Inancial feasibility analysis for launching Christmas Star: A product by Noel Plc

Case: Noel PLC

Noel PLC is a medium sized corporate based in Aberdeen, Scotland. It is a specialist manufacturer of offshore drilling components. It sells a range of seabed survey components to a wide spectrum of national and multi-national oil service companies based in the UK and the North Sea periphery states.

It is considering the manufacture of a new advanced technology underwater camera  the  Christmas Star . The  Christmas Star is aimed at a market segment which the company has identified as being poorly served currently. It is anticipated that the  Christmas Star will have will have a market life of up to 5 years. The marketing director is confident that this product will be attractive to the existing customer base and also generate new business in what is more generally, a highly competitive market place.

To progress the manufacture and sale, the company estimate that an initial machinery and equipment investment of some ?2,000,000 will be required. The company has available resources to fund this level of investment.
Current accounting policy is to depreciate such investments over their estimated useful lives, in equal annual instalments.
In addition Noel anticipate that an initial increase in working capital investment of some ?150,000 will be required to meet, in particular extended credit terms to attract new customers.

Currently, Noel PLC use their weighted average cost of capital, uplifted by a further 2%  risk premium to generate a discount factor  hurdle rate for application in NPV capital investment appraisal calculations. Christmas Star is, however, a new type of business venture for the company.


Relevant financial data: please see the uploaded file CW instruction for finance for managers”.

Required:

Prepare a report for the senior managers of Noel PLC which recommends whether or not to proceed with the production and sale of Christmas Star

Your report should include, but need not be limited to:


” A recommendation on whether or not to proceed with the required investment to enter the market supported by appropriate financial analysis.

” An evaluation of the theoretical basis of the financial techniques you have used.

” An assessment of any wider business issues which may impact the decision.

A detailed assessment grid is included as part of the assignment materials. You should take due account of this and in particular the weightings for each element, in structuring and presenting your report.

Your report should not exceed 2,500 words (this word count excludes the title page, contents page, executive summary, conclusions and relevant appendices). The assignment is to be written in the format of a Management Report and must address all of the following:

Title page
Table of Contents
Executive Summary
Body (subdevided)
Conclusion and Recommendations
References
Appendices

Other than in deriving an appropriate discount factor you may ignore the impact of taxation in your calculations.


Before submitting the work, you should check through it to ensure that:
” all material that has been identified as originally from a previously published source has been properly attributed by the inclusion of an appropriate reference in the text;
” direct quotations are marked as such (using  quotation marks at the beginning and end of the selected text), and
” a citation has been included in the list of references.