Appraising The Long Term Plan
Snail plc has recently completed a $400,000, 2 year-marketing study. Based on the results, Snails had estimated that 10,000 of its new cold rooms could be sold annually over the next 8 years at a price of $9,615 each. Subcontractors would install the cold rooms at a cost per installation of $7,400. Fixed costs to be incurred would be $12 million per year.
Start up costs include $40 million to build production facilities and $2.4 million in land. The $40 million facility will be depreciated using the straight line method to zero over the project life. At the end of the project's life, the facilities (including the land) will be sold for an estimated $8.4 million. The value of the land is not expected to change.
Finally, start-up would also entail fully deductible expenses of $1.4 million at year zero. Snails is an ongoing, profitable business and pay taxes at a 30% rate in the year of income on all income and gains. Snails uses a 10% discount rate on projects such as this one.
Based on the above scenario, you are required to :
a) calculate the Initial Project Cost. (4 marks)
b) calculate the annual after tax cash flows (year 1-8) ( 8 marks)
c) calculate the terminal cash flow at the end of the project life (3 marks)
d) determined the project NPV at 10% discount rate (4 marks)
e) on the ground of NPV, should Snails produce the cold rooms? And why?
(1 marks)
Regaining McDonald's Competitve Advantages case study
1) How would characterize the business model of McDonald's? How does this differ from the business model at many other fast food restaurants?
2) Identify and discuss the resources, capabilities and distinctive competencies of McDonald's?
3) Evaluate how McDonald's resources, capabilities and distinctive competencies translate into superior financial performance.
4) In you opinion, how secure is McDonald's competitive advantage. What are the barriers to imitation here?
