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In view of the volatile oil price and depleted North Sea Oil Reserves, the Board would like you to evaluate the following alternative investment – the Purchase and Operation of a Solar Power Generating Plant.

CORPORATE & INTERNATIONAL TRADE FINANCE

DEFERRAL/REFERRAL COURSEWORK

Solar Power Generating Plant

In view of the volatile oil price and depleted North Sea Oil Reserves, the Board would like you to evaluate the following alternative investment – the Purchase and Operation of a Solar Power Generating Plant.

The £200 million capital investment will be raised by either Equity or a mixture of Equity and Debt, though banks will only agree to provide up to £100 million. The Cost of Equity is estimated to be 20% and the Debt is currently either 7% for Floating Rate Debt or 8% for Fixed Rate.

The expected life of this project is 20 years.

A proposed Schedule of Activities, Expected Duration & Financial Implications is detailed below

Schedule of Activities, Expected Duration & Financial Implications

Activity

Immediate Predecessors

Duration (months)

Financial Implication

O

M

P

A: Market Research

 

Completed

12

£2M

B: Financial Evaluation

 

A

1 week

 

C: Board Consideration

 

B

1

2

3

 

D: Negotiation/Securing Licensing

 

C

3

6

9

£1M

(Legal Fees)

E: Locate Site

 

C

1

3

5

£100,000

F: Acquire Site; Property, Plant & Equipment

 

D & E

3

4

6

£200M

G: Hire & Training of Labour

 

F

1

2

3

£2M

(Annual Cost)

H: Site Preparation

 

F

3

4

5

£5M

I: Purchase & Delivery of Panels

 

F

1

4

6

See Quotes Below

J: Plant Production

G & H & I

On-going

£80M

(Annual Cost)

K: Sales & On-going Production

 

j

On-going

Detailed below


O = Optimistic; M = Most Likely; P = Pessimistic
Activity I: Purchase & Delivery of Panels

Three quotations have been received from potential suppliers, all of whom will provide an appropriate Performance Bond:

Supplier    Price         Payment Terms

 

USA            US$ 50M   Ex Works  

                   Payment in Advance

Sweden     SEK 455    CIF UK      

                   D/A – sight Bill of Exchange

Collection charges of 0.25% are payable by the buyer.

France       € 46M        DDP

Letter of Credit – payment 6 months after delivery.

                   Documentary credit charges of 0.75% are payable by the buyer.

Add £1M for Freight & £1M for Insurance where appropriate

Activity K: Sales & On-going Production

Sales are forecast to be:

          2021                    0

          2022                    0

          2023                   £50M

          2024                   £80M

          2025                   £100M

          2026 onwards     £130M

Required:

Your Financial Evaluation, of this investment, outlining/justifying:

  • Your recommended Method of Finance
  • Calculation of the Weighted Average Cost of Capital
  • The Critical Path using appropriate Activity Durations
  • Your recommended supplier
  • Calculation and Evaluation of the Payback, NPV & IRR incorporating appropriate Corporation Tax and Written Down Allowances
  • Whether to invest or not in the project

Submission Date: By Midnight 2nd July 2021

(This is the University Deadline, hence NO extensions can be granted beyond this date. It is the latest date possible)

Coursework Marking Scheme

There is NOT one correct answer. There are MANY. Just as there are many incorrect answers. Your decisions will be based on your evaluation of the economy, the market and the financial aspects as well as your assessment of Risk.

As a result marks will be awarded for:

  • Evaluation
  • Accuracy of Evaluation
  • Evidence based Justification of your Recommendation
  • Risk Assessment
  • Professional Presentation

OVERALL

 

  • Your recommended Method of Finance & justification

20%

  • Calculation of the Weighted Average Cost of Capital

10%

  • The Critical Path using appropriate Activity Durations

10%

  • Your recommended supplier supported with calculations and evaluation of the advantages & disadvantages of the various quotes

10%

  • Calculation and Evaluation of the Payback, NPV & IRR incorporating appropriate Corporation Tax and Written Down Allowances

40%

  • Evidence based recommendation whether to invest or not in the project with reference to finance and strategic issues

10%

TOTAL

100%


Word Count:

With only 3,000 words your report should be concise and to the point. Much of your evaluation may not appear in the final report, though it will be evident from what you write that you have engaged in detailed evaluation and analysis.


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