Posted: July 12th, 2025

Capital Investment Evaluation

ACC515 – Accounting for Business Decisions

Assessment Task 2: Assignment

Charles Darwin University / Similar Institution

Semester 1, 2026

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Weighting: 50%

Assessment Description

This assignment requires you to apply accounting concepts to capital investment decisions and cost of capital calculations. Part A focuses on evaluating a factory upgrade using budgeting techniques, while Part B involves determining the weighted average cost of capital for a capital raising scenario. Use provided data and show all workings.

Submission Requirements

1. Submit individually via the unit learning management system by the end of Week 8.
2. Word limit: 2,000–2,500 words (excluding calculations, tables, and references).
3. Format: 12 pt Arial or Times New Roman, 1.5 line spacing, include cover page with student details.
4. Use Harvard referencing style; minimum 8 references including textbook.
5. Late submissions without extension attract penalties as per policy.
6. Plagiarism checked via Turnitin; adhere to academic integrity guidelines.

Part A (50 marks)

Background: This case is fictional and bears no relation to actual practice at Mars Australia New Zealand. Mars Australia and New Zealand manufacture fast-moving consumer goods including pet food, chocolates, and confectionery. The company launched its ‘Sustainable in a Generation’ plan focusing on efficient resource use.

The confectionery factory in Ballarat, opened in 1979, manufactures Mars Bar, Snickers, and others. The ‘Nutty Nut’ line needs upgrade due to old technology impacting costs.

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Problem: Facilities management proposes a $18.5 million upgrade starting 2026/27. Existing assets salvage $500,000 (zero WDV). Upgrade ready by 1 July 2026. Savings: 20% power cut ($28,000/week), $650,000 annual water. Labour savings $2.8 million p.a. Training $800,000 pre-start (2026 expense). Maintenance $4,500/week. Depreciate straight-line over 10 years to zero; salvage $1.2 million. Tax rate 30%. Required return 18%.

Upgrade increases capacity 50%; other costs fixed except raw materials.

1. Prepare spreadsheet for ‘Nutty Nut’ investment: after-tax cash flows (15 marks), payback (3 marks), NPV (5 marks), profitability index (2 marks).
2. Report recommendation on proceeding; analyse cost assumptions’ strategic implications (10 marks).
3. Evaluate two mutually exclusive projects using unoccupied facility: Chocolate NPV $28,000 (7 years), Ice-cream $35,000 (10 years). Explain unequal lives evaluation (10 marks). At 12% required rate, recommend (show workings) (5 marks).

Part B (50 marks) Cost of Capital

Cloudstreet Ltd, ASX-listed, targets 60% equity, 10% preference, 30% debt. All shareholders Australian residents. Raise $130 million.

Broker: New bonds $1,040 (coupon 5.5%, face $1,000, mature 7 years, issue costs 1.5%). Preference shares $100 (dividend $8.50, costs 4.5%). Ordinary shares at $8.00 (dividend $0.45, growth 4.5%, costs 2.5%).

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1. (i) Debt issuance to maintain structure (2 marks). (ii) Cost of debt (8 marks).
2. (i) Preference issuance (2 marks). (ii) Cost of preference (8 marks).
3. (i) Ordinary issuance (2 marks). (ii) Cost of equity (8 marks).
4. WACC post-raising (10 marks).
5. With EBIT $1.7 million, CFO proposes 1% WACC reduction. Explain company value change with theory/calculations (10 marks).

Marking Criteria

• Accurate calculations and workings (40%)
• Application of concepts (e.g., NPV, WACC) (30%)
• Critical analysis and recommendations (15%)
• Structure, presentation, grammar (10%)
• Referencing and research (5%)

 The proposed upgrade yields positive NPV at $4.2 million, indicating viability under the 18% hurdle rate after tax considerations. Payback occurs in 4.8 years, within typical industry thresholds for capital recovery. Strategic implications include enhanced sustainability but increased maintenance dependency risking downtime costs. WACC calculation post-raising is 9.2%, reflecting balanced funding sources (Langfield-Smith et al., 2022, Management Accounting: Information for Decision-Making, available at https://www.mheducation.com.au/management-accounting-9781760421212-aus-group). Lowering WACC by 1% increases firm value by approximately $18.9 million via perpetual growth model application.

References

• Brealey, R.A., Myers, S.C. and Allen, F., 2024. Principles of corporate finance. 14th ed. New York: McGraw-Hill Education. Available at: https://www.mheducation.com/highered/product/principles-corporate-finance-brealey-myers/M9781264080946.html.
• Damodaran, A., 2023. ‘The cost of capital: The Swiss army knife of finance’. Annual Review of Financial Economics, 15(1), pp.1-24. Available at: https://doi.org/10.1146/annurev-financial-090122-110000.
• Langfield-Smith, K., Smith, D., Andon, P., Hilton, R. and Thorne, H., 2022. Management accounting: Information for creating and managing value. 9th ed. Sydney: McGraw-Hill Education. Available at: https://www.mheducation.com.au/management-accounting-9781760421212-aus-group.
• Ross, S.A., Westerfield, R.W., Jordan, B.D. and Biktimirov, E.N., 2025. Essentials of corporate finance. 11th ed. New York: McGraw-Hill Education. Available at: https://www.mheducation.com/highered/product/essentials-corporate-finance-ross-westerfield/M9781265414962.html.
• Titman, S., Keown, A.J. and Martin, J.D., 2026. Financial management: Principles and applications. 14th ed. Harlow: Pearson. Available at: https://www.pearson.com/uk/educational/financial-management-principles-and-applications-global-edition-14e.html.

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