MBA643 Project Risk, Finance & Monitoring: Report on Project Selection

This report provides an overview of project risk management, finance, and monitoring, emphasizing project selection, cost management, funding, implementation, and winding-up processes. It highlights the use of investment appraisal techniques like NPV, IRR, and payback period for maximizing profitability. The report also analyzes Myer Holdings' financial situation, including its equity capital drop and a capital budgeting analysis for a potential project, complete with free cash flow calculations, NPV assessment under currency depreciation scenarios, and recommendations for the Myer Board to commence with the project to increase the company's profitability.

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 aims of assessment are to understand the level of measures, which could be conducted by
companies for increasing their profits by conducting adequate project selection, cost
management, funding and implementation and winding up process. The organisation mainly
uses the measure for improving the level of returns, which could be generated from
investment. The significance of investment appraisal techniques is mainly depicted, which
could help Myer in making adequate investment decisions.

PROJECT RISK, FINANCE & MONITORING
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Table of Contents
Introduction:...............................................................................................................................3
Part A:........................................................................................................................................3
Project Selection:.......................................................................................................................3
Cost Management:.....................................................................................................................4
Funding:.....................................................................................................................................4
Implementation and winding up:...............................................................................................5
Conclusion:................................................................................................................................5
Part B:.........................................................................................................................................6
a) Indicating whether Myer currently have equity capital on issue, while stating why
companies raise equity capital and mentioning why equity capital of Myer has dropped so
much in 2018:.............................................................................................................................6
b.i) Depicting the free cash flow of the project in terms of Australian dollar:..........................6
b.ii) Depicting the net present value of the project with a cost of capital of 5%:......................7
b.iii) Indicating whether the Net present value will change if Canadian dollar depreciates
against AUD:..............................................................................................................................8
b.iv) Recommendations for the Myer Board:............................................................................9
Reference and Bibliography:....................................................................................................10

PROJECT RISK, FINANCE & MONITORING
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Introduction:
The significance of project selection, cost management, funding, Implementation and
winding up for an organisation is depicted in the assessment. This relevantly helps in
understanding the positive attribute of a particular project, which could help in generating
high level of returns from investment. The evaluation also depicts the need of different
investment appraisal techniques in detecting the financial viability of different projects
Part A:
Project Selection:
The above measure is mainly conducted for effectively selecting the adequate
projects, which could increase return of the organisation. In addition, the use of investment
appraisal techniques such as net present value, internal rate of return, profitability index and
payback period are mainly an adequate instrument, which is used by organisations to
maximise their profitability and minimise any kind of risk from investment. The use of
investment appraisal techniques directly helps in detecting the project, which has the highest
possible returns that could be generated from investment, while increasing firm value. The
use of NPV technique direct helps in understanding time value of money, which could be
used to maximise the level of profits from investment. In this context, Adrian, Covitz and
Liang (2015) stated that companies by evaluating different project are able to understand the
level of returns that could be provided from investment, which might increase firm value in
future. On the other hand, Angeloni, Faia and Duca (2015) criticises that the wrong
estimation of discounting rate directly has negative impact on the output provided by Net
present value technique, which directly increases risk from investment. Construction and auto

PROJECT RISK, FINANCE & MONITORING
4
manufacturing companies mainly use investment appraisal techniques in detecting the
financial viability of a project.
Cost Management:
Companies with the help of cost management are mainly able to minimise any kind of
excessive expenses incurred in their operations. In addition, the use of resource planning, cost
estimating, budgeting, and cost control are an essential attribute of the cost management,
which could have stricken expenses of the organisation. Moreover, the cost management
helps in minimising the expenses incurred by the company in their daily operations by
segregating different level of operations conducted by the company. The cost management
also uses different level of budgeting measures, which might help in reducing the cost
incurred from operations. Hazır (2015) stated that companies using cost management
structure can minimise the level of expenses, which could be conducted by organisations. On
the other hand, Burtonshaw-Gunn (2017) criticises that the extensive use of budgeting
measures might not help in minimising the level of expenses, whereas reduces the completion
time of product.
Funding:
Funding is mainly considered one of the major attribute for completing a particular
project, as without adequate investment the project cannot start or is completed. The
understanding of adequate level of funding, which is required for a particular project is
essential for an organisation, as it determines their capability to support the particular project.
In addition, this level of funding requirement mainly helps in depicting the financial
requirements of a particular project. There are different spruces of funding, which could be
used by the organisation such as external and internal source of finance. Hence, the use of
banks loans, mortgage, share issue and retained earnings is mainly used by organisation for

PROJECT RISK, FINANCE & MONITORING
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accumulating the required level of funds for supporting the projects, which could be
generated from investment (Hopkin 2017). Both construction and auto manufacturing
companies use bank loans and mortgages to fund their projects.
Implementation and winding up:
The implementation and winding up of a project is one of the essential measure,
which is used by organisation for completing the project and acquiring the anticipated profits.
In addition, companies during the implementation stage mainly utilises the viability of the
project and compares the actual returns with anticipated returns. Winding up is used by
companies when the organisation understands that the return from the project is not in line
with the anticipated returns. After the completion of the project the company obtains salvage
value of the machines and other equipment’s used in the project. This helps in creating short
term investment benefits for the company, where extra income is generated after selling the
leftover of the projects. Moreover, if there are environmental issues associated with the
project then the organisation needs to wind up the project (Kendrick 2015).
Conclusion:
Companies with the help of adequate investment appraisal techniques and sources of
finance are mainly able to initiate and complete the project. Therefore, from the evaluation it
could be understood that the company might utilise adequate techniques to maximise their
profitability and minimise any kind of risk from investment.

PROJECT RISK, FINANCE & MONITORING
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Part B:
a) Indicating whether Myer currently have equity capital on issue, while stating why
companies raise equity capital and mentioning why equity capital of Myer has dropped
so much in 2018:
Myer currently does not have any kind of share issue on hand, as the company is
facing problems related to their profit generation capacity. However, from the evaluation it is
also identified that Myer is facing problems in their profits, which is directly affecting their
capability to generate high rate of return from investment. This is directly affecting their
share price, which has drastically declined from the levels of $4.10 in 2009 to $0.54 in 2018.
Companies mainly raise equity capital for supporting their operations, which generate high
level of return from investment. In addition, the use of equity capital could eventually help in
supporting the required level of capital, which could be used in their expansion process and
increase the level of income from investment (Hatch 2018).
The equity capital of Myer has mainly dropped in 2018 in comparison to 2009, where
the overall market capitalisation of Myer dropped from 2.4 billion to 400 million in the
current year. The company is mainly facing problems related to competition, which is
directly affecting its capability to continue the operations. In addition, the company is also
facing problems related to heavy discounting, customer foot traffic, challenging retail
environment and online shopping (Phillips 2018).
b.i) Depicting the free cash flow of the project in terms of Australian dollar:
Particulars Value
Initial
Investment CAD 10,000,000
Life of the store 5

PROJECT RISK, FINANCE & MONITORING
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Salvage value CAD 7,500,000
Sale value CAD 9,000,000
Profit CAD 1,500,000
Tax 40%
Year 0 1 2 3 4 5
Incremental
revenue
CAD
5,500,000
.00
CAD
5,610,000
.00
CAD
5,722,200
.00
CAD
5,836,644
.00
CAD
5,953,376.
88
Cost
CAD
2,200,000
.00
CAD
2,244,000
.00
CAD
2,288,880
.00
CAD
2,334,657
.60
CAD
2,381,350.
75
Depreciation
CAD
500,000.0
0
CAD
500,000.0
0
CAD
500,000.0
0
CAD
500,000.0
0
CAD
500,000.0
0
Salvage value
CAD
7,500,000.
00
Profit from
store sale
CAD
1,500,000.
00
PBT
CAD
2,800,000
.00
CAD
2,866,000
.00
CAD
2,933,320
.00
CAD
3,001,986
.40
CAD
12,072,02
6.13
Tax
CAD
1,120,000
.00
CAD
1,146,400
.00
CAD
1,173,328
.00
CAD
1,200,794
.56
CAD
4,828,810.
45
PAT
CAD
1,680,000
.00
CAD
1,719,600
.00
CAD
1,759,992
.00
CAD
1,801,191
.84
CAD
7,243,215.
68
Depreciation
CAD
500,000.0
0
CAD
500,000.0
0
CAD
500,000.0
0
CAD
500,000.0
0
CAD
500,000.0
0
Working
capital
CAD
(2,000,000.
00)
CAD
2,000,000.
00
Initial
Investment
CAD
(10,000,00
0.00)
Cash Flow in
Canadian
Dollar
CAD
(12,000,00
0.00)
CAD
2,180,000
.00
CAD
2,219,600
.00
CAD
2,259,992
.00
CAD
2,301,191
.84
CAD
9,743,215.
68

PROJECT RISK, FINANCE & MONITORING
8
b.ii) Depicting the net present value of the project with a 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
.00)
AUD
2,180,000.
00
AUD
2,219,600.
00
AUD
2,259,992.
00
AUD
2,301,191.
84
AUD
9,743,215.
68
Discountin
g factor 1.00 0.95 0.91 0.86 0.82 0.78
Discounted
cash flow
AUD
(12,000,000
.00)
AUD
2,076,190.
48
AUD
2,013,242.
63
AUD
1,952,266.
06
AUD
1,893,196.
22
AUD
7,634,064.
43
Cost of
capital 5%
NPV in Australian Dollar AUD 3,568,959.82
b.iii) Indicating whether the Net present value will change if Canadian dollar
depreciates against AUD:
Year 0 1 2 3 4 5
Cash Flow
in
Australian
Dollar
($0.95
AUD will
buy $1
Canadian
dollars)
AUD
(11,400,000
.00)
AUD
2,071,000.
00
AUD
2,108,620.
00
AUD
2,146,992.
40
AUD
2,186,132.
25
AUD
9,256,054.
89
Discountin
g factor 1.00 0.95 0.91 0.86 0.82 0.78
Discounted
cash flow
AUD
(11,400,000
.00)
AUD
1,972,380.
95
AUD
1,912,580.
50
AUD
1,854,652.
76
AUD
1,798,536.
41
AUD
7,252,361.
21
Cost of
capital 5%
NPV in Australian Dollar
AUD 3,390,511.83

PROJECT RISK, FINANCE & MONITORING
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b.iv) Recommendations for the Myer Board:
After evaluating the above valuation, it could be advised to Myer for commencing
with the project, as it will increase profitability of the organisation over time. In addition,
implementation of the new project will eventually increase profit of the organisation, which
would raise firm value in future. Therefore, it is recommended for the company to start the
project, as it might help in improving its income in future (Sadgrove 2016).

PROJECT RISK, FINANCE & MONITORING
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Reference and Bibliography:
Adrian, T., Covitz, D. and Liang, N., 2015. Financial stability monitoring. Annual Review of
Financial Economics, 7, pp.357-395.
Angeloni, I., Faia, E. and Duca, M.L., 2015. Monetary policy and risk taking. Journal of
Economic Dynamics and Control, 52, pp.285-307.
Au.finance.yahoo.com. (2018). Yahoo is now a part of Oath. [online] Available at:
https://au.finance.yahoo.com/quote/MYR.AX/ [Accessed 5 Jun. 2018].
Burtonshaw-Gunn, S.A., 2017. Risk and financial management in construction. Routledge.
Hatch, P. (2018). Myer profits slump as stocktake sale flops; shares hit all-time low. [online]
The Sydney Morning Herald. 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 5 Jun. 2018].
Hazır, Ö., 2015. A review of analytical models, approaches and decision support tools in
project monitoring and control. International Journal of Project Management, 33(4), pp.808-
815.
Hopkin, P., 2017. Fundamentals of risk management: understanding, evaluating and
implementing effective risk management. Kogan Page Publishers.
Kendrick, T., 2015. Identifying and managing project risk: essential tools for failure-proofing
your project. AMACOM Div American Mgmt Assn.
Kerzner, H., 2017. Project management metrics, KPIs, and dashboards: a guide to
measuring and monitoring project performance. John Wiley & Sons.

PROJECT RISK, FINANCE & MONITORING
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Minnis, M. and Sutherland, A., 2017. Financial statements as monitoring mechanisms:
Evidence from small commercial loans. Journal of Accounting Research, 55(1), pp.197-233.
Olson, D.L. and Wu, D.D., 2017. Data Mining Models and Enterprise Risk Management.
In Enterprise Risk Management Models (pp. 119-132). Springer, Berlin, Heidelberg.
Phillips, S. (2018). Shrink or die: the grim choice facing Myer. [online] The Sydney Morning
Herald. Available at: https://www.smh.com.au/money/investing/shrink-or-die-the-grim-
choice-facing-myer-20180227-p4z1xr.html [Accessed 5 Jun. 2018].
Sadgrove, K., 2016. The complete guide to business risk management. Routledge.