Your Task As the finance manager, your task is to assess which of the potential acquisition targets is the most suitable for STNZ to join with You will be required to: 1. Calculate the WACC (Weighted average cost of capital) for STNZ based on the following Market Value of debt : NZS18M Market Value of eguity : NZS5M Cost of interest-bearing debt before tax : 5.5% Cost of equity: 9.0% Note the tax rote is 30% for STNZ Ltd. (5 marks) Page 3 of 10 MCR 006 202472 Group Assignment Brief - final 2. Determine the free cash flows in years 2025-2030 of the potential pathology companies that could be formed (10 marks) 3. Calculate the net present value (NPV) of the acquisitions from the point of view of STNZ. For the discount factor you are to use the WACC that you calculated plus a risk premium of 2%. Also note that the free cash flows to be used in the analysis of NPV are those that will accrue to STNZ and not to the doctors who will be minor shareholders in a venture going forward. The NPV base-date is 31.12.2024. (20 marks) MNote if one of your team does not respond to communications, it will be then the responsibility of the remaining team members to complete and submit on time in line with the due date. Due date Sunday 5.00pm week 10 Weight 35% of marks for subject This assessment consists of two parts. Part A, a research-based topic and part B, a practical application of capital budgeting and financing. Part A 40 marks weight 15% Students will be required to research the topic relating to the concept of the definition and application of one of two alternative topics. a. Capital Asset Pricing Model = and Beta or b. Financial Options Required Describe how the concept you have choose is used in business to manage the financial position of an organisation. One to two pages. Part B 60 marks 20% Case study 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. Swiss Testing Ltd. Background. The Swiss Testing (STL) erganisation was established in Switzerand in 1893, by two brothers who married into a wealthy family organization. The company 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 also acquired a professional certified certification organization that reviewed compliance with 150 9000 standards and implemented systems connected with the standard. This work expanded acrass a number of countries. In the 1990s the granddaughter of ane of the founders, now was the CEO of the company, introduced a strategy of corporate entrepreneurship across all international subsidiary organisations. Page 2 of 10 MOCR 008 2024 T2 Group Aassgnment Brief - fnel APPENDIX 1 ACQUISITION PROPOSAL 1 Name: AUCKLAND PATHOGY(AP) Location: 17 Townsend 5t, Auckland Initial discussions have been undertaken between STMNZ and owner doctors under a strict confidentiality agreement. Information regarding AP has been summarized below. BACKGROUND Auckland Pathology was founded by five doctors and has been in operation as a partnership for more than 10 years. The entity has developed significant goodwill over time. The business is capital intensive in terms of the development of new technology and diagnostic equipment. The following information is based on forecasts for 2025 through to 2030. FINANCIAL DATA Overall, the entity has been performing well. The following forecast has been provided by AP. Auckland Pathology 000's NZ 2,025 2,026 2027 = Operating Expenses | 4600 [$ 5300 S 5600 | Motes: 1. The operating expenses above exclude depreciation and amortization [D&A). D&M is estimated to be $300,000 in all years. PROPOSED ACOUISITION DETAILS From initial discussions the purchase price to be offered by STNZ is NZ $962,000 for 67% of the business. PROPOSED ACQUISITION DETAILS From initial discussions, the purchase price to be offered by STNZ for 67% of the business is 51,700,000 OTHER INFORMATION RP is a high margin business with growing revenue. The doctor owners perform most of the tests themselves eliminating the need for additional pathology staff. This arrangement will continue under the new proposed ownership structure. 4. To help finance the acquisition STNZ wishes to capital raise via a bond issue. Assume that the bonds will have a duration of 5 years with a coupon rate of 7.0% (paid annually) and 5TNZ Ltd wishes to raise 51,200,000 before paying issuance costs or underwriting commission. Determine the price and number of bonds to be issued given that the market rate for bonds with similar risk and time to maturity is 9%. (15 marks) 5. Prepare a board report (1 to 2 pages) so that the directors of STMZ and 5TL can clearly see recommendations and the supporting logic. The content needs to include any concerns or discussion points outside of quantitative analysis that may assist in the evaluation of the potential acquisition. Mote only one of the acquisitions opportunities can be selected. (10 marks) APPENDIX 2 ACQUISITION PROPOSAL 2 Name: REGIONAL PATHOLOGY (RP) Location: Base hospital Palmerston North Initial discussions have been undertaken between STNZ and owner doctors under a strict confidentiality agreement. Information regarding RP has been summarized below. BACKGROUND The entity was founded by four doctors and has been in operation for 10 years. The organisation which trades as a partnership services the central region of the North Island of New Zealand. In its geographic area RP has little in the way of competitors. Situated in the base hospital (to which RP pays rent which is not at an arm's length) the laboratory services the needs of the hospital and the local doctors in the region. The pathology lab benefits by having the use of much of the hospital's infrastructure and administration services. The industry is capital intensive in terms of the development of new technology and diagnostic equipment. Key pathology testing equipment is leased from the hospital, but the rent is not at an arm's length and could increase if RP's ownership changed to include STNZ FINANCIAL DATA The following forecast of data has been provided by RP Regional OOO's NZ 2,025 2,026 2,027 Revenue S 1,500 S 1,650 1,800 Operating Expenses 675 5 700 800 Notes: 1. The operating expenses above exclude depreciation and amortization (D&A). D&A is estimated to be $100,000 in all years