Country : Australia
Assignment Task:

Scenario: 
You are a financial analyst with Cyberdyne Systems Limited. Your CEO has asked you to analyze a large investment in converting the company’s manufacturing facility to a fully robotic facility (the “T-1000Project”). He gives you the following information:
 
Shares Information: 

• Cyberdyne Systems Limited’s last quoted ordinary share price was $8.33. 
• Last financial year its total dividend on ordinary shares was 45 cents ($0.45) per 
• share. 
• Cyberdyne Systems Limited’s last quoted preferred share price was $7.85. 
• Cyberdyne Systems Limited’s preference dividend rate is 62 cents ($0.62) per 
• share. 

General Information: 
• The Risk Free Rate is 3.12% 
• The Market Risk Premium is 6.58% 
• The beta of Cyberdyne Systems Limited is 1.38 
• The beta of all stocks is 1.0 
• The number of Robots used in manufacturing in OECD countries is expected to 
• increase by 14% per year for the next 10 years. 
• The Capital Structure of Cyberdyne Systems Limited is: 
• 23% long term debt; 
• 28% bonds debt; 
• 24% preferred equity; and 
• 25% ordinary equity. 
Of the long term debt portion 38% is with a bank at an interest rate of 6.15%, and the remaining 62% is with another bank at an interest rate of 5.99%. The cost to the company of its bonds is 5.45%. Information Relating to the T-1000 Project 

The CEO has given you the following estimates: 
• To convert the manufacturing facility to full robotization will cost $5m, at the beginning of the project. 
• At the end of year one, your company will invest a further $12m. 
• From the end of year two onwards your company will receive $2,300,000 positive cash flow from the project, per year, until the end of the project. 
• At the end of year 7 and again at the end of year 14 your company will have to do an upgrade that will cost $350,000 on each occasion. 
• After 25 years all of the robot facilities will be obsolete, and that will end the project. However, from the sale of robot parts and scrap metal at the end of Year 25, your company expects to receive $180,000. 

REQUIRED FOR PART ONE: 
Write a report to the CEO of Cyberdyne Systems Limited. The report should include as a minimum: 
• An evaluation of the project in general; 
• An evaluation of the projected cash flows of the project; 
• A discussion of any assumptions you have made and any risks associated with your analysis; 
• Make a recommendation to the CEO on whether Cyberdyne Systems Limited should go ahead with the T-1000 Project, and outline the reasons why or why not. 
• Include detailed financial information related to the reasons for your recommendation, as an appendix to the report. To be clear, you must mathematically demonstrate all figures used, including all workings. 
• You can use a spreadsheet to summarise the information. You can also use a spreadsheet to calculate the information. However, you must ensure that your workings and methodology are clear (i.e. do not cut and paste a spreadsheet without description and methodology). The marker needs to be able to clearly follow 
all of the steps in your calculations. 
• Please work with concepts of Future value, present value, NPV, WACC etc. 

REQUIRED FOR PART TWO 
The CEO is concerned that some staff at may not be able to understand all of the concepts in your report, or key concepts in the Time Value of Money. He has therefore asked you to write a separate “Explanations” section after 
Part One of your report. In this “Explanations” section, briefly answer these 
questions: 
1. What is meant by a “discount rate”? 
2. What are the differences between the payback method, NPV analysis, and management accounting breakeven? 
3. What is the difference between NPV and accounting profit?

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  • Uploaded By : Mia
  • Posted on : April 23rd, 2019
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