BAO 5534 Business Finance Assignment Help

Question based on the case study

  1. Stakeholder theory 

According to Harrison, et al.,2015, that state that the stakeholder theory is the base for the management decision making. As according to freeman Harrison and wicks the stakeholder analysis helps in managing the ethical environment, increasing efficiency and effectiveness in the project completion, sustainability in the market of the company. The stakeholder theory helps in understanding the market demand and complexities in the consumer market. The integration of the policies formation an organziation need to study the internal and external stakeholder of the company. The internal stakeholder includes employees, supplier and the shareholder member of the company. The external stakeholder will be customer, government, creditor and the investor of the company. They eventually impact the management decision and also constitute the ethical background of the company.  The stakeholder helps in suggesting certain measures and evaluating the corporate governance and sustainable policy within organziation as well as in the chosen project. The firm has been designated to satisfied the stakeholder of the company and interlinked all the information before embedding it within the market and within the organziation.

Stakeholder theory implication in the Kimco environment 

The use of stakeholder theory helps in establishing the ethicality and corporate governance within the organziation through analysing the need of the stakeholder and the engaging them in the decision making of the firm. The stakeholder plays a vital role in sustaining the firm for long term base. As in the case of Kimco, they put effort to design the family like structure within the workplace. So that employee will work within it comfort zone and work with efficiently and effectively. Kimco involves all the internal and external stakeholder in their decision-making purposes and make decision as per the majority concerns. Kimco follows all the social responsibility that has been embed toward the society and communities by sharing the profitability with them.  The modernisation and relocation that has been proposed will better embed if there is support of the internal and external stakeholder. Hence, through that stakeholder theory has been implicated in the company ethicality and management decision (Vidal, et al.,2015).

  1. Ethical consideration of the Kimco line of business 

The ethical consideration based on the Kimco line of business that is paper and pulp industry will be-

  • The ethics that has been followed while implication of the business is the necessary code of conduct that has been inserted in the aspect of the performance. The WHS conduct and the worker relationship standard will lead to mend better relationship between the employer and employee and bring steadiness in the working (Zovico, 2020). 
  • The ethical pricing and worker pay scale will be essential for balancing the system effectively and manage to reduce the employee turnover in the company. An employee is the biggest assets of the company. So, it is necessary that organziation should protect the employees’ interest and implement certain measure that is anti-discrimination rules and managing the employee problem while facilitating them.
  • The ethical code of conduct in the use of the trees and the wood for making papers and pulp. The environmental standard should be implemented so that use of the environmental product should be in limit and use the 3R’s rules for preparing the paper and for further processing.
  • The sustainable practice and incorporating corporate governance in the working to measure the performance and elimination destruction and protecting natural regime for future benefit. It is one of the essential ethics that a paper and pulp busines should adopted for fulfilling social responsibility as well contributing themselves toward conservation of natural resources (Zovico, 2020). 

The ethical consideration affects the financial decision are as follows-

It leads to impact the business viable decision through restricting certain margin of usage and the chemical intact within the production cycle to protect the air and water environment. So, it leads to develop an alternative that immensely indulge in high cost practices and affect the financial decision. 

Another reason that affect the financial decision will be the ethical consideration toward society and delivering the good that has been presented with low price. This will entail to build certain strategy to reduce the cost and low the price margin of the product. Hence, this is one of the financial decisions (Lappi, 2020).

 Hence, this is the ethical consideration that will affect the financial decision of Kimco.

  1. Letter to Kimco management 

To, Kimco management 

Tasmania, Australia 

Date- 15 September 2020

Subject – suggestion for becoming better corporate citizen and delivering better value to their investors 

 Greeting for the day 

 Dear management team 

I hope you all are doing well and I am glad you approached me for the purpose of the getting suggestion on the purpose of creating value and ethical conduct by giving priority to the stakeholder and the communities and employee of the company. An organization will be sustaining in the market for the long time due to the stakeholder support and community trust on the company. if any breaking of ethical behaviour has been seen by them, they will never tolerate and by the time the firm will face decline of the reputation as well as the market value of the company (Chesbrough, et al.,2018). 

 For creating the market value and the reputation in the market Kimco should not decline their expectation, should give preference to the environment standard and does not ignore and neglect their decision and considered the way they are approaching the firm environment.  The corporate governance in the organziation delivered standard, certain code and conduct that has been mandate to followed by the organziation to meet the governmental needs as well as the interna and external market needs.

The value can be created through engagement of the society and the stakeholder within the organziation certain decision. As it related to financial decision, employment generation decision and the project selection decision. All these decisions need to take very carefully. Henceforth, through the decision-making process, all the constituent that integrate the internal and external factors into it.

The company should not stop their analysis process and always adhered toward innovation and new practices, that will create the essence for the value embedment and increase the strong market collaboration and enhance market turnover.

I hope you will consider these points for future value creation and indulge the presence of the ethical consideration and satisfying the investors as well (Chesbrough, et al.,2018).

 Thanking you 

  1. Evaluation of the cash flow for capital project 

Cash flow that involve in the capital project of the company will be-

Cash flow related to the operating activities 

 The cash flow related to the operating activities has been essential to evaluate so that the company will acquire the necessary cost and the expenses for the company capital project. The operating cost include the sale revenue, assets and liabilities arrangement and the taxes that has been incurred in the followed project while completing it. Hence, operating cost are the general prevailing cost that has been required the certain amount of the cash for meeting daily operational needs (Pivorienė, 2017).

Cash flow in the investment activities

Under this head the cash flow related to the investment in the capital project that has been proposed by the company has been incurred under this. The investment required certain amount cash for managing the profitability, resources, labour and the economic activities for enhancing the feasibility of the project. So, for this investment cash flow has been required and incorporate for smooth functioning 

Managing capital expenditure 

 The cash flow has been also requiring for managing the capital expenditure of the company. the capital expenditure includes the purchase of the fixed assets, selling of an asset etc. The capital expenditure has been required for the establishment of the capital expenses that required to be meet and it also need the cash flow with the manager to manage the capital expenses during the project.

Future cash flow management 

 The future cash flow has been considered under this as the project has been surrounded with certain risk and uncertainty. So, to be secure in this context the company evaluate the future cash flow of the firm from the proposed project by ascertaining the margin of investment, estimating present cash flow as well as future cash flow by inserting certain formula (Leyman & Vanhoucke, 2017).

Hence, these are the certain cash flow that has been administrated in the proposed project and restructuring of the industry and furnished it with modern technique and equipment.

 Opportunity cost 

The opportunity cost is the cost that has been determine by choosing the one alternative over other after evaluating the cost structure and determining the future value. So, selection of one of the alterative over other will be called as the opportunity cost for the company.  In the case of the Kimco ltd. opportunity cost can be determined as the choosing the best alternative out of many through analysis. The decision of resources and labour will be estimated with the help of the opportunity cost method as it leads to better decision (Yan & Otto, 2020).

Sunk cost 

 The sunk cost is the cost that has been determined as the cost structure that has been already being incurred and there is no hope of recovery for this cost. Hence, in the case of the Kimco ltd. the chances of this cost are least and as studying the detail of the project there is no sunk cost incurred by the project (Feldman & Wong, 2018).

  1. Dilemma in cash Flow identification

The cash flow identification is the estimation of the cash flow which are to be required during the project life. This stage is relay important in the project life, because it helps in understanding that how much funds are to be required in the period lifecycle and what are the expected cash flows. The capital techniques become easier with the help of cash flows, the calculation of NPV, IRR and payback will be useful in identifying that the project will be profitable or not. 

IN the given situation, there are capital investment which have to be incurred in the 0 years, where as the working capital cost will have to paid in the year or later. As per the given statement, the cash flows are important to be invested in the 0 years, but they will be giving profit to the later years, in the increased capacity. 

  1. Cash Flow Statement

Computation of cash flow for each alternativeExisting          
Year6012345678910
Capacity of production150000          
Capital Cost0          
Additional working capital at the year 3 0          
Operating Cost           
Labour cost ore tome 4875000049725000507195005173389052768567.853823939.1654900417.9455998426.357118394.8258260762.72
Material and another variable 622500006355725064891952.2566254683.2567646031.669066598.2670516996.8271997853.7673509808.6875053514.67
Fixed Operating Cost 400000404800409657.6414573.4912419548.3731424582.9536429677.949434834.0844440052.0934445332.7185
Total Cash Outflow0111400000113687050116021109.9118403146.7120834147.8123315120.4125847092.7128431114.1131068255.6133759610.1
            
Sales price 920947.6976.0281005.308841035.4681051066.5321481098.5281131131.4839561165.4284751200.391329
Total Cash inflow 138000000142140000146404200150796326155320215.8159979822.3164779216.9169722593.4174814271.2180058699.4
Net Cash Inflow /Outflow 266000002845295030383090.1532393179.2634486068.0136664701.8838932124.2141291479.2943746015.6346299089.26

Computation of cash flow for each alternatives Modernisation of Old Plant
Year012345678910111213141516171819202122
Capacity of production300000                      
Capital Cost600000006000000060000000100000000                   
Additional working capital at the year 3 0                      
Operating Cost                       
Labour cost ore tome 97500000994500008400000085680000873936008914147290924301.4492742787.4794597643.2296489596.0898419388100387775.8102395531.3104443441.9106532310.7108662957110836216.1113052940.4115313999.2117620279.2119972684.8122372138.5
Material and another variable 6225000063557250124500000127114500129783904.5132509366.5135292063.2138133196.5141033993.6143995707.5147019617.4150107029.3153259276.9156477721.8159763753.9163118792.8166544287.4170041717.4173612593.5177258458180980885.6184781484.2
Fixed Operating Cost 4000004048009000000912600092537649383316.6969514683.139647888.6949782959.1359919920.56310058799.4510199622.6410342417.3610487211.210634032.1610782908.6110933869.3311086943.511242160.7111399550.9611559144.6711720972.7
Total Cash Outflow60000000220150000223412050317500000221920500226431268.5231034155.2235731047.8240523872.7245414596250405224.2255497804.8260694427.7265997225.6271408374.9276930096.8282564658.3288314372.8294181601.4300168753.4306278288.1312512715.1318874595.4
                        
Sales price 920947.6976.0281005.308841035.4681051066.5321481098.5281131131.4839561165.4284751200.3913291236.4030691273.4951611311.7000161351.0510161391.5825471433.3300231476.3299241520.6198221566.2384161613.2255691661.6223361711.471006
Salvage Value                      5000000
Total Cash inflow 138000000142140000292808400301592652310640431.6319959644.5329558433.8339445186.9349628542.5360117398.7370920920.7382048548.3393510004.8405315304.9417474764.1429999007442898977.2456185946.5469871524.9483967670.6498486700.8518441301.8
Net Cash Inflow /Outflow-60000000-82150000-81272050-246916007967215284209163.0688925489.3293827386.0898921314.18104213946.5109712174.6115423115.9121354120.6127512779.2133906930140544667.2147434348.7154584604.4162004345.1169702771.5177689382.5185973985.7199566706.4

Building a new mill

Cash Flow Statement

 

 

 

 

 

 

 

 

 

 

Year012345678910111213141516171819202122
Capacity of production400000          
Capital Cost200000000175000000125000000100000000       
Offset compensation   30000000       
Additional working capital at the year 3 0          
Operating Cost           
Labour cost ore tome 1300000001326000008800000089760000915552009338630495254030.0897159110.6899102292.9101084338.8103106025.5105168146107271509109416939.1111605277.9113837383.5116114131.1118436413.8120805142123221244.9125685669.8128199383.2
Material and another variable 6225000063557250166000000169486000173045206176679155.3180389417.6184177595.4188045324.9191994276.7196026156.5200142705.8204345702.6208636962.4213018338.6217491723.7222059049.9226722289.9231483458236344610.6241307847.4246375312.2
Fixed Operating Cost 400000404800115200001168128011844817.9212010645.3712178794.4112349297.5312522187.6912697498.3212875263.313055516.9813238294.2213423630.3413611561.1713802123.0213995352.7414191287.6814389965.7114591425.2314795705.1815002845.06
Total Cash Outflow200000000367650000321562050395520000270927280276445223.9282076104.7287822242.1293686003.6299669805.4305776113.8312007445.3318366368.8324855505.8331477531.8338235177.7345131230.2352168533.8359349991.4366678565.8374157280.7381789222.4389577540.5
            
Sales price 920947.6976.0281005.308841035.4681051066.5321481098.5281131131.4839561165.4284751200.3913291236.4030691273.4951611311.7000161351.0510161391.5825471433.3300231476.3299241520.6198221566.2384161613.2255691661.6223361711.471006
Salvage value                      75000000
Sale of Land                      51647141.93
Total Cash inflow 138000000142140000390411200402123536414187242.1426612859.3439411245.1452593582.5466171390480156531.6494561227.6509398064.4524680006.4540420406.6556633018.7573332009.3590531969.6608247928.7626495366.5645290227.5664648934.4811235544.3
Net Cash Inflow /Outflow-200000000-229650000-179422050-5108800131196256137742018.2144536754.6151589003158907578.9166501584.5174380417.9182553782.3191031695.6199824500.6208942874.7218397841.1228200779.1238363435.8248897937.3259816800.8271132946.8282859711.9421658003.8

  1. Financial Viability of the projects 

NPV

Year012345678910111213141516171819202122
Capacity of production300000                      
Capital Cost600000006000000060000000100000000                   
Additional working capital at the year 3 0                      
Operating Cost                       
Labour cost ore tome 97500000994500008400000085680000873936008914147290924301.4492742787.4794597643.2296489596.0898419388100387775.8102395531.3104443441.9106532310.7108662957110836216.1113052940.4115313999.2117620279.2119972684.8122372138.5
Material and another variable 6225000063557250124500000127114500129783904.5132509366.5135292063.2138133196.5141033993.6143995707.5147019617.4150107029.3153259276.9156477721.8159763753.9163118792.8166544287.4170041717.4173612593.5177258458180980885.6184781484.2
Fixed Operating Cost 4000004048009000000912600092537649383316.6969514683.139647888.6949782959.1359919920.56310058799.4510199622.6410342417.3610487211.210634032.1610782908.6110933869.3311086943.511242160.7111399550.9611559144.6711720972.7
Write off expenses   50000005000000500000050000005000000500000050000005000000500000050000005000000500000050000005000000500000050000005000000500000050000005000000
Total Cash Outflow60000000220150000223412050322500000226920500231431268.5236034155.2240731047.8245523872.7250414596255405224.2260497804.8265694427.7270997225.6276408374.9281930096.8287564658.3293314372.8299181601.4305168753.4311278288.1317512715.1323874595.4
                        
Sales price 920947.6976.0281005.308841035.4681051066.5321481098.5281131131.4839561165.4284751200.3913291236.4030691273.4951611311.7000161351.0510161391.5825471433.3300231476.3299241520.6198221566.2384161613.2255691661.6223361711.471006
Salvage Value                      5000000
Total Cash inflow 138000000142140000292808400301592652310640431.6319959644.5329558433.8339445186.9349628542.5360117398.7370920920.7382048548.3393510004.8405315304.9417474764.1429999007442898977.2456185946.5469871524.9483967670.6498486700.8518441301.8
Net Cash Inflow /Outflow-60000000-82150000-81272050-296916007467215279209163.0683925489.3288827386.0893921314.1899213946.46104712174.6110423115.9116354120.6122512779.2128906930135544667.2142434348.7149584604.4157004345.1164702771.5172689382.5180973985.7194566706.4
Profit -22150000-21272050703084007467215279209163.0683925489.3288827386.0893921314.1899213946.46104712174.6110423115.9116354120.6122512779.2128906930135544667.2142434348.7149584604.4157004345.1164702771.5172689382.5180973985.7194566706.4
Tax -6645000-63816152109252022401645.623762748.9225177646.7926648215.8228176394.2529764183.9431413652.3733126934.7634906236.1736753833.7538672079.0140663400.1742730304.644875381.3147101303.5449410831.4451806814.7554292195.7158370011.93
Profit after tax -15505000-148904354921588052270506.455446414.1458747842.5262179170.2665744919.9269449762.5373298522.2177296181.1181447884.485758945.4390234851.0394881267.0699704044.06104709223.1109903041.6115291940120882567.8126681790136196694.5
Discounting Factor 0.89285710.79719390.71178020.635518080.5674268560.5066311210.4523492150.4038832280.3606100250.3219732370.2874761040.2566750930.229174190.2046198130.1826962610.1631216620.1456443410.130039590.1161067770.1036667650.0925596120.08264251
Cumulative Cash Flows-60000000-75505000-74890435-5078412052270506.455446414.1458747842.5262179170.2665744919.9269449762.5373298522.2177296181.1181447884.485758945.4390234851.0394881267.0699704044.06104709223.1109903041.6115291940120882567.8126681790136196694.5
Discounted Cash Flow-60000000-67415179-59702196-3614713433218851.831461784.4429763485.3228126698.8826553270.4825044280.623600162.4322220805.0120905643.319653736.8618463838.3117334452.7616263889.3615250305.7814291746.4813386175.5612531504.7511725617.2911255636.74
NPV167787377.8                      
PI60%

Computation of cash flow for each alternative Building a new mil                 
Year012345678910111213141516171819202122
Capacity of production400000                      
Capital Cost200000000175000000125000000100000000                   
Offset compensation   30000000                   
Additional working capital at the year 3 0                      
Operating Cost                       
Labour cost ore tome 1300000001326000008800000089760000915552009338630495254030.0897159110.6899102292.9101084338.8103106025.5105168146107271509109416939.1111605277.9113837383.5116114131.1118436413.8120805142123221244.9125685669.8128199383.2
Material and another variable 6225000063557250166000000169486000173045206176679155.3180389417.6184177595.4188045324.9191994276.7196026156.5200142705.8204345702.6208636962.4213018338.6217491723.7222059049.9226722289.9231483458236344610.6241307847.4246375312.2
Fixed Operating Cost 400000404800115200001168128011844817.9212010645.3712178794.4112349297.5312522187.6912697498.3212875263.313055516.9813238294.2213423630.3413611561.1713802123.0213995352.7414191287.6814389965.7114591425.2314795705.1815002845.06
Write of Expenses   3150000031500000315000003150000031500000315000003150000031500000315000003150000031500000315000003150000031500000315000003150000031500000315000003150000031500000
Total Cash Outflow200000000192650000196562050295520000270927280276445223.9282076104.7287822242.1293686003.6299669805.4305776113.8312007445.3318366368.8324855505.8331477531.8338235177.7345131230.2352168533.8359349991.4366678565.8374157280.7381789222.4389577540.5
                        
Sales price 920947.6976.0281005.308841035.4681051066.5321481098.5281131131.4839561165.4284751200.3913291236.4030691273.4951611311.7000161351.0510161391.5825471433.3300231476.3299241520.6198221566.2384161613.2255691661.6223361711.471006
Salvage value                      75000000
Sale of Land                      51647141.93
Total Cash inflow 138000000142140000390411200402123536414187242.1426612859.3439411245.1452593582.5466171390480156531.6494561227.6509398064.4524680006.4540420406.6556633018.7573332009.3590531969.6608247928.7626495366.5645290227.5664648934.4811235544.3
Net Cash Inflow /Outflow-200000000-54650000-5442205094891200131196256137742018.2144536754.6151589003158907578.9166501584.5174380417.9182553782.3191031695.6199824500.6208942874.7218397841.1228200779.1238363435.8248897937.3259816800.8271132946.8282859711.9421658003.8
Profit 7535000078177950181391200189456256197797218.2206423058.6215343033.1224566689.6234103877.4243964756.6254159807.8264699841.7275596009.5286859813.9298503119310538162.6322977567335834351.1349121942.8362854191.7377045381.7518357387
Tax 22605000234533855441736056836876.859339165.4561926917.5964602909.9467370006.8870231163.2273189426.9976247942.3479409952.582678802.8686057944.1689550935.7193161448.7896893270.09100750305.3104736582.8108856257.5113113614.5155507216.1
Profit after tax 5274500054724565126973840132619379138458052.7144496141.1150740123.2157196682.7163872714.2170775329.7177911865.5185289889.2192917206.7200801869.7208952183.3217376713.8226084296.9235084045.8244385360253997934.2263931767.2362850170.9
Discounting Factor 0.89285710.79719390.71178020.635518080.5674268560.5066311210.4523492150.4038832280.3606100250.3219732370.2874761040.2566750930.229174190.2046198130.1826962610.1631216620.1456443410.130039590.1161067770.1036667650.0925596120.08264251
Cumulative Cash Flows-2000000005274500054724565126973840132619379138458052.7144496141.1150740123.2157196682.7163872714.2170775329.7177911865.5185289889.2192917206.7200801869.7208952183.3217376713.8226084296.9235084045.8244385360253997934.2263931767.2362850170.9
Discounted Cash Flow-2000000004709375043626088903774718428201378564817.573206241.9568187176.4463489103.6459094143.5554985085.6251145409.9647559299.5244211644.641088040.9538174782.6735458850.8132927898.4130570232.9528374796.4726331144.1724429421.8829986849.03
NPV893164262.6                      
PI142%

IRR

For the modernisation of project is 13.24%

For building of new project is 15.54%

Profitability Index

For the modernisation of project: 60%

For building of new project is 142%

8. Acceptance or Rejection of Project

Both the project has the positive NPV as well as good IRR. The profitability index So on the basis of capital budgeting techniques, company can accept both the projects.

  1. IF the project is mutually exclusive, then the calculation of NPV is very important, because to will justify whether the project is acceptable or not, IF the test signifies positive results of NPV, and the value of IRR is more than discounting rate, so the project should be acceptable.

9. NPV in given scenario

  1. NPV for the modernisation is 157098196

NPV of Building new project is 825822423

  1. If the sale price is 950

NPV for the modernisation is 210614589

NPV of Building new project is 895377948

  1. If variable cost is 415

NPV for the modernisation is 202549997

NPV of Building new project is 887313355

  1. Yes, the project sensitivity is very important to the project, it changes the decision s change in the variable. The Highest NPV model should be selected

10. Discount Rate

The discount rate will be the rate which is presently serving in the market as per the industry, So the discus rate is low than IRR, hence it is suitable it uses same discounting rate for the same

11. Recommendation

On the basis of above information, it had been recommended that, company should use the project with the highest NPV, in the analyses m to had been observed that the building new project will be more successful , as it given positive NOV in each scenario, as well as have the highest profitability index, So the company must go with the new building and relocating. 

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