7025CL Management Report Assignment: Investment Appraisal and Cash Budgeting – A Financial Feasibility Study for Gamiquest Corporation, Singapore

Details of the task

Assessment Learning Outcomes

This assignment is designed to assess all learning outcomes: MLO1 to MLO6

CASE STUDY 1 – Global eSports Market – Industry Trends and Forecast to 2029.

is a listed video game and entertainment company that specialises in the manufacturing of video gaming machines and development of video game contents. They have a collection of blockbuster titles that are available on other platforms. The company is keen to invest in building eSports arenas and venues. These will not only host international tournaments (which is projected to be a lucrative market due to increased exposure and interest in major tournaments), but could also serve as a learning hub for tech companies and students. These could potentially lead to program sponsorships and recruitment.

Gamiquest Corporation is appraising the feasibility of investing in this new project. These will have to take into consideration the essential requirements for infrastructure, such as hardware (high speed connection with fiber optic cables, tables and chairs, screens etc) and software (operating and cybersecurity ecosystems).

The following information involves required investment, projected revenues and expenses, and other information for this project.

• a. Arena building and hardware assets facilities would have to be acquired, built and installed. These assets are estimated to cost $60 million, including installation cost. These would have to be fully paid before commencement of project.
• b. The land on which to build the arena would have to be leased from the state, at a monthly rental of $100,000.
• c. The infrastructure (building and assets) are expected to have a 10-years useful life, after which it will have to be replaced when new technology requires upgraded infrastructure. There is no scrap value at the end of asset’s life. Depreciation on the new infrastructure will be at cost over 10 years using straight line method.
• d. Annual revenue in dollars over the next 10 years are projected to be as follows:
  

  Year	Annual Revenue (‘$ million)
  1 to 3	40
  4 to 6	50
  7 to 10	60

• e. This project would require increase of net working capital of $15 million to finance operations such as inventory purchases. This net working capital will be released at the end of the project’s life.
• f. Annual fixed expenses (excluding rent) is projected at $20 million. Included in fixed expenses are administration, sales and marketing expenses. Variable expenses would be 25% of annual revenue.
• g. Gamequest’s board of directors has specified a required rate of return of 12% on this investment.
• h. Gamequest pays a corporate tax rate of 20%. Capital gain on asset disposal is charged at corporate tax rate.

Case Study 2 – Budgeting Ahead

On Jan 1, 2024, Gamequest is attempting to budget cash flows through Mar 31, 2024. On this latter date, an unsecured note will be payable in the amount of $3.5 million, at 3% per annum. This amount was borrowed on Oct 1 2023 to carry the company through the seasonal peak in Nov 2023 through Feb 2024. Cash Interest payment are settled monthly.

The company only transact on credit sales. A discount of 4% is given to all customers who pay within one month. 50% of the accounts receivable will be received in the month of sale. 40% will be collected in the following month, and 10% will be received 2 months after sale. There is a 5% provision for bad debt for accounts receivable owing 2 months after sale.

Purchases are made on basis of 70% of the following month’s projected sales. Half of the purchases are paid for in the month of purchase, and a 10% prompt settlement discount is received. The remainder is paid in full the following month.

The total budgeted fixed operating expenses for the year is $16 million. Fixed costs are accrued evenly throughout the year. The operating variable costs is determined to be 25% of that month’s projected sales. Both fixed and variable operating expenses are paid in the month incurred.

Opening cash balance as at 1 Jan 2024 is $9 500 000.

Requirements:

You will be required to write a management report in which the following points should be discussed.

• Analyse the Investment proposals by using NPV and IRR and provide recommendations. You should also briefly comment on other investment proposal techniques that Gamequest may use, and the limitations of using these techniques.
• Provide an explanation on the different sources of funding available to the company, and their advantages and disadvantages and make recommendations as to how these funding sources are appropriate to the planned investment project.
• Prepare a forecasted cash budget for January to March 2024.
• An evaluation of the company’s performance or position during the same period.
• A detailed Literature Review of the tools you have used such as capital investment techniques and budgets and their importance to the business case.
• Other issues for management to consider that you think are vital for them to survive and make a profit

Assignment Guidelines

Structure

You have been asked to produce an individual report (word count 2,500). It should contain thefollowing:

• Appropriate coversheet (as attached in this document)
• Title Sheet
• Executive Summary
• Contents Page
• Introduction
• Literature review to support your accounting models used.
• Sources of Funding
• Investment appraisal
• Cash budgeting
• Breakeven analysis
• Evaluation
• Any other issues to be considered.
• Conclusions and Recommendations
• Appendices which should be numbered. (Make sure you refer your reader to them as required)

Layout

Your work should be word processed in accordance with the following:

• Font style, Arial, font size 12
• 1.5 line spacing.
• The page orientation should be ‘portrait’.
• Margins on both sides of the page should be no less than 2.5 cm
• Pages should be numbered.
• Your name should not appear on the script.

PLAGIARISM WARNING! —Assignments should not be copied in part or in whole from any other source, except for any marked-up quotations, that clearly distinguish what has been quoted from your own work. All references used must be given, and the specific page number used should also be given for any direct quotations, which should be in inverted commas. Students found copying from the Internet or other sources will get zero marks and may be excluded from the university. Word Count –Any work submitted with more than 2500 words will have 10 marks deducted.