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John Moffat.
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- November 6, 2016 at 10:40 am #347671
Anonymous
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Dear Sir, I have to solve this case, but I have no Idea. Please give me exact explanation and formula of this case…
1. Case text
Identification of relevant FCF
A company is considering the possibility of building their own logistics centre on the outskirts of a large city in central
Poland. Up to this date, the company has benefited from an outsourcing company, which provided logistics services,
but the recent increase in the cost of external services forced the management to analyze the rationality of such
project. It is estimated that the capital expenditure will amount to about 9 million PLN, of which approximately 6
million will be amortized (the rest of the expenditure involves the outlay on the plot of land). The investment
expenditure can be slightly decreased by the sale of spare office equipment and cars which is being currently used by
the managers who oversee the cooperation with the external logistic company. It should give additional cash on the
level of 300 thousand at beginning of the second year of FCF estimation. The average depreciation rate will be around
10%. The logistics-related costs to date were approximately 4,3 million PLN and analyses showed that with an
increased range of operations, these costs will grow at a rate of about 10% per year. The analyses also indicate that
the operational cost of own logistic services, excluding depreciation and amortization, will amount to about 3 million
PLN per year and will grow at an average rate of 6%. The logistic centre creates also opportunity to provide service
to external clients. The estimated additional revenue related to this option should not exceed 150 thousands a year.
It is also assumed that after 10 years, in the case of some changes in the strategy, the whole logistics centre can
be sold for a price 30% above the initial capital expenditures. It is also anticipated that in the 4th and 8th year of the
project there will be a need for replacement outlay in the amount of approximately 800 thousand PLN. It is also
known that the company pays income tax on the level of 19 percent. The weighted average cost of capital (WACC) is
12 %.
Additionally please prepare a sensitivity analysis (NPV to potential changes in Sales, Logistics costs, outsourcing costs.2. What I understood.(but I’m not sure)
CAPEX 9million PLN
Additional cash 300,000 PLN (2nd year)
Depreciation rate 10%
Logistic cost 4,3million PLN Increase 10% per year
Operational cost 3million PLN per year will grow 6%
Additional revenue 150,000 PLN per year
Residual Value 30% x CAPEX after 10 years
Tax rate 19%
WACC 12%I don’t know how adjust this information to formula.
Please help me..
November 6, 2016 at 7:23 pm #347740I am sorry but we do not help with homework that you have been given.
If you are taking Paper F9 then you should be using a Revision Kit from one of the ACCA approved publishers – they are full of exam-standard questions together with answers and explanations. If there is anything in the answers that you are not clear about then if you ask here I will do my best to help.
Everything in the problem that you have typed out is covered in full in my free lectures. The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
Paper F9 is not a test on formulae. Calculations are only 50% of the exam – the exam is testing your understanding more than how well you can learn formulae.
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