Finance for Business A2 Case Study You are working in the finance department of SunLife Ltd (SUN). The Company has spent $2 million in research and development over the past 12 months developing pioneering solar cell technology which will be incorporated into the retail solar energy market. SUN now need to choose between the following three options for bringing the product to market.
These options are:
Option 1: Manufacturing the product “in-house” and selling directly to the market
Option 2: Licensing another company to manufacture and sell the product in return for a royalty
Option 3: Sell the patent rights outright to another company.
Your Task Your manager, SUN’s CFO, Ms. Donna Shine, has asked you to evaluate the three different options and draft a memo to the Board of Directors providing recommendations on the alternatives, along with supporting analyses. Ms. Shine has outlined the following three (3) areas you need to cover in
your memo:
a)Analyse base-case figures for the three options and use NPV as the investment decision rule;
b)Provide recommendations based on the base-case analyses;
c) Provide recommendations on further analyses and discuss factors that should be considered prior to making a final decision on the three options (Note. You do NOT have to undertake any further financial analyses).
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Further details for the various options are as follows:
Option 1: Manufacturing the product “in-house” and selling directly to the market Five months ago, SUN paid an external consultant $1.2 million for a production plan and sales forecast. The consultant recommended producing and selling the product for five years only as technological innovation will likely render the market too competitive to be profitable enough after that time.
Sales of the product are estimated as follows: The consultant’s report also provides the following cost forecasts: -Variable production costs: $600 per unit for the entire life of the project. -Fixed production costs (excluding depreciation): $700,000 per year, and -Marketing costs: will be $350,000 per year. Production will take place in factory space the company owns and currently rents to another business for $650,000 per year. Equipment costing $50 million will have to be purchased. This equipment will be depreciated for tax purposes using the prime cost method at a rate of 15% per annum. At the end of the project, the company expects to be able to sell the equipment for $4.5 million. Year Forecast unit sales Forecast sales price per unit 1 43,000 1,200 2 45,000 1,600 3 47,000 1,500 4 35,000 1,400 5 28,000 1,100Finance for Business A2 Case Study You are working in the finance department of SunLife Ltd (SUN). The Company has spent $2 million in research and development over the past 12 months developing pioneering solar cell technology which will be incorporated into the retail solar energy market. SUN now need to choose between the following three options for bringing the product to market.
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These options are:
Option 1: Manufacturing the product “in-house” and selling directly to the market
Option 2: Licensing another company to manufacture and sell the product in return for a royalty
Option 3: Sell the patent rights outright to another company.
Your Task Your manager, SUN’s CFO, Ms. Donna Shine, has asked you to evaluate the three different options and draft a memo to the Board of Directors providing recommendations on the alternatives, along with supporting analyses. Ms. Shine has outlined the following three (3) areas you need to cover in your memo:
a)Analyse base-case figures for the three options and use NPV as the investment decision rule;
b)Provide recommendations based on the base-case analyses;
c)Provide recommendations on further analyses and discuss factors that should be considered prior to making a final decision on the three options (Note. You do NOT have to undertake any further financial analyses).
Further details for the various options are as follows:
Option 1: Manufacturing the product “in-house” and selling directly to the market Five months ago, SUN paid an external consultant $1.2 million for a production plan and sales forecast. The consultant recommended producing and selling the product for five years only as technological innovation will likely render the market too competitive to be profitable enough after that time.
Sales of the product are estimated as follows: The consultant’s report also provides the following cost forecasts: -Variable production costs: $600 per unit for the entire life of the project. -Fixed production costs (excluding depreciation): $700,000 per year, and -Marketing costs: will be $350,000 per year. Production will take place in factory space the company owns and currently rents to another business for $650,000 per year. Equipment costing $50 million will have to be purchased.
This equipment will be depreciated for tax purposes using the prime cost method at a rate of 15% per annum. At the end of the project, the company expects to be able to sell the equipment for $4.5 million. Year Forecast unit sales Forecast sales price per unit 1 43,000 1,200 2 45,000 1,600 3 47,000 1,500 4 35,000 1,400 5 28,000 1,100 Finance for Business A2 Case Study You are working in the finance department of SunLife Ltd (SUN). The Company has spent $2 million in research and development over the past 12 months developing pioneering solar cell technology which will be incorporated into the retail solar energy market. SUN now need to choose between the following three options for bringing the product to market.
These options are:
Option 1: Manufacturing the product “in-house” and selling directly to the market
Option 2: Licensing another company to manufacture and sell the product in return for a royalty
Option 3: Sell the patent rights outright to another company.
Your Task Your manager, SUN’s CFO, Ms. Donna Shine, has asked you to evaluate the three different options and draft a memo to the Board of Directors providing recommendations on the alternatives, along with supporting analyses. Ms. Shine has outlined the following three
(3) areas you need to cover in your memo:
a)Analyse base-case figures for the three options and use NPV as the investment decision rule;
b)Provide recommendations based on the base-case analyses;
c) Provide recommendations on further analyses and discuss factors that should be considered prior to making a final decision on the three options (Note. You do NOT have to undertake any further financial analyses).
Get Solution of this Assessment. Hire Experts to solve this assignment for you Before Deadline.
Further details for the various options are as follows: Option 1: Manufacturing the product “in-house” and selling directly to the market Five months ago, SUN paid an external consultant $1.2 million for a production plan and sales forecast. The consultant recommended producing and selling the product for five years only as technological innovation will likely render the market too competitive to be profitable enough after that time.
Sales of the product are estimated as follows: The consultant’s report also provides the following cost forecasts: -Variable production costs: $600 per unit for the entire life of the project. -Fixed production costs (excluding depreciation): $700,000 per year, and -Marketing costs: will be $350,000 per year. Production will take place in factory space the company owns and currently rents to another business for $650,000 per year. Equipment costing $50 million will have to be purchased. This equipment will be depreciated for tax purposes using the prime cost method at a rate of 15% per annum. At the end of the project, the company expects to be able to sell the equipment for $4.5 million. Year Forecast unit sales Forecast sales price per unit 1 43,000 1,200 2 45,000 1,600 3 47,000 1,500 4 35,000 1,400 5 28,000 1,100
