Hotel McChoc is a company which imports cocoa from Ghana to make designer chocolates to sell in

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Question:

Hotel McChoc is a company which imports cocoa from Ghana to make designer chocolates to sell in the UK. The cost of the raw materials and labour is 10 pounds per box and the items are sold in the open market for 15 pounds each. Overhead expenses are 500,000 per annum. The company is considering fitting new machines to increase production. The total cost of the refit will be 5 million but is expected to save 0.4 million per year in subsequent years for the next 5 years. (In the 6th year, the Council will re-evaluate the position). The yearly cost of maintaining the machines will be 0.02 million in the first year increasing by 10% every year to meet inflationary pressures. In the 6th year, the Council will have to dismantle the pipework at a cost of 0.1 million but is expected to sell the machines for scrap at 0.05million. The company cost of capital is 10%. Its current financial ratios are : P/E

multiple: 97.78 EPS: 4.5 p

Return on Equity: 7.93%

Fixed Asset Turnover: 1.90

Return on Capital Employed: 7.54%

Required: You are required to present at the Board the performance of the company