MBA643: Project Risk, Finance, Monitoring, and Myer's Financials

This report provides a comprehensive analysis of project risk, finance, and monitoring, focusing on key aspects such as project selection, cost management, funding, and implementation strategies. It evaluates investment appraisal techniques like Net Present Value (NPV) and their role in maximizing returns from investment. The report includes a financial analysis of Myer, examining its current market position and the reasons for its declining market value. A relevant project for Myer is assessed, with calculations of free cash flow and NPV to determine its potential profitability. The impact of currency depreciation on the project's NPV is also considered, culminating in recommendations for the Myer board regarding the project's viability. Desklib offers similar solved assignments and resources for students.

Running head: PROJECT RISK, FINANCE & MONITORING
Project Risk, Finance & Monitoring
Name of the Student:
Name of the University:
Authors Note:

PROJECT RISK, FINANCE & MONITORING
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Executive Summary:
The overall assessment mainly focuses on explaining different level of project selection, cost
management, funding and implementation and winding up. These explanations would
eventually allow organisation to maximise the level of return from investment. The
assessment also aims in evaluating the current financial position of Myer and detecting why
its current market value is declining. The relevant project for Myer is evaluated, which could
help in generating high level of return form investments. Adequate net present value is used
in understanding the level of return from investment, which will be conducted by Myer.

PROJECT RISK, FINANCE & MONITORING
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Table of Contents
Part A:........................................................................................................................................3
Part B:.........................................................................................................................................6
a) Depicting whether Myer currently have equity capital on issue, while discussing why
companies raise equity capital and stating why Myer’s equity capital dropped so much in
2018:...........................................................................................................................................6
b.i) Calculating the free cash flow in the Australian dollar to the project:................................6
b.ii) Calculating the NPV in Australian Dollar for the project assuming the cost of capital of
5%:.............................................................................................................................................8
b.iii) Depicting the change in NPV value if the Canadian dollar depreciates against AUD:....8
b.iv) Providing relevant recommendation to Myer board regarding the project:......................9
Reference and Bibliography:....................................................................................................10

PROJECT RISK, FINANCE & MONITORING
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Part A:
Project Selection:
The project selection process is an adequate measure, where the organisation needs to
accommodate adequate measure and techniques for understanding the relevant returns from
investment, which could be generated from projects. The use of investment appraisal
techniques could eventually help in understanding the level of returns, which could be
negated from a particular project. Investment appraisal techniques such as Net Present Value,
Internal Rate of Return, Payback Period and Profitability Index can be used in understating
the finial viability of a particular project. These measures also help in evaluating different
projects and understand their capability to maximise their profitability and minimise risk
from investment. In this context, Baum and Crosby (2014) stated that with the help of
investment appraisal techniques companies are able to pick the most profitable project, which
could generate high rate of return from investment. On the other hand, Li and Trutnevyte
(2017) criticises that investment appraisal techniques mainly loses its fiction if the
assumptions made for the analysis is not adequate, which would directly nullify the results
obtained for the projects. Therefore, with accurate assumptions, discounting rate, and cash
flow projections companies can use the investment appraisal techniques for identifying
financial viability of the project. Rio Tinto before accepting a particle project mainly use
different level of investment appraisal techniques for selecting the project.
Cost Management:
Cost management is an effective measure from which business are able to minimise
the total expenditure and maximise their profitability. The measure also helps in
understanding the level of expenses, which could be conducted for minimising any kind of

PROJECT RISK, FINANCE & MONITORING
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risk from investment. The major role of project cost management is to conduct certain
activities such as resource planning, cost estimating, budgeting, and cost control. The
different roles conducted by cost management might help in minimising the cash outflow and
maximise the level of returns from investment. On the other hand, Higham, Fortune. and
Boothman (2016) criticise that the different level of cost management could minimise the
overall expense of essential operations, which might hamper profitability of the organisation.
The major significance of cost management is that it helps in minimising the overall expenses
that could incur from operations of the organisation. The relevant strategies such as budgeting
could be conducted by the organisation for minimising the excessive expenses and maximise
its profitability from operations. The different segments of budgeting system could be used
by the organisation for managing the project cost and maximising profitability from
operations. Alkaraan (2017) mentioned that with the use cost cutting measures organisations
are mainly able to save essential resource and capital expenditure on activities, while
maximining the relevant income from investment. Companies operating in auto
manufacturing industry directly uses different level of cost management schemes for
minimise the production cost and maximising their profitability.
Funding:
There is different level of funding measures, which is used by the organisation for
fund their new project and minimise the return form investment. Both internal and external
source of finance could be used by the organisation for funding the projects, which could help
in improving the level of returns from investment. In addition, the internal source of funding
could be identified, as retained earnings, and capital from family, which could help in
financing new projects. In this context, Lefley (2018) stated that identification of adequate
funding source is essential, as the organisation could acquire the required level of return from
investment. The major external source of financing are bank loans, mortgage, and share issue

PROJECT RISK, FINANCE & MONITORING
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can be used by the organisation for funding the project, which could maximise their
profitability. The different type of funding that is enlisted in the above measure mainly helps
in understanding different level of funding measures, which is used by organisation for
generating high level of returns from investment. Companies mainly use bank overdraft and
loan process for supporting operation of the new project, which could help in generating high
rate of return from investment.
Implementation and winding up:
The new projects could have certain risk involve in investment such as technical, cost,
schedule, client, contractual, weather, financial, political, environmental, and people. These
are some of the risk involved in the implementation of a new project, which could incur in
future. Moreover, any kind of changes in the current operation of the organisation would
directly have an impact on the implementation stage. Therefore, from the evaluation it could
be identified that without conducting adequate risk mitigation method the organisation would
minimising the negative impact on implementation of the project. Kolawole (2016)
mentioned that companies by identifying the risk are able to minimise the risk involved in
investment, which could generate high level of returns from investment. The project mainly
wounds up when the anticipated returns that is provided from investment is not projected to
the company. The project is not ended abruptly, as the organisation evaluates resources and
infrastructure of the project, which could help in understanding the level of changes required
to achieve the targeted returns. Companies operating in Auto Manufacturing Operation
directly utilises the implementation and winding up method for analysing the current
operations of the company, which could help in generating high level of return from
investment.

PROJECT RISK, FINANCE & MONITORING
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Part B:
a) Depicting whether Myer currently have equity capital on issue, while discussing why
companies raise equity capital and stating why Myer’s equity capital dropped so much
in 2018:
After the evaluation of the overall source, it could be identified that Myer currently
does not have any kind of capital issue, as the company’s shares are all time low, which is
affecting its market capitalisation. The company is facing low financial performance, which
is directly affecting its capability to support profits from operations. Majority of the company
raise equity capital to support their operations and expand their business. With the help of
equity capital companies are mainly able to maximise their productivity and expand their
current operations.
The evaluation on operation of Myer mainly helped in detecting the company
operational capability, which is directly affecting its share price and market capitalisation.
Due to intensive competition the company’s operations mainly declined in Australia, which is
why the market capitalisation of the organisation feel from 2.4 billion in 2009 to 400 million
in the current era. The evaluation of source mainly indicated that the company is facing
challenging retail environment, where heavy discount, reduced customer foot traffic and
online shopping is affecting profits of the company. The company’s declining profits is the
main reason behind the decline in its equity capital, where the share price of the company fell
from $4.10 in 2009 to $0.54 in 2018.
b.i) Calculating the free cash flow in the Australian dollar to the project:
Year 0 1 2 3 4 5
Incremental revenue CAD CAD CAD CAD CAD

PROJECT RISK, FINANCE & MONITORING
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5,500,000 5,610,000 5,722,200 5,836,644 5,953,377
Cost CAD
2,200,000
CAD
2,244,000
CAD
2,288,880
CAD
2,334,658
CAD
2,381,351
Depreciation CAD
500,000
CAD
500,000
CAD
500,000
CAD
500,000
CAD
500,000
Salvage value CAD
7,500,000
Profit from store sale CAD
1,500,000
PBT CAD
2,800,000
CAD
2,866,000
CAD
2,933,320
CAD
3,001,986
CAD
12,072,026
Tax CAD
1,120,000
CAD
1,146,400
CAD
1,173,328
CAD
1,200,795
CAD
4,828,810
PAT CAD
1,680,000
CAD
1,719,600
CAD
1,759,992
CAD
1,801,192
CAD
7,243,216
Depreciation CAD
500,000
CAD
500,000
CAD
500,000
CAD
500,000
CAD
500,000
Working capital CAD
(2,000,000)
CAD
2,000,000
Initail Investment CAD
(10,000,000
)
Cash Flow in
Canadian Dollar
CAD
(12,000,000
)
CAD
2,180,000
CAD
2,219,600
CAD
2,259,992
CAD
2,301,192
CAD
9,743,216

PROJECT RISK, FINANCE & MONITORING
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Cash Flow in
Australian Dollar ($1
AUD will buy $1
Canadian dollars)
AUD
(12,000,000
)
AUD
2,180,000
AUD
2,219,600
AUD
2,259,992
AUD
2,301,192
AUD
9,743,216
b.ii) Calculating the NPV in Australian Dollar for the project assuming the cost of
capital of 5%:
Year 0 1 2 3 4 5
Cash Flow in
Australian Dollar
($1 AUD will buy
$1 Canadian
dollars)
AUD
(12,000,000)
AUD
2,180,000
AUD
2,219,600
AUD
2,259,992
AUD
2,301,192
AUD
9,743,216
Discounting factor 1.0000 0.9524 0.9070 0.8638 0.8227 0.7835
AUD
(12,000,000)
AUD
2,076,190
AUD
2,013,243
AUD
1,952,266
AUD
1,893,196
AUD
7,634,064
Cost of capital 5%
NPV in Australian Dollar AUD 3,568,960
b.iii) Depicting the change in NPV value if the Canadian dollar depreciates against
AUD:
Year 0 1 2 3 4 5
Cash Flow in AUD AUD AUD AUD AUD AUD

PROJECT RISK, FINANCE & MONITORING
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Australian Dollar
($0.95 AUD will
buy $1 Canadian
dollars)
(11,400,000) 2,071,000 2,108,620 2,146,992 2,186,132 9,256,055
Discounting factor 1.0000 0.9524 0.9070 0.8638 0.8227 0.7835
Discounted cash
flow
AUD
(11,400,000)
AUD
1,972,381
AUD
1,912,580
AUD
1,854,653
AUD
1,798,536
AUD
7,252,361
Cost of capital 5%
NPV in Australian Dollar AUD 3,390,512
b.iv) Providing relevant recommendation to Myer board regarding the project:
After evaluating all the relevant measures and calculation, Myer is advised to
commence with the project, as it will have a positive impact on the operations and income of
the company. In addition, the valuation also indicates that the project is delivering positive
NPV value, which will in turn increase company’s profit and firm value in future. In this
context, Throsby (2016) stated that with the help of investment appraisal techniques
companies are able to identify the relevant viability of the project, which could generate high
level of returns from investment. Therefore, it is advised to Myer to adopt the new project for
increase their profits and maximising the profit from its investment.

PROJECT RISK, FINANCE & MONITORING
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Reference and Bibliography:
Alkaraan, F., 2017. Strategic Investment Appraisal: Multidisciplinary Perspectives.
In Advances in Mergers and Acquisitions (pp. 67-82). Emerald Publishing Limited.
Almarri, K. and Blackwell, P., 2014. Improving risk sharing and investment appraisal for
PPP procurement success in large green projects. Procedia-Social and Behavioral Sciences,
119, pp.847-856.
Awojobi, O. and Jenkins, G.P., 2016. Managing the cost overrun risks of hydroelectric dams:
An application of reference class forecasting techniques. Renewable and Sustainable Energy
Reviews, 63, pp.19-32.
Batra, R. and Verma, S., 2018. Non-financial criteria in project appraisal methodologies:
empirical evidence from Indian companies. International Journal of Accounting and
Finance, 8(1), pp.80-102.
Baum, A.E. and Crosby, N., 2014. Property investment appraisal. John Wiley & Sons.
Brisley, R., Wylde, R., Lamb, R., Cooper, J., Sayers, P. and Hall, J., 2016. Techniques for
valuing adaptive capacity in flood risk management. Proceedings of the ICE-Water
Management, 169(2), pp.75-84.
Higham, A.P., Fortune, C. and Boothman, J.C., 2016. Sustainability and investment appraisal
for housing regeneration projects. Structural Survey, 34(2), pp.150-167.
Kolawole, O.A., 2016. Assessment of the Reliability of Techniques Employed in Feasibility
and Viability Appraisal. Assessment, 7(15).
Lefley, F., 2018. Dispelling the Myth Around the Financial Appraisal of Capital
Projects. IEEE Engineering Management Review, 46(1), pp.47-51.

PROJECT RISK, FINANCE & MONITORING
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Li, F.G. and Trutnevyte, E., 2017. Investment appraisal of cost-optimal and near-optimal
pathways for the UK electricity sector transition to 2050. Applied energy, 189, pp.89-109.
Locatelli, G., Invernizzi, D.C. and Mancini, M., 2016. Investment and risk appraisal in
energy storage systems: A real options approach. Energy, 104, pp.114-131.
Throsby, D., 2016. Investment in urban heritage conservation in developing countries:
Concepts, methods and data. City, Culture and Society, 7(2), pp.81-86.