Hello, I need an Investment Analysis Case Study (The 3D Printer project) from the field of ?Entrepreneurial & Corporate Finance.

THE AMERICAN COLLEGE OF THESSALONIKI Spring 1 2022

Fin 202 – Entrepreneurial & Corporate Finance

Investment Analysis Case Study

Weight on Final Grade 25%

Purpose

This case allows students to apply the principles of capital budgeting to a hypothetical project. Students should assess whether the company should invest in this project, given the information provided in the case.

Instructions

Students need to assess the attached information and recommend to the CEO whether to invest or not on the particular project. The report should be clear regarding any assumptions made in the analysis. It is also imperative that it includes a table of earnings/cash flows by year and the computation of the weighted cost of capital (WACC). Projects need to include an introduction that outlines the basics of the concept/market/tech and it’s prospects as well as follow a sound structure throughout the project with intro, main section, sub-sections and conclusion. Indicative steps of your analysis:

– Calculate the Cost of Equity (beta, risk free rate and risk premium)

– Calculate the Cost of Debt

– Calculate the WACC

– Calculate yearly incremental earnings (Revenues – incremental costs)

– Calculate Cash flows

– Use evaluation criteria (e.g. NPV, IRR, PB, DBP, PI)

– Use Sensitivity Analysis with a +-20% variability on final costs for initial investment and for required return only. Discuss the implications of these results.

– Discuss in detail the implications of the results of all the evaluation criteria

– The final recommendation (based both on quantitative and qualitative criteria) – The report should include a brief introduction and conclusion displaying some understanding of the 3d printer market and the potential of the project.

Indicative structure:

• Introduction (that also reviews the relevant market)

• Main Part (containing sub-sections for the indicative steps mentioned earlier)

• Conclusion

Submission:

Assignments should be 1500 words long with 12-size font and double-spacing between lines. A maximum of +-10% deviation from the word limit is acceptable. Above this you lose 5% for

every extra 10% deviation. (if you are 30% above the limit, you lose 10%, 33% you lose 15% etc…) • Assignments must be typed and submitted electronically on the day they are due via email to the instructor. Concerning the files sent (doc file with the report & (EXCEL) xls file with all the calculations),. • they should contain the name of the student as well as the name of the assignment as follows:

• Where coursework is submitted late and there are no accepted extenuating circumstances it will

be penalized in line with the following tariff: Submission within 6 days: a 10% reduction for each day late down to the 40% pass mark and no further.

Submission that is late by 7 or more days: submission refused, mark of 0.

You are reminded of the consequences of plagiarism.

FURTHER INSTRUCTIONS:

General referencing rules

References must comply with the Harvard system (you can consult the ACT library if you are uncertain).

Your essay must comply with rules governing academic integrity.

You should avoid plagiarism by citing all the papers that you have used.

If you quote what others have said, you should place these within quotation marks (“ ”) and

cite the source and page number. Do not lift sentences from original sources and insert

them into your writing without enclosing them in double-quotation marks. Doing so is

tantamount to plagiarism, and your essay will be liable to penalties.

Use direct quotes very sparingly, if at all, only when it is necessary. In most cases, essays in economics/finance do not need direct quotes, since we are mostly referring to information such as facts, figures, theories, etc. (i.e., you are not referring to artistic or literary works, famous historical remarks or speeches, etc.). This means that you must paraphrase original sentences, rather than depending on direct quotes (paraphrased sentences must be accompanied by parenthetical in-text references).

Do not cite / refer to “lectures” (this module or otherwise). Refer instead to available sources (mostly books and journal articles) that contain the relevant information.

Please note that any form of cheating will not be tolerated. The module leader reserves the

right to ask you to provide evidence that the essay submitted is your own work. This may

FIN202CBAProject_Name1_

require that you attend a viva (oral exam) on the coursework. In particular, you are

strongly advised not to copy material from papers, which are available on the internet and

present this as your own work. This can be easily detected, and appropriate disciplinary

action will be taken.

The 3d Printer Project ACME Inc. has had a great performance in the last several years producing printers and scanners. Given the momentum and potential of the 3d printing technology, the firm wishes to enter the market in order to diversify their operations and adapt to the future by developing a 3d printer of their own.

The Project

ACME wishes to develop their own innovative 3d printer. You have been asked to make the assessment whether ACME should invest in this project.

You have been provided with the following information:

1. Research and Development Costs: ACME has already spent (and expensed) $2 millions on research on the 3d printing market and technology. None of these costs can be recovered if the project is canceled.

2. Introductory Costs: If ACME decides to go ahead with the 3d printer, it will have to spend $6 million up front for infrastructure, sales network, suppliers network etc.

3. Potential Market Share: In the 3d printer market there were 1,500,000 printers sold globally in the most recent year and the market is expected to grow approximately 5% a year for the next decade.

ACME expects to gain a 10% market share next year if the ACME-3d printer is introduced. This share is expected to increase by 3% a year (13% in the second year, 16% in the third year, 19% in the fourth year and 22% in year 5) to reach a target market share of 25% of the overall market by the fifth year. It expects to maintain that market share beyond year 6.

4. Pricing and Unit Costs: ACME expects to sell each printer for $500 next year and the price drop by 10% per year for years 1-5. For the remainder of the years, a version 2.0 will be introduced with a new price of 550$ that will also drop by 10% per year. The production cost per unit is expected to be $250 next year and grow at the inflation rate thereafter.

5. Marketing Costs: ACME plans to use two different retailing options:

• In the first, it will sell the printer through IT retailers and pay the retailers a commission of 15% of the price per unit sold.

• In the second, it will sell the printers through the 3D-Print-IT Stores around the country.

ACME will spend $5 million right now in creating the stores; It will also pay its sales people a commission of 5% of the price per unit for every printer sold at 3D-Print-IT stores.

ACME expects to generate 60% of its revenues from specialty retailers and 40% from 3D-Print-IT Stores sales each year for the next 10 years.

6. Production Costs: ACME’s factory for inkjet printers is working at 60% capacity. The 3d printers will require expansion of the factory though and this will cost an extra $10 million, incurring now at the start of the project. Upon completion of the project, ACME expects to be able to salvage 2$ millions by selling outdated equipment/inventory/stock.

7. Advertising Expenses: ACME expects to spend 1 million $ for the launch of the printer in advertising campaign and activities and about 250,000$ per year thereafter increasing with inflation.

9. Printer Update: The version 2.0 of the printer will cost 2$ millions in development costs and an extra 250,000$ for marketing/advertising campaign. These costs will incur in the end of year 5.

10. Debt Information: ACME’s current debt (bonds) has a time to maturity of 10 years, coupon of 6% and yield-to-maturity of 3% with a face value of 100$. ACME has 2,000,000 bonds outstanding in the market. Current bond price is considered the “fair price” of the bond.

11. Shares information: ACME’s stock has a beta of 1.5, the current risk free rate is 2%, while the expected return on the market is 7%. ACME has 4,000,000 shares outstanding in the market.

Current stock price in the market is $57 per share.

12. Taxes: ACME’s tax rate is 30%.

13. Macroeconomic data: The expected inflation rate is 1.5%.

Your task is to assess whether you would invest in this project, given the above information. You should recommend to the CEO whether to invest or not in the new 3d Printer product.

Note 1: Assume a finite 10-year life of the project for your calculations Note 2: To keep time straight, you can assume the following:

• Next year: Year 1

• Most recent year: Just ended

• Right now: Time 0. Any up-front expenditure is incurred immediately

You are expected to follow a sound structure with

Introduction

Main part arranged using logical sub-sections Conclusion

You are also expected to use tables & quantitative data wherever needed. The XLS file is auxiliary to the MAIN report of the word file.