To: Board of Directors

From: ….
Date: xx/xx/xxx
Subject: Project Allegro

Introducion:
This report contains an assessment of whether ATC should undertake the project
before taking SIC's offer into consideration and an assessment of the value of the
project if ATC takes up SIC's offer into consideration.
Additonally it contains a discussion of the approach adopted and the assumptions
made during the assessments.
Further including the prossible implications of ATC entering into a contractual
agreement with Largo Co.

i)
Appendix (i) shows the assessment of the project before taking SIC's offer into consider
has been carried out by calculating Net Present Value (NPV)

ii)
Appendix (ii) Assessment of the project before taking SIC's offer into consideration
has been carried out by using BSOP

iii) DONE IN
iv) ONENOTE

Appendix (i)

Step 1 CA schedule
Yr C.A Tax Savings 20%
1 12000 2400
2 12000 2400
3 12000 2400
4 12000 2400
5~~ 32000 6400

Step 3 NPV
$000 $000 $000 $000
Yr 0 1 2 3
Invest. -120000
Selling Price 1 1.08 1.17
Variable Costs 0.4 0.42 0.44
Units 7500 20000 50000
NET 4500 13200 36270
Training & Dev 3600.00 3360 2205
Fixed Cost 1500 1575 1654
Taxable Profit -120000 -600.00 8265 32411
Tax 20% 1533 6482
Add. WC (W1) 1500 1410 3672 1726
WC Recovery
SV
T.S CA 2400 2400 2400
Net CF -121500 390 5460 26603
12% WACC (W2) 1 0.893 0.792 0.712
-121500 348 4324 18941

NPV -8935
Do not Proceed
 Appendix (ii)

Step 1
Pa $m 107893
Pe $m 113000
r 3%
s 30%
t 2
𝑒^(−𝑟𝑡) 0.941764

Step 2

d1 d2
0.24 -0.180

Step 3

N(d1) N(d2)

0.24 0.20 -0.180 0.1

0.04 0.08
From table 0.0948 From Table -0.0714
d>0 0.5 d<0 0.5
0.5948 0.4286

Step 4
Call Value
18563 17090

NPV after considering offer 8155 approx

d undertake the project
ment of the value of the

pted and the assumptions

ng into a contractual

king SIC's offer into consideration

offer into consideration

Dep
120000*10%
12000

~~
NBV 72000
SV -40000
32000

$000
4 5

1.26 1.36
0.46 0.49 W1
60000 95000 Selling pricUnits Sales
47800 83057 1 7500 7500
2778 4619 1.08 20000 21600
1736 1823 1.17 50000 58320
43285 76615 1.26 60000 75583
8657 15323 1.36 95000 129246
5366
13675
40000
2400 6400
31662 121367
0.636 0.567
20137 68815
 B
$156

W2
W𝐴𝐶𝐶=[𝐾𝑒∗𝐸/(𝐸+𝐵)]+[𝐾𝐵(1−𝑇)∗𝐵/(𝐸+𝐵)]

ATC
E
52/0.5 = 104* 3.5 =$364

Ke

3% + (6% - 3%) * 2.01

15.06%

Ungearing

Ba = 1.5

Regearing

Be = 2.01 (Ke solved above)

WACC
12%

WACC 11.90%