Financial and Risk Analysis of Construction Project and Computation of NPV for Myer Holding

Project analysis
Construction project analysis
Financial and risk analysis of the project
Name of the Author

Table of Contents
Part-A..........................................................................................................................................................1
Executive Summary.................................................................................................................................1
Project selection......................................................................................................................................1
Cost management-...................................................................................................................................1
Funding...................................................................................................................................................2
Implementation and winding up..............................................................................................................3
Recommendation.....................................................................................................................................3
Part-B..........................................................................................................................................................4
Introduction.................................................................................................................................................4
Answer to question no-1..........................................................................................................................4
Why companies raises equity capital...................................................................................................4
Dropped in Equity capital of Myer Holding..........................................................................................4
Reason of reduction in the overall total equity capital of Myer Holding.............................................5
Answer to question no-2..........................................................................................................................5
Computation of the free cash flow of the undertaken project............................................................5
Computation of NPV in Australian Dollars (AUD)................................................................................7
Canadian dollar depreciates..............................................................................................................10
Changes in NPV due to the changes in Canadian dollar to AUD........................................................13
Effect on the decision making............................................................................................................13
Based on the analysis you did in questions i-iv what would your advice be to the Myer board about
this project? Why?.............................................................................................................................13
Conclusion.................................................................................................................................................13
References.................................................................................................................................................14
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Part-A
Executive Summary
With the ramified economic changes, each and every company wants to expand their
business on international level. It is observed that while selecting the project, every company
needs to analysis the available measures and resources, financial planning and operation
planning which need to be undertaken to implement the selected project. In this report, case
study analysis of the project of construction of the mall in Australia by the Fletcher Building
construction will be selected to determine whether it will be profitable for the company or not.
This report emphasis upon the case study analysis of the project section of construction of
the mall in Australia by the Fletcher Building construction in context with the cost management,
funding requirement and possible winding up situation that may lead to closure of the undertaken
project.
Project selection
With the ramified needs of the expansion of Fletcher Building construction, it needs to
undertake only those projects which has high viability of value creation in the invested amount
and could add value to organization. by using the capital budgeting tool, DU Pont analysis and
long term strategic planning, Fletcher Building construction could assess whether to select
particular project or not. The selection of the construction project is based on possible future
benefits and viability of the invested capital in the construction field. By using the construction
project, Fletcher could easily use its old assets and plants in the construction of the malls in
Australia. It could also easily export some of the imperative material for the constructions work
in Australia from its origin country (Fletcher Building Construction, 2016). However, joint
venture and strategic alliance would made to further expand the business in Australia (Alles,
Kogan, and Vasarhelyi, 2018).
Cost management-
Fletcher Building construction needs to use proper cost management which could be done
by installing the ABC model framework or life cycle costing method. The main role of cost
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management is to avoid the unnecessary expenses and increased the overall return on capital
employed of the project undertaken by company. Fletcher Building construction should use the
proper costing method such as using ABC costing, Life cycle costing method and proper
recording of the data in the books of account are the some of the major tools. This cost
management is the most important tool which put control over the expenses and cash outflow in
the undertaken project. Company had to face the increased business cost due to the less effective
cost management tool. As per the work structure and undertaken project, Fletcher should have
undertaken the ABC costing model. This costing model assist in proper bifurcation of the cost in
the different work department of the organization which eventually reduces the overall costing
(Arens, Elder, and Mark, 2012).
Funding
In order to fund the new construction business, Fletcher Building construction could raise
funds by using the further public offer or debt funding. However, use of debt funding depends
upon the financial leverage of company. In this case, company should raise more funds from the
banks and financial institution by creating charge on its newly undertaken construction project.
Nonetheless, Company could use the below give funding structure to fund its new construction
project (Li, 2015).
Funding % of portion
Equity funding 30%
Debt funding 20%
Private funding or promoters funding 40%
Plugging back the retained earnings in project 10%
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