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
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 .
By using any relevant information provided in Part A, explain and critically evaluate:
- Main sources of finance which are available for Sunrise to finance the chosen project in Part A, and (25 marks)
- The dividend policy which is implemented by Sunrise. (25 marks)
Other requirements and tips:
- Any necessary and reasonable assumptions regarding the company and the two projects X and Y are acceptable.
- 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.
- A Harvard standard reference is required for the report.
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