Requirement: The management information that would be required to assist them in making such a decision The means by which the decision should be appraised The sources of funding that may be available to the company Any other considerations and recommendations that you might make to the directors to assist in this decision
Requirement: The management information that would be required to assist them in making such a decision The means by which the decision should be appraised The sources of funding that may be available to the company Any other considerations and recommendations that you might make to the directors to assist in this decision
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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I need some pointers for each bullet
Transcribed Image Text:### Case Study: Decision-Making for Investment Projects in a Theme Park
#### Scenario:
The Leisure Park Limited, a theme park offering rollercoasters and various attractions, is currently highly geared and is considering two mutually exclusive projects. Each project requires an investment of £750,000.
- **Project A**: Introduction of a new high-speed vertical drop rollercoaster.
- **Project B**: Introduction of a 4D cinema.
#### Requirement:
1. **Management Information Required:**
- **Financial Data**: Expected revenue, operating costs, and profit projections for both Project A and Project B.
- **Market Research**: Customer demand forecasts and market trends for rollercoasters and 4D cinemas.
- **Operational Data**: Facility requirements, maintenance costs, and expected lifespan of the investments.
- **Risk Assessment**: Potential risks associated with each project including safety, financial, and operational risks.
- **Competitive Analysis**: Evaluation of similar attractions offered by competitors and their performance.
- **Customer Experience Metrics**: Predicted customer satisfaction and repeat visitation rates.
2. **Decision Appraisal Means:**
- **Net Present Value (NPV)**: Calculating the present value of future cash flows generated by each project minus the initial investment.
- **Internal Rate of Return (IRR)**: Determining the discount rate that makes the net present value of the cash flows from a project equal to zero.
- **Payback Period**: Measuring the time required to recoup the initial investment from the cash inflows generated by the project.
- **Profitability Index (PI)**: Ratio of the present value of future cash flows to the initial investment.
- **Scenario Analysis**: Assessing the effects of different scenarios such as best case, worst case, and most likely case on the projects' outcomes.
3. **Sources of Funding:**
- **Equity Financing**: Issuing new shares to raise capital.
- **Debt Financing**: Obtaining loans or issuing bonds.
- **Internal Financing**: Using retained earnings or reserves.
- **Grants and Subsidies**: Seeking government or private grants.
- **Joint Ventures**: Partnering with another company to share the investment cost and risk.
4. **Additional Considerations and Recommendations:**
- **Strategic Fit**: Alignment of each project with the overall strategic goals and vision of the company.
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