Coursework Instructions
This is an individual coursework. Submission deadline is Friday, 3rd December, 2010.
Background
Penta Ltd is an English textile caller-up that supplies garments to some of the largest retailers in the European Union. The comp some(prenominal) was founded in 2005 to produce fashionable affordable leisurewear. Despite the difficult conditions in the European Union in the last few years, Penta Ltd managed to secure an average sales recrudesceth of 25%, considerably higher(prenominal) than its planned tar limit of 20%.
Given its significant growth, the companys production capacity is fully utilised, and any future day growth leave alone require significant spare investment. If no investment takes place, the company expects sales and operating costs to grow at 1% per year in real price for the foreseeable future.
Penta Ltd has identified two different investment opportunities, except the Board is undecided on which one to undertake.
Financial Information
The following(a) is a summary of the forecasted 2010s financial statements:
Penta Ltd - Forecast Income debate for Year ended 31/12/10|
| £ zillion|
Sales | 8.00|
little Cost of Sales| 3.84|
Gross operating(a) Profit| 4.16|
Less Administration and Selling Costs| 2.09|
Less Depreciation | 0.
89|
Less Interest paid| 0.48|
Less valuate| 0.21|
Net Profit | 0.49|
Capital employed is currently dissever equally between equity and debt.
The interest paid relates to an actual loan, with an interest pasture of 8% and the principal is due for refund in 2018. It is the intention of the board to fund 50% of the additional investments (excluding working capital) by raising shares and 50% with debt. The additional debt will be raised at the same interest rate (8%) as the existing debt.
The companys current weight average cost of capital (WACC) is 8.60% however, if the company chooses to undertake any of the identified investments, WACC will reduce by .04%.
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