FBL5030: FUNDAMENTALS OF VALUE CREATION IN BUSINESS - Business Management Assignment Help

Internal Code: MAS768

Business Management:

Lifestyle Furniture is based in the North West of England. The company is one of the leading online retailers of solid hardwood furniture. They specialise in selling the finest Oak, Pine, Indian and Painted Furniture at the lowest prices on the internet. All of the furniture has been crafted from natural wood and hand finished by skilled craftsmen. Each unique piece of furniture is made only once. Lifestyle Furniture is proud to offer a large variety of ranges to suit all tastes and budgets. Each range has products to suit every room in the home. The company constantly adds new ranges and products. They design their own products, have them handcrafted and made exclusively by them. Freddy Smith, the famous designer and the company’s founder and CEO, invested his lifetime savings into the project a few years ago. By the end of 2015, the company had recorded a cumulative sales turnover of over $13 million with profits in excess of $1.75 million. Questions: 1. Calculate the incremental operating net cash flow associated with each alternative (this should be prepared in an excel spreadsheet, with completed work copied across to a word document) 2. Determine the NPV, IRR and PI for each choice. Based solely on your comparison of the relevant cash flows, which alternative is better? Why? 3. Draw a NPV profile for each project on the same set of axes and discuss any conflict in rankings that may exist between NPV and IRR. Explain any observed conflict in terms of the relative differences in the magnitude and timing of each project’s cash flow. 4. After reviewing the data provided, you realise that cost figures have not been adjusted for inflation which is expected to average 3.5% p.a. over the long term. Specifically, the advertising costs are expected to increase at a rate of 4% p.a. by the end of the first year. Both operating and maintenance costs are expected to increase at a rate of 3% p.a. from the initial cost estimates. This is because these items are largely fixed under contract obligation. The impact of inflation also affects overheads, salaries and all other expense/costs at a rate of 3.5% p.a. by the end of the first year 5. Using the base-case scenario for Alternative 1 and 2 ,determine: a. How low sales revenues will have to fall to, b. How high operating and maintenance cost will have to rise to before the project becomes unfeasible to the company. Discuss how this impacts above recommendations.