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Sunrise plc is currently making investment appraisals of two potential long-term projects, X and Y. Both projects require the same initial investment of £2m.

Financial Management – Report - 2500 words

Part A:

Sunrise plc is currently making investment appraisals of two potential long-term projects, X and Y. Both projects require the same initial investment of £2m. The following ratios have been calculated for the projects.

      Ratios                                                             Project X        Project Y

      Payback period (years)                                     4                      5

      Accounting Rate of Return (ARR %)           15                    20

      Net Present Value (NPV £m)                       120                 145

      Internal Rate of Return (IRR %)                    16                    13

You are, by critically evaluating these techniques, required to provide recommendations to the directors of Sunrise for a choice of either project X or project Y. Sunrise is not able to undertake the above two projects at the same time or a mixed project of X and Y. Sunrise has maintained its dividend growth rate of 5% for more than 10 years although it has suffered a continuously declined net profit in the last three years .

(35 marks)

Part B:

By using any relevant information provided in Part A, explain and critically evaluate:

  1. Main sources of finance which are available for Sunrise to finance the chosen project in Part A, and                                                                                           (25 marks)
  2. The dividend policy which is implemented by Sunrise.                             (25 marks)

 

Part C:

Other requirements and tips:

  1. Any necessary and reasonable assumptions regarding the company and the two projects X and Y are acceptable.
  2. To obtain a high mark, you should:

a)    Make your report concise,  precise, and well-presented and structured;

b)    Draw logical conclusions from accounting, finance and other relevant information;

c)    Synthesise information in a coherent and useful way;

d)    Show evidence of key text and background reading;

e)    Incorporate your knowledge into an integrated piece of work; and

f)     Demonstrate critical understanding of financial management.

  1.  A Harvard standard reference is required for the report.                          

(15 marks)


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