Corporate Finance

EXECUTIVE SUMMARY

Double M Manufacturing Pty Ltd is a manufacturer of confectionary, based in Melbourne. It
has recently merged with a sugar refiner, Bundaberg Sugar (BS).The entities want to invest Both the entities are using investment appraisal   methods   to decide to invest $1.8 million on a new chocolate-coating machine in order to move into the chocolate biscuit market.

The project has been assessed Net Present Value (NPV), Average return on capital (ROC), and Projects Payback. The NPV of the project and Return on Capital (ROC) results were positive, showing that the projects were viable. Thee projects payback was 4 years also indicating that the project was viable. However, when discounted payback was calculated, it was 8.29year, which indicated that the project should not be pursued. Further, the Investment appraisal methods used by the accountants of the two entities have their strengths and weaknesses. And are not totally reliable.
It has been recommended that Double M Manufacturing Pty Ltd and Bundaberg Sugar (BS) shelf or postpone the idea of the investment for the moment and use other Appraisal methods such as discounted payback, Profitability Index (PI), and Internal rate of Return before making any decision on the investment. This decision was made in light of the reliability of the Investment Methods used by the accountants of both the entities taking into consideration their strengths and weaknesses the methods.


TABLES OF CONTENTS

Executive Summary……………………………………………………………………………….i
1.0 Introduction………………………………………………..……………………………...2
2.0 Investment Appraisal Methods …………………………………………………………..3
        2.1 Net Present Value Method ……………………………………………………………….9
      2.2 ROC in line with company practice ……………………………………………………11
      2.3 Project’s payback………………………………………………………………………..

3.0     Investment Decision Advice……………………………………………………………….

4.0     Memo to the chairman-Discounted Payback…………………………………………….

5.0     Company’s... [continues]

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