Hypothetical Company Case Study - Branson Ltd - A Public Listed Tour Company - Finance Assignment Help

Assignment Task:

Hypothetical company background
You are an analyst working in the finance department of Branson Ltd. Branson is a public listed tour company that is based in Melbourne. One of its main operating businesses is to provide tourists with hot-air balloon flights over the city. As the current balloons are due to be retired, Branson must decide whether to replace them with a large or small model. New balloons have an expected life of 8 years, after which salvage values are $70,000 for the large balloons and $45,000 for the small balloons. Market research has estimated that there is a 60% probability that demand will be high throughout the useful life of the balloons, and a 35% probability that demand will be low throughout the useful life of the balloons. Lastly, the company decides to
consider a 5% probability that it is unable to operate the hot-air balloon business at all due to
legal constraints.
The large model is expected to cost $700,000, with an extra installation and shipping costs of $50,000. The small model is expected to cost $450,000, with an additional installation and shipping costs of $45,000. The company accounting’s policy is to depreciate using the reducing balance approach of 20% per annum. There is also an initial increase in net working capital of $60,000 for the large model, and $30,000 for the small model. The net working capital is recoverable at the end of their useful life.
In the event of high demand, the company expects a yearly operating revenue of $1,000,000 for the large model, and a yearly operating revenue of $450,000 for the small model. If the demand is low, yearly operating revenue is forecasted to be $400,000 for both the large model and the small model. Annual variable costs associated with operating these balloons are expected to be 50% of the operating revenue for the large model and 45% of the operating revenue for the small model. In the event that the hot-air balloon business cannot be operated, the yearly operating revenue is to decrease to zero. Fixed operating costs associated with operating the large balloons are $100,000 per year, and that for small balloons are $65,000. In addition, if the large model is preferred over the small model, the company needs to rent an additional warehouse to store the large balloons. A new warehouse’s rental cost is expected to be $100,000
per year.
You have recently evaluated the capital structure of the company and believes that it is operating at the optimal level of 60% debt and 40% equity. The weighted average cost of capital (WACC) from this capital structure is 12.5%. You would also like to understand how Dr Mardy Chiah 2 FIN80005 20S1 sensitive your capital budgeting decisions are due to changes in WACC. As such, in addition to determining which model to invest, you want to investigate the effects of WACC on NPV and
the cross-over rates of the large and small models when demands are high and when demands are low.

Required
You are to prepare a report, to present to the CEO, showing (1) the various cash flows based on the different scenarios and (2) the sensitivity analysis using different WACC and the calculation of cross-over rates. Using Excel as your main analysis tool, evaluate whether the company should proceed with the purchase of large or small balloons, taking into consideration of the various scenarios. Show all workings in the appendix of the report. You should also clearly state any assumptions (if any) made in your analysis.

This Finance Assignment has been solved by our Finance Experts at My Uni Paper. Our Assignment Writing Experts are efficient to provide a fresh solution to this question. We are serving more than 10000+ Students in Australia, UK & US by helping them to score HD in their academics. Our Experts are well trained to follow all marking rubrics & referencing style.

Be it a used or new solution, the quality of the work submitted by our assignment experts remains unhampered. You may continue to expect the same or even better quality with the used and new assignment solution files respectively. There’s one thing to be noticed that you could choose one between the two and acquire an HD either way. You could choose a new assignment solution file to get yourself an exclusive, plagiarism (with free Turnitin file), expert quality assignment or order an old solution file that was considered worthy of the highest distinction.