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PMGT–510Assignment : 2
The NPV at the WACC (Weighted-Average Cost of Capital) of 10.5% can be used.WACC is the actual cost of capital for Queensland Corp. It takes all form of capitals into consideration,including debt, equity, or preferred capital, and represents the minimum return that a company must earnon an existing asset base to satisfy its creditors, owners, and other providers of capital, or they will investelsewhere. On the other hand, minimum Rate of Return (ROR) only indicates the minimum return can beearned by the corporation.WACC is more comprehensive than RoR, which doesn’t take cost of capital into consideration.Importantly, WACC is dictated by the external market and not by management. With limited budget,Queensland Food Corp should consider cost in an objective way. Therefore, NPV at WACC should beused.
As stated in the case study, Water treatment project is considered as an environmental category. In mostcases, environmental projects that involve the government (in this case the Australian Gov.) wouldrequire a longer time in terms of return on investment. From a basic Financial Analysis, the cost ofWastewater project today is only $400,00 with a potential increase up to $1 million in 4 years. Given thisminimum amount of initial cost and opportunity to have a big impact on the environmental benefits bygetting rid of the pesticides and chemicals, company can make this project as a potential investment topursue. In addition to this approach, we can evaluate with other measures such as 1) the efficiency ratethat the company would gain by the amount saved each year or 2) Environmental Score Index model thatfocuses on the importance value and benefit of the environmental project as I stated above.Projects that would be funded: Project 11, 7 and 8 - (Bundaberg Rum Acquisition, Market Expansion andMarket Expansion South). First, Bundaberg Rum Acquisition would bring a high expected return, andoffers an opportunity for an expansion in a unique market. Market Expansion West and South – West