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Assignment $2$: Case Study $-$ Canada Hardware $(15\%)$

It is January $1,2023.$ You are a Senior Analyst at Canada Hardware Inc. $($CHI$),$ one of the top hardware, sports, and apparel providers in Canada with hundreds of stores across Canada. The CEO of Canada Hardware, Tony Stark, has reached out to you to draft a report to evaluate two investment proposals, building on your analysis from Assignment $1.$

Purpose

For this case approach, you will demonstrate your ability to develop costing methods and a set of forecasts of future cash flows for two proposed investment projects. You will also be required to identify the cost of financing through the issuance of bonds.

How to Proceed

Building on your analysis and proposal from Assignment $1,$ develop your investment proposal business case draft:

Create a title page with the project proposal names and author identification.

Calculate the bond yield to utilize as your required return.

Prepare a summary narrative $($i$.$e$.,$ a detailed description$)$ of each proposal with detailed elements on the initial investment as well as the costs$/$revenues over the life of each of the projects. Identify which revenues and costs are relevant to your analysis, and which costs are irrelevant. Identify the time horizon for each investment.

Calculate the after$-$tax cash flows during the life of each of the projects. Be sure to identify the total costs of ownership and deduct those costs from the benefits to arrive at the net cash inflow per year.

Utilizing the after$-$tax cash flows from Part $4,$ evaluate each investment proposal utilizing the following criteria $($unless directed otherwise$)$:

changes in payments from beginning of period to end;

Payback;

Discounted payback;

NPV;

Profitability index.

Clearly indicate whether any of the above criteria support each of the project proposals, and what the company should ultimately decide to do$.$

Format for Submission

Your report narratives may be done in Word or Excel, but calculations and tables of values must be prepared in Excel with the amounts derived from actual formulas that use your variables, rounded to four $(4)$ decimals or lower.

The Excel tab worksheet must be print and presentation ready, formatted to print in $2$ to $3$ pages without page fragmentation of equations or tables between pages.

It is permissible to break your report down using the questions listed above as headings.

Submit your report file$($s$)$ into the Assignment $2$: Case Study dropbox on UM Learn.

Your assignment must be submitted by the deadline date found in the course schedule provided in the Course Outline.

Grading

You will be assessed in accordance with the following rubric:

Q$1$ Title Page, Readability, Format, Spelling and Grammar Marks Student

Title Page, Readability, Format, Spelling & Grammar $12$

Q$2$ Bond Yield Marks Student

Bond Yield $2$

Attempt to use weighted average of debt $2$

Q$3$ Summary Narrative Marks Student

Description of Investment $14$

Description of Investment $24$

Time horizons identified $4$

Irrelevant and relevant costs identified $4$

Q$4$ After$-$tax Cash Flows Marks Student

Investment $1$: Manufacturing & Distribution

Initial Investment Calculation $4$

Investment horizon utilized $2$

Reasonable inclusion of inflation $2$

Incremental Revenue Considered $4$

Direct Labour and Materials considered $2$

Transportation costs considered $2$

Insurance considered $2$

Supervisor Salary considered $2$

Other overhead costs considered $2$

After$-$tax cash flows $($ATCF$)$ calculated $4$

Attempt at Tax Shield $2$

Investment $2$: Restaurant Conversion

Initial Investment Calculation $2$

Attempt at Tax Shield $2$

Opportunity cost of lost cash flow included $4$

Q$5$ Investment Criteria Calculated Marks Student

Investment $1$: Manufacturing & Distribution

Payback Period $2$

Discounted Payback Period $2$

Net Present Value $6$

Internal Rate of Return $2$

Profitability Index $2$

Investment $2$: Restaurant Conversion

Net Present Value $4$

Profitability Index $2$

Q$6$ Evaluation of Two Investment Proposals Marks Student

Investment $1$ Recommendation $6$

Investment $2$ Recommendation $6$

Total $1000$

Canada Hardware Case Study

Investment Proposals

Tony Stark, CEO of CHI, wants you to evaluate two investment proposals that the company is considering:

An investment in manufacturing and distribution that involves the expansion of a facility and purchase of additional delivery trucks; and

The development of restaurants into several of its existing stores.

Mr$.$ Stark reminds you that only relevant costs and revenues should be considered. $$Relevant costs have to be occurring in the future,$$ explained Mr$.$ Stark. $$And have to differ from the status quo. For example, if we choose to expand our facilities, it is only the incremental revenue and costs related to the expansion that should be considered. We also need to take into account the opportunity cost associated with the alternatives. For example, for the restaurant conversion,

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