Financial Analysis of Auscann Group Holdings Limited's Proposed Acquisition of Magic Mushroom Tours

1Strictly Privileged and Confidential
MP 124 CORPORATE FINANCE
AUTUMN 2018
GROUP ASSIGNMENT
1.0 Background
1.1 Auscann Group Holdings Limited is a listed entity on Australian Stock Exchange. The
company is headquartered in Perth. The company is considering diversification by
acquiring Magic Mushroom Tours, a tourism operator stationed at Cairns. Further, the
company is considering acquisition of Reef magic 4. In this regard, a financial analysis
has been undertaken whereby the proposed acquisition prospects have been analyzed
in terms of Net Present Value (NPV) after considering the proposed outflow and
inflow of the proposed expansion. Further, opportunity cost has been taken into
consideration while evaluating the NPV and sunk cost are avoided as they are not
significant in decision making.
1.2 Outflow:
Initial outflow of resources comprise capital expenditure on acquisition of vessel,
increase in working capital and AMSA certificate. The net outflow in Year zero is
AUD 3,921,000/-. Refer Excel Solutions for detailed work.
The certificate cost has been considered initial outflow to be in alignment with Time
Value of Money.
1.3 Inflow in year 1 to 10
The revenue from sales of ticket from year 1 to 10 is major source of revenue.
Reduction in cost has been considered as income. The following elements have been
considered as cost:-
 Opportunity cost of Cairns Reef Fleet Terminal;
 Wages;
 Depreciation on Reef Magic;
 Fixed Operating Expense;
 Fuel Expense;
 Annual Repair and Maintenance;
Further, following factor has not been considered for the purpose on analysis :
 Sunk Cost i.e. report cost;
 Data in Para 6 of the questionnaire (Not a relevant cost);
 Payment of dividend;
 Accounting depreciation as tax depreciation has been considered;
 Account Payables
Further, with respect to para 13, the answer to the enquiry by the Managing director is
no and the food expense is not an opportunity cost.
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