MBA643 Project Risk, Finance: Project Management Report

This report discusses key aspects of project management, including project selection, cost management, funding sources like venture capital, and winding-up processes. It emphasizes the importance of financial feasibility analysis using tools like NPV and IRR, as well as cost control techniques such as budgeting and variance analysis. The report also addresses the social and environmental impact of projects, highlighting the need for careful waste disposal. Part B includes a capital budgeting analysis for Myer Holdings, calculating NPV and assessing the impact of exchange rate fluctuations on project viability. The report concludes with recommendations for effective project management and financial decision-making. Desklib provides access to similar solved assignments for students.

Project Management and Risk Assessment
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Part-A
Executive Summary
The crucial aspects of project management including cost analysis and analysis of
winding up process and waste disposal have been discussed in the report. The findings of the
report suggest that the analyst performs various sequential steps to select the project. The cost
management techniques such as budgeting and variance analysis are applied to manage and
control the cost. Venture capital financing has been identified as one of the most popular source
of equity financing for project funding.
Introduction
Project management is the process of analyzing the project and supervising and
controlling the activities in its implementation. It involves risk assessment and formulation of
risk mitigation strategies (Carstens, Richardson, and Smith, 2013). This report explains the
process of project selection and other aspects 1in the context of project management.
Projection Selection
The project selection is the process involving chronological set of activities such as
analysis of financial feasibility, technical, legal, and environmental feasibility. Further, it also
involves analyzing the risks involved in the project and identifying the risk mitigation strategies.
There are various tools available to analyze the project and finalize its selection. From the
financial feasibility perspective, the capital budgeting, budgetary analysis, and profitability
analysis prepared. Tools and techniques such as NPV, IRR, budgets and variance analysis are
employed to assess the financial feasibility (Kerzner, 2009.). Further, technical feasibility is
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assessed by analyzing the technical advancement needed and availability of the required
technology.
Cost Management
The cost management plays a crucial role in implementation of the project in the cost
effective manner. It is highly important to analyze, supervise, and control the costs related to the
project. If it is not done, there are chances that the project would incur costs higher than what
was projected and it may result in financial loss. Further, cost management also plays crucial role
in preparing data for strategic purposes (Shim, Siegel, and Shim, 2011). There are various
strategies and approaches which could be adopted for effectively managing the cost of the
project. For instance, budgetary and variance analysis is one which is used to control the costs.
Further, the analysts apply cost volume profit analysis which involves analysis of contribution
margin, breakeven point, and margin of safety. The analysis of breakeven points is essential to
know the point where the firm would start making profits. The contribution margin and margin
of safety are employed to analyze the profitability of the project (Shim, Siegel, and Shim, 2011).
Funding
With the advent of time, there have arrived different innovative models and sources of
finance for a start up business. One among them the most popular is venture capital funding. The
venture capital funding is provided by the venture capitalist in exchange in equity ownership
being given the project. Thus, venture capital is a source of equity finance. Further, there are
various debt options available to the business. The lender offers different types of debts and lines
of credit to the businesses (Caselli and Negri, 2018). The firm can take term loan which is
sanctioned against the security of the assets being financed. Thus, if the firm wants to buy a
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machine, it can take term loan from the bank on the security of machine being sought to be
bought. Apart from it, the banks also offer overdraft facility which the firms can use to finance
the working capital needs.
Implementation and Winding up
Apart from analyzing the financial feasibility of the project, it is also crucial to assess the
issues arising from the implementation of the project from the social and environmental view
point. The project could affect the society in a negative or positive way. The analyst should
carefully analyze the negative impacts of the project so that proper safeguard could be taken.
Further, there may be some manufacturing venture which could affect the environment badly by
the hazardous waste generated. The government agencies are formed to take care of such
projects(Carstens, Richardson, and Smith, 2013).
When the life of the project comes to an end, the project is over and all its assets are
disposed off and liabilities paid out. The project is wound up after liabilities being paid and the
claim of equity owners is discharged. There may be in some situations the infrastructure of the
project is not sold rather than its being utilized on some another project. There are some projects
which require disposal of the waste garneted when the project is ended up. The disposal of waste
is the issue associated with the environment. The waste generated on the project might be
hazardous to the environment and hence requiring careful examination while disposing it off
(Carstens, Richardson, and Smith, 2013)..
Conclusion and Recommendations
From the discussion carried out in this report, it could be articulated that the project
management and project planning is a crucial process. The analysts should follow sequence of
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steps to analyze the project and make final choice. After selection of the project, it is
recommended to employ cost management and control mechanism. The project manager should
employ budgetary and variance analysis technique to manage and control the cost incurred on the
project. Further, the project should take decision as regards sources to be used for funding the
project and finally, the winding up and disposal of waste should be decided.
Part-B
Question-a
Mayer holdings limited has shares outstanding to the tune of 821.28 million which
amount to total market capitalization of $353.149 million (Yahoo Finance, 2018). Thus, it could
be said that Mayer has equity capital on issue.
The companies issue equity capital to raise funds from the public at large. The equity
share capital provides source of long term funding. The biggest advantage of issuing equity is
that the company could raise money in huge sums which otherwise through debt or other sources
might not be possible (Phillips, 2018).
In the year 2018, the value of equity of Mayer has gone severely down. Currently, the
stock is trading at record low of AUD 0.43. The primary reason for fall in the value of equity
seems to be the declining revenues and profits of the company. As per the reports, the revenues
of the first half of 2018 are down by 3.60% and profits are down by 42% which is quite
significant (Hatch, 2018). Due to downfall in the revenues and profits, the shareholders are
losing faith in the company and consequently selling pressure is increasing causing decline in the
share prices.
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Question-b (i)
i) Free Cash Flows in Australian Dollars
1 2 3 4 5
Incremental revenues
5
.50
5
.61
5
.72
5
.84
5
.95
Costs (40% of revenues)
(2
.20)
(2
.24)
(2
.29)
(2
.33)
(2
.38)
Depreciation
(0
.50)
(0
.50)
(0
.50)
(0
.50)
(0
.50)
Profit before tax
2
.80
2
.87
2
.93
3
.00
3
.07
Tax @40%
1
.12
1
.15
1
.17
1
.20
1
.23
Profit after tax
1
.68
1
.72
1
.76
1
.80
1
.84
Add: Depreciation
0
.50
0
.50
0
.50
0
.50
0
.50
operating Cash flows
2
.18
2
.22
2
.26
2
.30
2
.34
Working capital 0 0 0 2
Salvage value net of tax
(note-1) 8.4
Net cash flows (Can$)
2
.18
2
.22
2
.26
2
.30
12
.74
Exchange rate 1 1 1 1 1
Net cash free flows (AUD)
2
.18
2
.22
2
.26
2
.30
12
.74
Question-b (ii)
ii) NPV of the project
0 1 2 3 4 5
Initial outlay -12
Net cash free flows
(AUD) 2.18 2.22 2.26 2.30 12.74
PAF @5% 1.0000 0.9524 0.9070 0.8638 0.8227 0.7835
Present value
(12.0000
) 2.0762 2.0132 1.9523 1.8932 9.9846
NPV
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5.9195
Question-b (iii)
Impact on net free cash flows
Net cash flows
(Can$) 2.18 2.22 2.26 2.30 12.74
Exchange rate 0.95 0.95 0.95 0.95 0.95
Net cash free flows
(AUD) 2.07 2.11 2.15 2.19 12.11
Impact on NPV
NPV of the project
0 1 2 3 4 5
Initial outlay -11.4
Net cash free flows
(AUD) 2.07 2.11 2.15 2.19 12.11
PAF @5% 1.0000 0.9524 0.9070 0.8638 0.8227 0.7835
Present value
(11.4000
) 1.9724 1.9126 1.8547 1.7985 9.4854
NPV 5.6236
Question-b (iv)
The net present value of the project as shown in (ii) above is AUD 5.9195 which
indicates that the project is financial beneficial for the company and hence the board of directors
should consider going ahead with the project. However, there is always a risk of foreign
exchange loss as the project is to be undertaken in the foreign country. The results of part (iii)
shows that if the exchange rate fall down to 0.95 AUD per Can $, the NPV of project would
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decline to AUD 5.6236. It is to be noted that this decline is still sustainable and the company is
still earning positive NPV.
References
Carstens, D.S., Richardson, G.L., and Smith, R.B. 2013. Project Management Tools and
Techniques: A Practical Guide. CRC Press.
Caselli, S. and Negri, G. 2018. Private Equity and Venture Capital in Europe: Markets,
Techniques, and Deals. Academic Press.
Hatch, P. 2018. Myer profits slump as stocktake sale flops; shares hit all-time low. [Online].
Available at: https://www.smh.com.au/business/companies/myer-profits-slump-as-stocktake-
`sale-flops-shares-hit-all-time-low-20180209-p4yzsi.html [Accessed on: May 31, 2018].
Kerzner, H. 2009. Project Management: A Systems Approach to Planning, Scheduling, and
Controlling. John Wiley & Sons.
Phillips, S. 2018. Shrink or die: the grim choice facing Myer. [Online]. Available at:
https://www.smh.com.au/money/investing/shrink-or-die-the-grim-choice-facing-myer-
20180227-p4z1xr.html [Accessed on: May 31, 2018].
Shim, J.K., Siegel, J.G., and Shim, A.I, 2011. Budgeting Basics and Beyond. John Wiley & Sons.
Yahoo Finance. 2018. Myer Holdings Limited (MYR.AX): Summary. [Online]. Available at:
https://au.finance.yahoo.com/quote/MYR.AX?p=MYR.AX [Accessed on: May 31, 2018].
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