Instructions

The assessment involves undertaking and completing a case study where you are required to apply

concepts relating to investing in long$-$term assets.

Specifically, you will apply capital budgeting techniques in the case to undertake an Analysis of the

data provided, interrogate the information provided by your analysis, develop a Board of Directors

Report to show your recommendations and Influence the readers.

Global Testing Geneva Ltd$.$

Background.

The Global Testing Geneva $($GTG$)$ was established in Switzerland in $1893,$ by two brothers who

married into a wealthy family organization.

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The company had developed as a global organization for inspection and testing with

$40,000$ employees worldwide. The core service that was provided was Inspection of International

trade to ensure that governments collected the appropriate amount of customs duty and minimized

and illegal profiteering by customs officers.

The company had also acquired a professional certified certification organization. That reviewed

ISO $9000$ standards requirement and implemented ISO $9000$ standard. Systems. As the result

of his inspection services the organization had increased as a global organization across a number of

countries. In the $1990$s the granddaughter of the founders who now was the CEO of the company

introduced a strategy of corporate entrepreneurship across all international subsidiary

organisations.

In New Zealand, the company was founded on the back of traditional inspection and testing with

most of the organization focused on the testing of primary products such as wool

agricultural products, coal, steel and minerals. The revenue for the group was low at $$25$m NZD

On one occasion the CEO of GTG New Zealand while held up in a traffic delay, noticed the signage on

the back of a vehicle as$.$ Medlab, Auckland with a tag line of$.$testing for life$.$ Immediately

recognizing an opportunity, he followed the vehicle, recognising that the word testing

was core activity of the organization, only in New Zealand, but worldwide. As the result of

this Inquisitive and entrepreneurial approach. GTG NZ was granted permission by head office in

Geneva to actively pursue the acquisition pathology laboratories across New Zealand.

Your role.

You have just accepted the role. Is an expatriate from Australia to New Zealand as the Finance

manager for GTG New Zealand Ltd$.$ Your first task is to assist with the analysis of two potential

pathology laboratory acquisitions.

There are three specific Acquisition targets as follows.

$1.$ Auckland Pathology

$2.$ Regional Pathology

The current ownership of each pathology business is by a few doctor$-$ pathologists working in a

partnership arrangement at each organisation. No doctors have a cross ownership or partnership in

either of the other businesses.

Business Model

While the acquisition process was quite clear, the technicalities involving acquiring a professional

health services organization involving pathology was quite involved. The key issue that GTG New

Zealand faced was that it did not have doctors on their staff and were ill qualified to run a testing

laboratory which involved decisions that could have potential high$-$risk effects on individual$$s health.

As a result of negotiations with the government Health Department identified revealed that an

alternative business model could be adopted to achieve the required involvement of qualified

medical doctors.

The proposed acquisition corporate venturing model involved establishing a separate Legal entity to

act as the acquisition vehicle. The owner doctors transferred their partnership share of the asset

into the vehicle. And received shares amounting to $33\%$ of the value of the acquisition vehicle.

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GTG NZ held the majority of the remaining $67\%$ of the acquisition as a majority shareholder.

The details for each of the. Pathology labs is attached on Appendix One, Two and three.

Your Task

As the finance manager, your task is to assess which of the potential acquisition targets was the

most suitable for GTG Limited. For you to accomplish this task you will be required to adhere to the

specific acquisition guidelines policies of GTG Limited in Geneva.

You will be required to:

$1.$ To determine the free cash flows from each of the potential acquisition targets $(10$ marks$)$

$2.$ To evaluate the proposals.

a$.$ Calculate the net present value of the acquisitions based on the cash flow

information provided, using the proposed acquisition value as provided in each case.

In order to calculate the net present value in relation to each of the selected

proposals the organization requires a minimum of the weighted average cost of

Capital currently this is $5\%$ plus a risk premium $2\%.$ This will satisfy shareholders

return in Geneva. $(20$ marks$)$

$3.$ To finance the acquisitions

a$.$ The company wishes to fund the acquisition using a Bond issue. Assuming the bonds

will b