All amounts are in $AUD. In order to increase its market penetration and boost profitability, Coles Group (COL) is evaluating investing in a “Mega Automated Convenience Store” (MACS). COL has already identified a facility that could be ideal for this new format of convenience store. In order to mitigate the risk and assess the fit for purpose of the facility COL asked “Stem Consulting Ltd.” to conduct a technical due diligence. “Stem Consulting Ltd.” is asking $150,000 as a fixed fee for its consulting services. The MACS will have a size of 5,000 square metres (sqm) and will require an initial investment of $100 million. As part of the initial investment, COL will also have to invest additional $50 million in state-of-the-art AI Robotics Technologies.

Part A: Business Strategy – Coles Group Ltd. [25 marks]

The Coles Group Vision is “to become the most trusted retailer in Australia and grow long-term shareholder value”. Becoming the most trusted retailer in Australia means we are reliable and responsible, and delivering on our purpose.

Required:

Using the resources above, and researching wider, argue whether Coles has been delivering on this vision.

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Part B: Capital Budgeting– Coles Group Ltd. [25 marks]

Answer the below questions in your word file and refer to your excel spreadsheet as a supporting document. Upload your excel spreadsheet under “Excel Submissions”.

All amounts are in $AUD. In order to increase its market penetration and boost profitability, Coles Group (COL) is evaluating investing in a “Mega Automated Convenience Store” (MACS). COL has already identified a facility that could be ideal for this new format of convenience store. In order to mitigate the risk and assess the fit for purpose of the facility COL asked “Stem Consulting Ltd.” to conduct a technical due diligence. “Stem Consulting Ltd.” is asking $150,000 as a fixed fee for its consulting services.

The MACS will have a size of 5,000 square metres (sqm) and will require an initial investment of $100 million. As part of the initial investment, COL will also have to invest additional $50 million in state-of-the-art AI Robotics Technologies.

It is believed that the MACS will be able to generate 20% more revenue compared to a traditional convenience store. The average annual sales per sqm of a traditional convenience store is $18,000. The MACS will generate revenue starting at the end of year 1 until the end of year 10. It will also incur additional working capital expenses of $5million immediately, this working capital will be recovered at the end of the project.

It is believed that the MACS will reduce the revenues of a nearby grocery store that Coles also own. The negative impact on annual revenues of this store is expected to be $10 million.

The management team is forecasting that operating costs will be only 15% of the incremental revenues from year 1-10. The initial investment will be depreciated on a straight-line basis over ten years to 0 book value. COL has estimated that the MACS can be sold at the end of year 10 for $15 million. The tax rate is 30%. All cash flows are annual and are received at the end of the year. The weighted average cost of capital is 5.5%.

a.Calculate the FCFs for this project. Explain the steps taken for the computation of FCFs. (10 marks).

b.What is the NPV for the project?(5 marks)

c.What is the Discounted Payback Period? (2.5 marks)

d.What is the IRR? (2.5 marks)

e.Assume that the risk of investing in the MACS is higher than the overall risk of the company, what would happen to the discount rate and consequently NPV of the project? Why? (2 marks)

f.Suppose that COL’ management discounted payback rule is 5 years. Based on your analysis in b), c) and d) should the company undertake this project? Justify your answer with reference to theory. What other factor might affect the final decision? (3 marks)

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How do I submit?

Assignment must be submitted via Turnitin only.

The assignment should be submitted as a business report which contains a table of contents, an introduction, answers to the questions, the conclusion and references.

Checklist

Submitted the cover sheet which clearly specify each student’s full name, student ID ☐
and the part he/she completed
Each question is numbered as per the assessment ☐
I have included references using specified referencing style ☐
I used Microsoft Word in Arial 12 with double spacing ☐
I have checked my Turnitin report to ensure the similarity report is acceptable and ☐
explainable
I will be able to supply the process output, if required by my lecturer to prove this my ☐
own work (e.g., screen dump of my search and retrieval of journal articles, etc.)
I have completed proof reading and checked for spelling and grammar ☐
I have submitted my work before the due date/time ☐

•Appropriately cite original work, author(s) etc. Citation and referencing must conform to Harvard referencing format both in the body of the paper and its attached reference section.

•Please remember to check the version you are uploading is the final one. Turnitin does not allow you to withdraw and resubmit.

•The software used for checking originality compares works submitted by students with published material from a variety of sources including the Internet. A Turnitin score of 10% or greater will be considered cause for concern.

Who can help me?

•Academic skills Unit (ASU)

•When you need any assistance or clarification, you can contact me via email (Kanchan.bandyopadhyay@acu.edu.au).

I’m having problems

Apply for an extension (must be submitted at least 24 hours prior to the due date) An extension is considered for students who have person circumstances or temporary illness that significantly hamper(s) their participation or performance in an assessment task. Appropriate evidence and documentation need to be provided along with the EX form.

•EX form

Apply for a special consideration (up to 5 working days after the relevant due date)

A special consideration application is considered when your participation in an assessment task or other assessable activity has been significantly hampered by exception and unforeseen circumstances beyond your control and where other processes are not applicable or are no longer possible because of the timing and/or severity of the

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circumstances. Appropriate evidence and documentation need to be provided along with the SC form.
•SC Form

To apply for either extension or special consideration, contact your National Lecturer in Charge via email (kanchan.bandyopadhyay@acu.edu.au) and provide a copy of your filled-out form and your supporting evidence.

Criteria

The full criteria have been compiled in a rubric, which can be found on the following page.

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