FBF_25300_assignment (1)

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University of Technology Sydney *

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23500

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Finance

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Apr 3, 2024

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UTS CRICOS 00099F FUNDAMENTALS OF BUSINESS FINANCE ASSIGNMENT QUANTUM GRAPHITE LIMITED “THE GIGA FLAKE FACTORY”

Assignment Instructions Page 1 Please read the following information carefully: 1) Due date and time: 9pm on Monday, 8 May 2023. 2) Weight: 20% of total subject mark. 3) Teams: • You can have an assignment team of: • 1 student, which means you do the assignment by yourself. OR • 2 to 6 students, which means you do the assignment in a team of students. • Teams may consist of members from different workshops or tutorials. • We encourage you to form teams consisting of 2 to 6 students as you will develop skills that are important to your professional life, and your assignment submission is likely to be stronger as it considers input from different students in your team. • All team members receive the same assignment mark. Teaching staff are unable to award team members different marks in the event a team has a ‘free-rider’. Therefore, you should give considerable thought into selecting team members. In the event of a conflict within the group, it is your group’s responsibility to resolve the issue respectfully and maturely. In severe situations please contact the subject coordinator. For more information on working in groups: https://www.uts.edu.au/current-students/support/helps/self-help-resources/group-work

Assignment Instructions 4) Preformatted blank excel spreadsheet: • You must record your answers in the provided blank excel spreadsheet (available on Canvas). This spreadsheet is protected which means that only a restricted number of cells can be used. All of your inputs into the spreadsheet should be using Arial font and size 8 text, this ensures that your inputs are not converted to ######. Your answers will be converted to ###### if your cash flow/value is greater than 99,999,999,999 (Hint: none of your cash flows/values for Q1-3 in your solution should be that large). The cells you cannot use are coloured grey. This preformatted spreadsheet is designed in such a way to speed up the marking process. • For Q1 to 3 enter the cash flow description and the dollar amount in the appropriate cells. Use whole dollars only and ignore cents . We want to be able to easily identify each cash flow. We provide many empty rows – this does not mean you must use all rows. • Q4, Q5, Q6, and Q7 can be answered using the vacant cells provided . Please be brief and precise when answering these questions. • The student number and name of all group members must be entered into the relevant section of the spreadsheet . You must also nominate one team member as the team leader and supply their tutorial details in the corresponding fields of the spreadsheet. • In your solution please do not simply type your answer into the spreadsheet. Where appropriate, you must use Excel functions/formulas within the spreadsheet, this way we can work out what calculations you have done (and provide marks to you). If we cannot understand how you got your answers you increase your chances of losing marks. Page 2

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Assignment Instructions 5) Submission: • You must save your spreadsheet file with its original “.xlsx” extension. Do not save the spreadsheet in any other format other than “.xlsx” as we are unable to open non-EXCEL file extensions from Canvas. Users of Apple’s Numbers spreadsheet or other programs, you have been warned. • You must submit your assignment in Canvas via the “Assignments” navigation tab, and within the “Assignment Information” page. Only one person from the team should submit the assignment (i.e., the team leader). You can submit multiple times but we mark the most recent submission only. Only .xlsx file extensions can be submitted. When submitting your assignment please do the following: • 1) Click the “Choose file” button to upload your completed EXCEL spreadsheet. • 2) In the “Comments…” section please type the student names and student numbers of all members in your assignment team. • 3) Click the blue “Submit Assignment” button to submit your assignment. Page 3

Assignment Instructions 6) Assignment queries: • We will not answer queries about the assignment in person or by email (email is acceptable for only questions of personal/private nature). • Assignment queries belong on Canvas in the “Ask all Assignment Questions here” Discussion page because everyone benefits from your question and answer (whether the answer is given by us or another student). Please refer to the paragraph number or question number in the assignment details below when asking a query on Canvas. Do not ask for solutions, only ask for clarifications. • Please read the existing posts on the “Discussions” page before posting your query as it is likely to have been answered already (especially when we approach the submission date). • Check the “Discussions” page on Canvas as we will clarify any perceived ambiguities in the assignment questions. It is not a sufficient excuse to ex-post make a complaint about the assignment because you have not been pro-active in seeking clarification via the “Discussions” page on Canvas. Of course we greatly encourage your queries! Page 4

Assignment Instructions 7) Extensions and late assessment protocol: • Assignments submitted after the due date and time, will be either: • Penalised by way of loss of marks where 10 per cent (10%) of the marks for the assessment task will be deducted per calendar day for assessment tasks submitted after the due date . A day is defined as a 24-hour period or part thereof following the published due date and time of the assignment, or • Rejected and not marked (i.e., awarded a zero mark) if the assessment is submitted more than 5 calendar days after the stated submission date. For example, the assignment is due on 8 May at 9pm. A submission: • on 9 May at 8pm receives 10% penalty, • on 9 May at 10pm receives 20% penalty, • on 14 May at 8pm receives 50% penalty, • after 9pm on 14 May will be rejected and receives zero marks. • The maximum penalty that can be applied is 50% of the assessment marks. Students cannot receive a negative score for the assessment task after a penalty is levied. • For questions, please contact the subject coordinator at least 48 hours prior to the assignment’s due date and time. Page 5

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Assignment Instructions 8) Statement on plagiarism: • We refer you to the subject outline to make sure you are familiar with UTS’ statement on plagiarism. In a nutshell, do not copy another team’s solutions and do not share your assignment with another group or websites. • Please note that when you submit the assignment you are declaring that your assignment submission is plagiarism-free. Please note that even if one member of the team demonstrates plagiarism (without the knowledge of the other team members), this will lead to problems for all team members. You do not want to be responsible for causing issues to your team members. Also, your work must be your own and not that of others. • In previous semesters, students have been caught for plagiarism. All of these students did not think they would be caught and they seriously regret their actions. The students from all of the teams (guilty and non-guilty) are awaiting their results which is affecting their ability to enrol in subsequent subjects. Some examples of penalties for plagiarism include: sanctions from UTS, having to redo the subject, and fees incurred to retake the subject. UTS (not the FBF Team) manages these processes, you have been warned. Do no cheat. 9) Disclaimer: • The content and information discussed in this assignment is for educational purposes only. It should not be taken as constituting professional financial or investment advice. You should always consider seeking independent legal, financial, taxation or other advice from a suitably qualified professional, which takes into account your unique objectives and circumstances, before making any decisions relating to your finances. UTS is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided in this subject. Teaching materials and resources provided to you at UTS are protected by copyright. Page 6

Assignment Instructions All answers must be entered into the preformatted EXCEL spreadsheet available on Canvas . Questions 1 to 4 require using information from the capital budgeting case for the proposed “Giga Flake factory” (see pages 8 and 9 of this assignment). Questions 5, 6 and 7 must be answered in the relevant cells in Excel sheet. Case Questions 1-4 (17 marks) Present an itemised breakdown (and the total) for each of the following: 1. The cash flows at the start ( use formulas in the relevant cells so we can see what you calculated ). 2. The cash flows over the life ( use formulas in the relevant cells so we can see what you calculated ). 3. The cash flows at the end ( use formulas in the relevant cells so we can see what you ca lculated). 4. What is the NPV of the proposed Giga Flake factory, and your recommendation? ( use formulas in the relevant cells ) Additional Questions 5-7 (3 marks) 5. Equity analysts forecast that QGL will pay its first dividend of 10 cents per share in the year 2027 with a dividend growth of 5% p.a. thereafter. What is a fair price for an QGL share in 2024? Your Excel result field must contain the formula for your calculation (only providing a number will not give any marks). For example: “=6-3+(7*((1.25)^4))”. 6. Some investors prefer receiving dividends, some do not. Provide one argument why investors do not want to receive dividends. 7. Assume climate change can negatively influence QGL. One important question is how this risk can be accounted for in capital budgeting. Describe one change to one assumption presented in the case that could be implemented in the capital budgeting model. If your suggestion is implemented, would the NPV increase or decrease? Why? Page 7

Assignment Case Information “Giga Flake factory” (1 of 2) 1. Quantum Graphite Limited (hereafter known as “QGL”) is company that was listed on the Australian Securities Exchange (ASX). On 23 March 2023 the company had a market capitalization of $176.92 million. Quantum Graphite Limited explores, mines, processes, manufactures, and sells flake graphite and related products in Australia and internationally. 2. On 23 March 2023, the company made an ASX Announcement about its “successful completion of initial thermal purification treatment” which is part of the company’s plan to mass produce “Uley graphite flakes” which are intended to be used as anode material in Li-ion batteries. 3. QGL directors expect a strong future demand in Li-ion batteries. Based on the “successful completion of initial thermal purification treatment” in March 2023, QGL asks you to assess the potential construction of a “Giga Flake factory” to produce “Uley graphite flakes”. 4. In January 2023, QGL commissioned a market study on consumers' positive views on general electrification trends of transportation means, e.g., cars, trucks, ships, or planes. The study cost $250,000. There is debate amongst QGL managers whether this tax- deductible expense should be included in the financial analysis of the Giga Flake factory as a cash outflow in the year 2023 to ensure it is not wasted. The Australian Taxation Office (ATO) has confirmed that business expenses are tax deductible in the same year that the expense is incurred. 5. The factory has a ten-year useful life and is expected to incur capital costs of $1,500,000. To build the factory, QGL plans to borrow $1,000,000 today and to use $500,000 cash to fund the Giga Flake factory. QGL’s accountant confirms that interest payments are classified as a business expense and are therefore tax deductible. QGL’s bank has offered a $1,000,000 ten-year interest- only loan at 8.9%. 6. QGL owns that land which can be used for the new Giga Flake factory. The land is currently leased to a construction company for $50,000. If the Giga Flake factory is not built, QGL will continue the lease agreement. 7. The factory requires to purchase and install plant and equipment at a cost of $380,000 dollars. Most of the equipment will be purchased from other states and requires transportation to the new factory building at a cost of $31,000. 8. If the factory project goes ahead, QGL will engage a patent lawyer at a cost of $40,000 to protect the technology employed to produce the Uley graphite flakes. 9. QGL plans on building the Giga Flake factory in 2023. The first year of cash flow will be in 2024. In 2024, cash sales of Uley graphite flakes are expected to be 1,100,000 and management forecasts that a sales growth rate of 6% p.a. Page 8

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Assignment Case Information “Giga Flake factory” (2 of 2) 10. Annual variable cash costs (excluding staff training) at the new factory are expected to be 26% of each year’s cash sales. Annual fixed operating costs are forecast to be $220,000 in 2024 and are expected to increase at a rate of 5% p.a. 11. QGL’s annual head office costs $211,000 p.a., regardless of the Giga Flake factory plan. For cost accounting purposes, QGL accountants allocate overhead costs across each business unit and projects. If the new Giga Factory goes ahead, it will be allocated $47,000 of head office costs. 12. Because of the novelty of the technology, all production staff in the new Giga Flake factory must receive training at a cost of $140,000 in the first year of operation. Due to staff turnover, it is assumed that this training will be repeated every two years after that for new staff at a cost of $50,000. The QGL accounting department does not classify training as a part of annual operating costs. 13. The Australian Taxation Office (ATO) has confirmed to QGL that for tax purposes the Giga Flake factory has a twenty-five-year life and the plant and equipment (P&E) assets have an eight-year tax life. While QGL expects that P&E assets can be operated effectively for ten years before requiring replacement, QGL’s management accountant depreciates P&E assets over an operational five-year life. 14. In 2022, QGL’s total marketing expense for 2023 and 2024 were already budgeted at $45,000. To promote the new Uley graphite flakes product, QGL will approve a further $235,000 of marketing in 2023 only. QGL managers are worried about the impact of this high marketing expense on the 2023 income and they have suggested that the company’s entire 2023 marketing expense should be expensed over the new factory’s ten-year useful life. 15. The repairs and maintenance expense associated with the Giga Flake factory are estimated at $100,000 for the first five years. After that, QGL expects this amount to double for the rest of the factory’s ten- year useful life. 16. QGL will implement a private placement in 2028 to raise an additional $1 million in cash. These funds will be used to develop new technologies outside of the Uley graphite flake technology. 17. QGL assumes that the Giga Flake factory building can be sold for $700,000 in the year 2033. At that time (i.e., in 2033), the resale value of the plant and equipment is $100,000. 18. The salary of QGL’s Chief Executive Officer $470,000 in 2023 and is not expected to change whether the new Giga Flake factory is approved by the QGL’s Board of Directors or not. 19. If the Board approves the new flake Giga Flake factory, QGL anticipates that it will require inventory to increase to $321,000 today compared with the existing amount of $45,000. In addition, Accounts Payable is expected to increase by $155,000 to $198,000. Further, the Accounts Receivable balance will increase from the current level of $15,000 to $435,000. 20. QGL has a required rate of return of 15%. Assume the company tax rate will remain at 30%. Page 9