy does the quote above suggest Telstra may follow? Justify your
answer and outline the benefits of that policy in comparison with alternative policies. (3 marks)
1 Note also that DatAnalysis CCC components are all based on sales revenues, instead of a COGS base for the
components related to inventory and payables. This is not necessarily a problem – just be aware of it in
interpretations and comparisons. Alternatively, you may w
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