You work as a financial analyst in the Finance division of Finger Food Ltd., an Australian food company.  The company is considering a new line of baked food which requires the purchase and installation of a new

FIN1FOF Scenario 

You work as a financial analyst in the Finance division of Finger Food Ltd., an Australian food company. 

The company is considering a new line of baked food which requires the purchase and installation of a new conveyor oven. The company has identified two commercial conveyor ovens which provide the capacity required by the firm to produce the quantity of baked products planned for the new line. However, the two alternative ovens while capable of producing the same volume of the new baked product have different lifespans and different operating cost levels. As a result, they are also priced differently. 

Conveyor Oven A has a working life of 5 years, would require an investment of $100,000 to purchase and install it in the year prior to startup, and is estimated to operate on a Gross Profit Margin of 25%. Conveyor Oven B, however, has a working life of only 3 years and hence would require an investment of only $50,000 to purchase and install. It is estimated to operate on a slightly lower Gross Profit Margin of 23%. 

Both ovens would be able to generate the same amount of product, hence the estimated sales for each year of operation would be the same irrespective of which oven is chosen. Both ovens could also be replaced at the end of their working life with a new oven of the same type allowing the new baking line product to continue to be produced for the foreseeable future irrespective of which oven is chosen. 

As the firm's financial analyst you have been asked to advise whether the new line of baked food is financially viable and if so which of the two conveyor ovens should the firm acquire to produce this new line of baked products.

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FIN1FOF Tasks

You are required to complete the following tasks. 

• Enter your answers in this MsWord document, in space you may create below each Task. 
• Show the formula and calculations for each answer, except for calculations required to populate the Net Incremental Cashflow table in Part 2. Use Microsoft Word's Equation Editor to present the formula and workings. For example, using an unrelated formula:

FV1 =C ×(1+r)n=$100,000×(1+0.04) 5 =$108,160

• Define all variables of each formula used and show any calculations required to adjust them for use in applying the formula to solving each problem.
• Format your answers as defined in each task. When incorporating an answer to a prior task in a subsequent task, use the value as it has been formatted. For example, if a task required you calculate and format as a percentage to 3 decimal places, the answer should be formatted as 1.234%. If this value is subsequently included in the calculation of the answer to a subsequent task, then the value you must use is 1.234% or 0.01234. 

FIN1FOF Part 1: Calculate Finger Food Ltd's Weighted Average Cost of Capital (30 marks)

1. Calculate the before-tax cost of Finger Food Ltd's bank loans. Show your answer formatted as a percentage to 3 decimal places. (2 marks)
2. Calculate the before-tax cost of Finger Food Ltd's corporate bonds. Show your answer formatted as a percentage to 3 decimal places. (4 marks)
3. Calculate the cost of Finger Food Ltd's preference shares. Show your answer formatted as a percentage to 3 decimal places. (2 marks)
4. Calculate the cost of Finger Food Ltd's ordinary shares. Show your answer formatted as a percentage to 3 decimal places. (4 marks) 
5. Calculate the estimated market value of Finger Food Ltd's bank loans. Show your answer formatted as dollar values. (2 marks) 
6. Calculate the estimated market value of Finger Food Ltd's corporate bonds. Show your answer formatted as dollar values. (4 marks) 
7. Calculate the estimated market value of Finger Food Ltd's preference shares. Showyour answer formatted as dollar values. (2 marks) 
8. Calculate the estimated market value of Finger Food Ltd's ordinary shares. Show your answer formatted as dollar values. (6 marks) 
9. Calculate Finger Food Ltd's WACC. Show your answer formatted as a percentage to two decimal places. and a decimal to four decimal places. (4 marks) 

FIN1FOF Part 3: Calculate the projects'NPV and IRR (40 marks) 

1. Calculate NPV of each of the Conveyor Oven A project and the Conveyor Oven B project, using the parameters you have estimated above for each project. Use the WACC you estimated above as your discount rate, expressed as a decimal rounded to 4 decimal places. (6 marks)
2. Calculate the IRR of each of the Conveyor Oven A project and the Conveyor Oven B project, using the parameters you have estimated above and the IRR function in Microsoft Excel. Show the parameters and values you incorporated in the IRR function as part of your answer. Show your answer as a percentage to 1 decimal place. (6 marks)
3. Is the project financially viable based on your estimates of the NPV and IRR of the project depending on which of the two alternative ovens is purchased. Should the project be accepted based on the assumptions and parameters you have used above? Explain your answer (8 marks).
4. Assume that either oven can be replaced with the same oven at the end of their respective working lives, repeatedly, and that each replacement oven offers the same NPV as its predecessor. If you recommend the project is financially viable irrespective of the Conveyor Oven chosen, how would you decide which Conveyor Oven to purchase to proceed with the project? Explain why you would compare the relative financial viability of the project using each Conveyor Oven using the methodology you have chosen. (10 marks) 
5. Based on your analysis of the relative financial viability of the two Conveyor Ovens, which Oven do you recommend Finger Food Ltd invest in to proceed with the project? Explain your reasons for this recommendation. (10 marks)