Airvalue Airways is a regional carrier whose strategy is to expand gradually as they can identify routes that offer an attractive return on the investment necessary to support successful coverage of the route.  As part of this expansion, the company is planning to buy a new plane in the upcoming fiscal year. The purchasing department has narrowed the choice down to two models.  One is the A220 which is manufactured in Europe.  The other plane is the G435 which is built in the United States.  The two aircraft have similar profiles. However, the locally-built G435 is significantly more expensive to purchase.

The A220 has an expected life of 5 years, will cost $90 million and its use will produce net operating cash inflows of $30 million per year. The G435 has a life of 10 years, will cost $128 million, and its use will produce net operating cash inflows of $25 million per year.  Airvalue plans to serve the route for 10 years. When they need to purchase a new A220 at the end of five years, the cost will be $115 million net after allowing for salvage value of the used plane.  Net operating cash inflows will remain at $30 million throughout the second five years.  At the end of 10 years, salvage value of the G435 and of the second A220 are expected to be about the same at approximately $500,000 each.

As the company’s CFO you are to provide the financial analysis that will be considered by the strategic planning executive committee during evaluation of this expansion alternative.  Your plan is to use a capital budgeting approach to the analysis in order to best assure that the decision will result in maximization of wealth for the company’s stockholders.  You also want to convert the entire committee to the concept that capital budgeting should be used as the main tool for the financial analysis of capital expenditure alternatives.

The company uses the historical difference in returns between the S&P 500 and the Treasury bond rates of 7% as their estimated market risk premium.   The current yield to maturity on a 10-year Treasury bond is 6.2%.  Airvalue Airways’ common-stock equity beta is estimated as 1.40.

Airvalue’s capital structure is 58% common stock, 32% preferred stock and 10% long-term debt.  An 8.8% after tax cost of debt has been determined and the cost of preferred stock is 12%.

Your task is to:

1. Describe for other members of the strategic planning committee the role that capital budgeting should play in corporate strategic management.
2. Explain why the NPV and IRR capital budgeting tools are superior to the accounting rate of return and simple payback techniques for determining the attractiveness of capital investment opportunities. 
3. Use the Capital Asset Pricing Model (CAPM) to identify the cost of common stock.
4. Calculate the weighted average cost of capital (WACC) for the firm’s existing capital structure.
5. Calculate the net present value (NPV) for each plane model using the company’s WACC as the hurdle rate.  
6. Recommend which plane should be purchased and justify your recommendation.  
7. Discuss the need to manage implementation of the project so that the higher returns can be realized.  Include the strategic management keys to protecting the project from competitive forces that would erode the earning power of the project and jeopardize realization of the projected rate of return on the investment.

To complete this assignment, you must submit a 6-8 page paper that addresses the seven elements of the task as listed above and exhibits your calculations of the cost of common stock, the weighted average cost of capital, and the NPV for each plane along with an explanation of the calculations.

The paper must be submitted as a Word document and it must follow APA style guidelines.

By Monday, August 10, 2015

Contracts and Procurement: 1 page; APA Format; reference list; with complete matching references; to include page numbers or website.

Blanton Reeve is a supplier for a medium-sized housewares company. Jerry, the newly hired procurement manager for the housewares company, studied all of the files for information on all of the current suppliers. In examining the file for Blanton Reeve, Jerry discovered that during the contract negotiation process, another firm should have been awarded the contract. Jerry researched more into the details of the contract with Blanton Reeve and Jon Johnson, the former procurement manager who awarded the contract to Reeve. Jerry learned that Johnson’s son began working for Blanton soon after the contract was awarded. Currently, Johnson works for another firm that has ties to Blanton Reeve.

Discuss the key ethical issues in business contracting, answering the following questions:

• Is there evidence of bribery by Blanton Reeve to secure a contract?
• How should Jerry proceed from this point forward?
• What are the consequences to ABC if Jerry overlooked this as a coincidence?

This is a two-part assignment. First, you will use what you learned in the Module 2 lectures to practice quoting, paraphrasing, and formatting in-text citations. Then, you will describe how to efficiently organize a large number of documents.

Part 1

Read this article and write two paragraphs summarizing its content. (Please be aware that this article does not use APA formatting so do not use it as an example when you are developing your APA-style citations for this assignment.)

• In the first paragraph, use several quotations to highlight the main points of the article.
• In the second paragraph, use paraphrase only to highlight the main points of the article.

Remember to use APA-style in-text citations where appropriate in each paragraph. The complete reference entry for this article is below.

Tucker, J., & Courts, B. (2010). Grade inflation in the college classroom. Foresight: The Journal of Futures Studies, Strategic Thinking and Policy, 12(1), 45–53. doi: http://www.thecampuscommon.com/library/ezproxy/ticketdemocs.asp?sch=auo&turl=http://search.proquest.com/docview/224180072

A refresher about citing sources is available on the Academic Resources page under Course Home.

Part 2

When you have finished your first two paragraphs about the article, consider the readings from this module and do the following:

• Describe an efficient filing system to store a large number of Word documents on your personal PC.

Your initial response should be at least 150 words. Each of your follow-up responses should be at least 50 words.

BA5001 / BA5001X    Business Decision-Making

Final coursework:              Lamberts Heating

Submission date:               Friday 24^th May 2013

This coursework is worth 40% of your final mark for this module.

Scenario

Lamberts Heating has two main divisions: one manufacturing radiators and the other installation of central heating systems. The manufacturing arm of the company makes radiators for domestic and commercial central heating systems.  These radiators are either used by Lamberts installation division or are sold to other central heating installation companies. Lamberts Heating has rather old machinery, presently used to manufacture the radiators, that it wants to replace. The company wants both the new machinery to be in place as soon as possible and to plan the procurement and installation as soon as possible. The company has yet to decide which piece of new machinery to buy and thus does not expect to make an order for this machinery before 3rd June 2013.

Lamberts Heatings installation division supplies and fits domestic central heating systems. It uses its own radiators to obtain the materials for this, but buys in boilers and pipes from other companies. This company is keen to increase its profit margin in this division but the business of supplying domestic heating systems is very competitive at present. The company has decided that the best way to increase its profit margin is to reduce the cost of buying the boilers from a number of suppliers. It has conducted some research into the prices charged by three major suppliers: Apex Boilers, Brunswich Heating Supplies and Centrale.

Tasks

This coursework is in three parts. You should submit all three parts together as one document.

The first part of the document will consist of three reports: one for each part of the coursework with three appendices. These appendices will contain all the details for the work you have completed in order to write the reports. All computer input and output should also be in the appendices, as should the details of any other calculations you have made.

Part A: Planning and control of capital expenditure

Question / Tasks: 

The senior management of the Lamberts Heating are considering the replacement of one of the firm’s machines that is used to make radiators in the factory. You are one of the managers involved in this decision. You have had some discussions with other members of the senior management about this proposed investment and there appear to be three machines that the firm could purchase.

Either a:

1.     Alumier machine, a straight replacement for the present machine from the same supplier

2.     Big EZ machine from an American supplier

3.     Cial machine from Japan

The senior management team wish to carefully consider the alternatives. As a first step, it was decided to accurately estimate each of the alternative’s cash flows and the following estimated figures are available:

The other members of the management team have asked you to consider each of the above alternatives, using the various methods usually employed in appraisal of capital investment decisions. You have been asked to report back to the whole team at their next meeting. Whilst other members at this meeting are also aware of usual investment appraisal methods, your report is expected to assess the above alternatives in any way that you consider is appropriate. Your report will be expected to include your recommendation of the machine to purchase, a recommendation that the team can then consider at their next meeting. Your report will also be expected to include an explanation of the strengths and weaknesses of the various methods that you have utilised in your investment appraisal. A 10% discount rate has also been recommended, the yield for each machine is expected to be calculated separately, and it is acceptable for all calculations to be worked out on a pre-tax basis.

(50 Marks)

Note:             

1.     All references and books, etc., consulted must be included, including any internet sites used.

2.     You are also expected to produce this assignment using information technology. Particularly expected for this part of the assignment would be the use of Microsoft Word and Excel, or the use of other similar word-processing and spreadsheet software to produce this coursework.

A successful assignment (in Part A of this assignment) might include consideration or explanation of:

§  consideration of each of the alternative proposals under at least three methods of evaluating capital investment decisions

§  comparison of the inflows and outflows for each machine under each method

§  the objective(s) of each method

§  the advantages and disadvantages (strengths and weaknesses) of each of these methods

§  consideration of any non-financial factors which may have to be considered

§  consideration of any other information you may require

§  a recommendation of one of the proposals, including the reasons for your recommendation

§  use of the expected word-processing and spreadsheet software

Note:     The above is illustrative, covering only the main points of the assignment.

Suggested length:  1,250  words

This part of the assignment (Part A) represents 50% of your marks on this piece of coursework

Part B: Scheduling the installation of the new machinery

Having decided to buy a new piece of machinery to make the radiators, Lambert Heating now has to consider the timeframe for getting the new piece of machinery up and running. This will involve you developing the project plan in terms of determining the critical path and the sequencing of the relevant activities.

The activities involved are shown in the table below with their preceding activities and their normal durations. Some of the activities can be reduced in time by using extra staff but this is at an extra cost.  The minimum duration for each activity is shown in the final column. For a number of activities, the minimum duration is the same as the normal duration as the duration of these activities cannot be reduced.

The earliest that the company expects to start the process is Monday 3^rd June 2013

Please note that the company works a 5 day week:  Monday to Friday.

Task:

Appendix

You may complete this task manually or by using MS project.

·            Assuming that the project starts on Monday 3rd June 2013, determine the shortest duration for the entire project, using the normal duration times.  Specify the date at which the project can finish and the number of weeks required.  

·            Produce a Gantt chart showing the starting and finishing times of each activity

·            Identify which activities form the critical path(s) of the project.

·            If the project could be speeded up by a maximum of 3 weeks at a cost of £200 a day, where should this money be spent?  Produce a new network diagram to show the new critical path(s) and total duration.

Report

Give details of the proposed calendar of works, making it clear which activities are critical and which activities have some slack. This section should be written so that the management can understand the advice being given without reference to the work in the appendix. Give details of the starting date, the finishing date and the duration of the project.

Explain how, by spending more money, the project duration can be shortened. Explain which activities have been shortened and which activities are now critical. Give details of the starting date, the finishing date and the duration of the project. Give details of the extra cost involved in shortening the project.

A successful assignment (Part B of this assignment) should include:

§   Determining the shortest time in which the project can be completed using the “normal” durations

§   Determining the shortest time in which the project can be completed using the “minimum” durations

§   Producing a well-written, well-structured report that enables management to understand how to schedule the project. This report should include details of activities which must be completed on time and those for which there is some slack.

§   The costs of shortening the project time should be included in the report as should the relevant start and finishing dates.

Note:     The above is illustrative, covering only the main points of the assignment.

Suggested length:  500  words

This part of the assignment (Part B) represents 20% of your marks on this piece of coursework.

Part C:  Cost of procuring boilers

This part of the coursework requires you to use linear programming techniques to determine the best way to minimise the cost of supplying boilers to Lamberts Heating

As well as manufacturing radiators (as mentioned in Part A), Lamberts Heating is also reviewing the way it procures boilers to enable the installation of domestic heating systems.

The purchasing department has identified three possible suppliers of boilers; Apex, Brunswich and Centrale. It has also identified five kinds of domestic boiler that it wants to purchase so it can supply and fit these boilers to a variety of sizes of homes.

The five boilers are known and coded by Italian numbers as most are manufactured in Italy ; Uno (1), Duo (2), Tre (3), Quattro (4) and Cinque (5).

The table below gives the cost of each boiler (in £s) from each supplier. The final row of the table specifies the minimum requirement of each type of boiler per year. Please note that not all boilers are available from each supplier.

There are certain limitations that have to be taken into account;

·        Apex can supply no more than 1,000 of the Tre boiler each year.

·        Brunswich can supply no more than 800 of the Duo boiler each year.

·        Centrale can supply no more than 1,800 Uno boilers each year.

Lamberts Heating wants to meet its requirement for the number of boilers needed each year at the minimum cost.

Task

You are expected to use MS Excel software for this task. However, we will accept printouts from any other Linear Programming software.

Appendix

·        Define the meaning of any decision variables you are using.

·        Formulate the situation described above as a linear programming problem.

·        Include your computer input of the problem (and show any formulae used)

·        Include the “Answer Report” and “Sensitivity Report” printouts

Report

Write a brief report to the management of Lambert Heating detailing the cheapest way of meeting their need for boilers.

This report, written in a formal style of English, should include:

·        The nature of the problem being solved

·        The suggested purchasing plan

·        The cost of the suggested purchasing plan.

·        The robustness of the plan. Provide details of the ranges of costs of boilers from each suggested supplier for which your suggested plan remains optimal, and advise the company when they will have to generate a new plan. Do not just provide lists but consider your answers in the context of the question.

·        At present, Apex can supply no more than 1,000 of the Tre boiler each year. If this limit was changed so that Apex could now supply 1,100 Tre boilers, explain what effect this would have on the total minimum cost?

A successful assignment (for Part C of this assignment) should include:

§  Well-defined decision variables and a correct formulation of the problem.

§  Appropriate use of Excel (or other software) to produce a solution to the problem.

§  Producing a well-written, well-structured report that enables management to understand how to procure boilers at the minimum price. This report should include details of your suggested purchasing plan and the cost of this plan.

§  The advice to management should also enable them to determine the range of prices for each boiler for which your purchasing plan is valid.

§  The implications of the increased capacity to supply by Apex should be clearly described.

Note:     The above is illustrative, covering only the main points of the assignment.

Suggested length:  500  words

This part of the assignment (Part C) represents 30% of your marks on this piece of coursework.