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    Allegro (ATC) C.A

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    rubakhalid67
    The document provides an assessment of a potential project called Project Allegro for ATC's Board of Directors. Appendix i shows an NPV calculation assessing the project without considering an offer from SIC, resulting in a negative NPV of -$8,935, suggesting the project should not be proceeded with. Appendix ii assesses the project using the Black-Scholes-Merton pricing model after considering SIC's offer, estimating a positive NPV of approximately $8,155, indicating the project should be undertaken. The document also discusses assumptions made in the assessments and possible implications of ATC entering an agreement with Largo Co.

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    Allegro (ATC) C.A

    Uploaded by

    rubakhalid67
    42 views8 pages
    The document provides an assessment of a potential project called Project Allegro for ATC's Board of Directors. Appendix i shows an NPV calculation assessing the project without considering an offer from SIC, resulting in a negative NPV of -$8,935, suggesting the project should not be proceeded with. Appendix ii assesses the project using the Black-Scholes-Merton pricing model after considering SIC's offer, estimating a positive NPV of approximately $8,155, indicating the project should be undertaken. The document also discusses assumptions made in the assessments and possible implications of ATC entering an agreement with Largo Co.

    Original Description:

    ACCA AFM ALLEGRO (ATC) CAPITAL ALLOWANCE WORKING

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    The document provides an assessment of a potential project called Project Allegro for ATC's Board of Directors. Appendix i shows an NPV calculation assessing the project without considering an offer from SIC, resulting in a negative NPV of -$8,935, suggesting the project should not be proceeded with. Appendix ii assesses the project using the Black-Scholes-Merton pricing model after considering SIC's offer, estimating a positive NPV of approximately $8,155, indicating the project should be undertaken. The document also discusses assumptions made in the assessments and possible implications of ATC entering an agreement with Largo Co.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    42 views8 pages

    Allegro (ATC) C.A

    Uploaded by

    rubakhalid67
    The document provides an assessment of a potential project called Project Allegro for ATC's Board of Directors. Appendix i shows an NPV calculation assessing the project without considering an offer from SIC, resulting in a negative NPV of -$8,935, suggesting the project should not be proceeded with. Appendix ii assesses the project using the Black-Scholes-Merton pricing model after considering SIC's offer, estimating a positive NPV of approximately $8,155, indicating the project should be undertaken. The document also discusses assumptions made in the assessments and possible implications of ATC entering an agreement with Largo Co.

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    You are on page 1of 8

    To: Board of Directors

    From: ….
    Date: xx/xx/xxx
    Subject: Project Allegro

    Introducion:
    This report contains an assessment of whether ATC should undertake the project
    before taking SIC's offer into consideration and an assessment of the value of the
    project if ATC takes up SIC's offer into consideration.
    Additonally it contains a discussion of the approach adopted and the assumptions
    made during the assessments.
    Further including the prossible implications of ATC entering into a contractual
    agreement with Largo Co.

    i)
    Appendix (i) shows the assessment of the project before taking SIC's offer into consider
    has been carried out by calculating Net Present Value (NPV)

    ii)
    Appendix (ii) Assessment of the project before taking SIC's offer into consideration
    has been carried out by using BSOP

    iii) DONE IN
    iv) ONENOTE

    Appendix (i)

    Step 1 CA schedule
    Yr C.A Tax Savings 20%
    1 12000 2400
    2 12000 2400
    3 12000 2400
    4 12000 2400
    5~~ 32000 6400

    Step 3 NPV
    $000 $000 $000 $000
    Yr 0 1 2 3
    Invest. -120000
    Selling Price 1 1.08 1.17
    Variable Costs 0.4 0.42 0.44
    Units 7500 20000 50000
    NET 4500 13200 36270
    Training & Dev 3600.00 3360 2205
    Fixed Cost 1500 1575 1654
    Taxable Profit -120000 -600.00 8265 32411
    Tax 20% 1533 6482
    Add. WC (W1) 1500 1410 3672 1726
    WC Recovery
    SV
    T.S CA 2400 2400 2400
    Net CF -121500 390 5460 26603
    12% WACC (W2) 1 0.893 0.792 0.712
    -121500 348 4324 18941

    NPV -8935
    Do not Proceed
    Appendix (ii)

    Step 1
    Pa $m 107893
    Pe $m 113000
    r 3%
    s 30%
    t 2
    𝑒^(−𝑟𝑡) 0.941764

    Step 2

    d1 d2
    0.24 -0.180

    Step 3

    N(d1) N(d2)

    0.24 0.20 -0.180 0.1


    0.04 0.08
    From table 0.0948 From Table -0.0714
    d>0 0.5 d<0 0.5
    0.5948 0.4286

    Step 4
    Call Value
    18563 17090

    NPV after considering offer 8155 approx


    d undertake the project
    ment of the value of the

    pted and the assumptions


    ng into a contractual

    king SIC's offer into consideration

    offer into consideration

    Dep
    120000*10%
    12000

    ~~
    NBV 72000
    SV -40000
    32000

    $000
    4 5

    1.26 1.36
    0.46 0.49 W1
    60000 95000 Selling pricUnits Sales
    47800 83057 1 7500 7500
    2778 4619 1.08 20000 21600
    1736 1823 1.17 50000 58320
    43285 76615 1.26 60000 75583
    8657 15323 1.36 95000 129246
    5366
    13675
    40000
    2400 6400
    31662 121367
    0.636 0.567
    20137 68815
    B
    $156

    W2
    W𝐴𝐶𝐶=[𝐾𝑒∗𝐸/(𝐸+𝐵)]+[𝐾𝐵(1−𝑇)∗𝐵/(𝐸+𝐵)]

    ATC
    E
    52/0.5 = 104* 3.5 =$364

    Ke

    3% + (6% - 3%) * 2.01


    15.06%

    Ungearing

    Ba = 1.5

    Regearing

    Be = 2.01 (Ke solved above)


    WACC
    12%

    WACC 11.90%

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