# Extended NFG Case Study

• ANSWER ALL QUESTIONS (IN PARTS A, B, C, AND D) IN THE TEMPLATE NFG CASE STUDY EXCEL FILES PROVIDED, AND RE-SAVE YOUR REVISED EXCEL FILES AS INSTRUCTED BELOW
• FOR ONLINE SUBMISSIONS SEE DETAILS IN BLACKBOARD
• READ THE UNIVERSITY’S POLICIES ABOUT PLAGIARISM BEFORE YOU SUBMIT
• IF YOU BELIEVE THAT ANY QUESTION IS AMBIGUOUS/INCONSISTENT, YOU SHOULD STATE EXPLICITLY THE ASSUMPTIONS YOU ARE MAKING

# PART A (25 marks) [USE THE TEMPLATE EXCEL FILE ‘NFG_TEMPLATE_A’]

1. Sensitivity Analysis (10 marks)

Allow the tonnes of pears produced to vary over the range 65, 75 and 85 per annum (at full capacity) and the volume of insecticides (at full capacity) to vary over the range 2,000 litres, 3,000 litres and 4,000 litres per annum.

In the template Variables tab produce the sensitivity analysis matrixes (3×3 tables) using the ‘Whatif- analysis’/‘Data Table’ command in Excel, showing the full range of results for:

1. NFG’s IRR on equity after debt servicing and tax;

1. The NPV for the aggregate Referent Group assuming a 5% discount rate.

Copy your results into the template tables shown in the PART A_Sensitivity tab of the Excel template.

1. Threshold Analysis (10 marks)

In the template Variables tab derive the following threshold values for the NFG project Using the

‘What if Analysis’/ ‘Goal Seek’ command in Excel:

1. The profits tax rate at which NFG would earn a 15% IRR on equity after debt servicing and tax, and, the NPV (5% discount rate) to the aggregate Referent Group at this threshold tax rate;

1. The profits tax rate at which the NPV (5% discount rate) to the aggregate Referent Group would be \$0.

Copy your results into the template tables shown in the Part A_Sensitivity tab of the Excel template.

1. Reporting Results of Sensitivity and Threshold Analysis (5 marks)

In the designated boxes in the ‘Part A_Sensitivitytab of the Excel template file write two short paragraphs (250 words each) explaining the results in parts (1) and (2) above, to:

i).        the NFG board of directors; and,

1. ii)          the local government of Happy Valley.

INSTRUCTIONS: You MUST re-save the complete Excel workbook with the new file name ‘NFG_SOLUTION_A’ for on-line submission. (See ASSESSMENT folder in Bb for submission details.)

# PART B (25 marks) [USE THE TEMPLATE EXCEL FILE ‘NFG_TEMPLATE_B’]

Under a different scenario, assume that NFG requires a minimum 15.0% IRR (real) to go ahead with the project. Its analysts are forecasting a 6.75% fall in the price of all fruits from 2020 onwards due to an increase in overall world supply. Labor unions are bargaining for an enterprise agreement which guarantees a fixed raise to their wages per annum starting from the second year of the project (year 2 in the CBA).

Assuming other costs/benefits remain unchanged, including the Shadow/Efficiency cost of labour, you are required to:

i.)        undertake a threshold analysis to calculate the maximum percentage increase in wages

per year that NFG would be willing to agree to in order to maintain the IRR on equity after debt service and tax at its minimum required rate of 15%; and, ii.) report  your results for NFG and the aggregate Referent Group at a 5% discount rate in

the PART B_RESULTS tab of the template Excel file

INSTRUCTIONS: Once you have done the analysis you are required to:

i.) write two short paragraphs (250 words each) in the designated boxes in the  ‘PART B_RESULTS’ tab of the template Excel file, in which you report the results, explain the estimated impacts, and make recommendations to NFG board and Happy Valley local government respectively;

(7.5 marks for each paragraph, labelled B1 and B2)

ii.) you MUST re-save the complete revised Excel workbook with the new filename ‘NFG_SOLUTION_B’, for on-line submission. (See ASSESSMENT folder in Bb for submission details.) (10 marks)

# PART C (25 marks) [USE THE TEMPLATE EXCEL FILE ‘NFG_TEMPLATE_C’]

On the assumption that the NFG project did go ahead in 2015, and it is now 2020, some 5 years into the operations of the project and the COVID-19 pandemic is in full swing. You have been invited by NFG and the government of Happy Valley to re-evaluate the NFG project based on the following new assumptions for the period 2020 to 2025, before returning back to the original assumptions in 2026:

1. a drop in world fuel prices (efficiency price) of 25%;
2. a drop in all fruit prices of 30%;
3. an increase in the cost of labour (at market and efficiency prices) of 20% due to COVID-19 restrictions and regulations;
4. a drop in the interest rates on the agricultural loan to 1.5%. (Leave the annual principal repayments unchanged.)

INSTRUCTIONS: Once you have introduced these changes you should:

i.) write two short paragraphs in a new tab in the Excel workbook labelled ‘Impacts’ (250 words each, labelled C1 and C2) in which you report the results, explain the estimated impacts, and make recommendations to NFG board and Happy Valley local government respectively; (7.5 marks for each paragraph.)

ii.)  you MUST re-save the complete revised Excel workbook with the new filename ‘NFG_SOLUTION_C’, for on-line submission. (See ASSESSMENT folder in Bb for submission details.) (10 marks)

PART D: Short Essay (25 marks)

In no more than 1,000 words compare and contrast the approaches to cost-benefit analysis of alternative government policy options and responses to the COVID_19 pandemic as discussed in the articles by Holden & Preston (May 2020); and, Frijters (May 2020). (See links to the two articles below. You may draw on other references if you wish but these must be cited and referenced clearly. References are not included in the word limit.)

INSTRUCTIONS: You should write your essay in Word and then save it as a PDF file for on-line submission through Turnitin. You are advised to follow a logically structured essay format with section headings; eg. Introduction; Analysis; Discussion; Conclusions.

See the ASSESSMENT folder in Bb for submission details.