AoL (Assurance of Learning) Measure
Program :
Undergraduate
Course Name :
[DBA2004] Financial Management
Students Profile :
Undergrads with business major / minor
Academic Year :
Spring 2023
Learning Goal
(UG4) Functional Knowledge in Management
Learning Objective
(UG4-02) Students are able to apply decision-making techniques and
tools appropriately while incorporating concepts from other functional
business areas into the primary area
Evaluation Scheme
In-class Individual Term Project
The Excel skills will be assessed within a simple capital budgeting analysis. The analysis will be
conducted through an individual-term project to help students understand the capital budgeting
concepts. The each project report submitted will be evaluated along with rubrics below.
(1) Students are expected to memorize a capital budgeting process and understand the pros and
cons of each decision criterion used.
(2) Students are expected to utilize Excel skills in capital budgeting decisions.
(3) Students are expected to interpret the outputs of Excel analyses and make a capital budgeting
decision appropriately.
Rubrics: “based on UG4-02”
Criteria
Does
Not
Meet
Expectations
Meets Expectations
Exceeds Expectation
(2 point)
(3 point)
(1 point)
Understands the pro
Does not identify how
Constructs
forma
to
forma
financial
construct
statement
and
forma
identifies
the
statement
a
pro
financial
relevant future cash
the
pro
financial
Constructs a perfect
pro
forma
financial
statement, but cannot
statement
identify the relevant
identifies the relevant
future cash flows
future cash flows from
flows
and
it
Explains the pros and
Does not present the
Presents at least two
Presents all decision
cons of each criterion
criteria used in capital
important
criteria,
(Net Present Value,
budgeting decision
(NPV,
criteria
IRR)
and
understands
the pros and cons of
Internal
Rate
of
Return,
Payback
Period,
Discounted
evaluate the economic
each
criterion
efficiency using them
evaluates
and
economic
efficiency using them
Payback Period, and
Profitability Index)
Uses
Excel
and
Evaluates
the
formulas(add,
presents input data in
economic
efficiency
multiply,
spreadsheet
using Excel formulas,
using Excel functions
Excel functions(NPV,
but does not use Excel
as
IRR)
functions
formulas
subtract),
and
Only
organizes
cell
Evaluate
the
economic
well
efficiency
as
Excel
references (absolute,
relative)
Interprets outputs of
capital
budgeting
Does not calculate the
Calculates
and
Calculates
and
meaningful outputs
interprets
output
interprets
output
cannot
exactly
analysis
and
exactly,
coordinates
the
coordinate
the
conflicting
results
conflicting criteria
but
between criteria used
and
can
coordinate conflicting
results
between
criteria used
Problem: Conch Republic Electronics (RWJ 12th Edition)
Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida.
The company president is Shelly Couts, who inherited the company. When it was founded over
70 years ago, the company originally repaired radios and other household appliances. Over the
years, the company expanded into manufacturing and is now a reputable manufacturer of various
electronic items. Jay MacCanless, a recent MBA graduate, has been hired by the company’s finance
department.
One of the major revenue-producing items manufactured by Conch Republic is a smartphone.
Conch Republic currently has one smartphone model on the market, and sales have been
excellent. The smartphone is a unique item in that it comes in a variety of tropical colors and is
preprogramed to play Jimmy Buffett music. However, as with any electronic item, technology
changes rapidly, and the current smartphone has limited features in comparison with newer
models. Conch Republic spent $750,000 to develop a prototype for a new smartphone hat has
all the features of the existing smartphone but adds new features such as WiFi tethering. The
company has spent a further $200,000 for a marketing study to determine the expected sales
figures for the new smartphone.
Conch Republic can manufacture the new smartphones for $220 each in variable costs. Fixed
costs for the operation are estimated to run $6.4 million per year. The estimated sales volume is
155,000, 165,000, 125,000, 95,000 and 75,000 per year for the next 5 years, respectively. The unit
price of the new smartphone will be $535. The necessary equipment can be purchased for $43.5
million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the
equipment in five years will be $6.5 million.
As previously stated, Conch Republic currently manufactures a smartphone. Production of the
existing model is expected to be terminated in two years. If Conch Republic does not introduce
the new smartphone, sales will be 95,000 units and 65,000 units for the next two years,
respectively. The price of the existing smartphone will fall by 30,000 units per year, and the price
of the existing units will have to be lowered to $212 each. Net working capital for the
smartphones will be 20 percent of sales and will occur with the timing of the cash flows for the
year. For example, there is no initial outlay for NWC, but changes in NWC will first occur in Year
1 with the first year’s sales. Conch Republic has a 21 percent corporate tax rate and a required
return of 12 percent.
Shelly has asked Jay to prepare a report that answers the following questions.
Tasks to Compete : Use Excel to
1.
Prepare pro forma income statements for five years
2.
Prepare pro forma cash flows from assets (relevant cash flows) for five years
3.
Calculate the project’s NPV and IRR (use Excel function)
4.
Calculate the project’s other criteria ((Discounted) Payback period, Profitability Index)
5.
In your spreadsheet, use a textbox and state whether you accept or reject this project
and briefly explain your rationale
References:
Ergen, E., 2012, Capital Budgeting and Investment Decisions: The case of valuating a new investment
in a company, Working Paper.
Etling, C., C. Harrington, and J. Misuraca, 2018, A Process for Assessing Excel skills using a Capital
Budgeting Analysis, Journal of Business Cases
and Applications, pp. 1-8.
Ross, S., R. Westerfield, and B. Jordan, 2011, Fundamentals of Corporate Finance, 12 th Edition.