Due date: 15 May 2019, 11PM

1. Matters needing attention, this included 2pary, which is Excel and Memo.
2. Excel sections calculate the NPV of the two choices respectively. (Use the excel i provide to
calculate the NPV, which is capital budgeting application).
3. Memo section refers to the highest standard of scoring standards.
Thank you.

This assignment has a 25% weighting in your overall mark for this unit and focuses on content from
Weeks 6, 7 and 8. The assignment will be marked out of 25 and marks will be allocated as indicated in
the rubric on page 4. Your total assignment submission will consist of a word document and a
spreadsheet.

The assignment is based on the case information below. While the company and financial data in the
case are fictitious1, the context is not. Many companies face similar investment decisions as well as
challenges and opportunities to run more environmentally and socially responsible businesses.

DuoLever Limited operates in the personal care (e.g. skin and hair care products) industry. All its
products are sold in plastic packaging and a significant proportion in multi-layer sachets (or pouches)2.

Managers at DuoLever are acutely aware of the increase in world production of plastic and the
environmental impact of plastic waste ending up in landfills, rivers and oceans. For example, it is
estimated that 8 million metric tons entered the ocean in 2010 and this annual amount is predicted to
more than double by 2025, accumulating as show in the following graph3:

To help develop a closed-loop system related to the company’s products, DuoLever has invested
around $50 million in soft plastic recycling research, development and pilot testing. The outcome is a

1 UniLever and its research and development in the area of multi-layer sachet recycling provides the inspiration for this case
but all facts related to the financial analysis are fictitious.
2 While not necessary for attempting this case study, you will better understand the plastic packaging in this case context if

you go to https://www.plasticpackagingfacts.org/blog/multi-layer-pouch-packaging-a-sustainable-story-animated/ and watch

the video on multilayer plastic pouches. Although many improvements to this packaging have been made, as pointed out in
the video, there remains much to do in reducing the impacts of waste pouches on the environment.
3 Estimates from Jambeck, J.R., Andrady, A., Geyer, R., Narayan, R., Perryman, M., Siegler, T., Wilcox, C., Lavender Law,

K. (2015) Plastic waste inputs from land into the ocean, Science, 347, p. 768-771 and graph reproduced from p. 770. If you
are interested, see see https://jambeck.engr.uga.edu/landplasticinput for further details and an infographic.

1
new and efficient method for recycling sachet waste. In fact, their recycling method is more energy
efficient than producing virgin sachet plastic, reducing energy usage by 83%. The output plastic is of
such high quality it can be used in food grade packaging applications. Currently, no other recycling
method in the market can achieve this.

The company now faces a decision: should it (1) add production of recycled sachet plastic to the
company’s portfolio of businesses or (2) license use of the patented method? The CEO has asked you
to undertake a financial analysis of the options and present your recommendations in a short memo.
Option 1:

The recycling production option requires an upfront investment in plant and equipment of $20 million,
which will be depreciated to a zero book value on a straight-line basis over 5 years. The plant will
provide sufficient capacity to meet the company’s forecast plastic packaging needs over the period of
its life. After this, it is expected that the plant will have no salvage value and will be updated using new
and better technology. Financing for the plant and equipment will be via a new 5 year debt issue,
resulting in interest costs of $1.4 million payable at the end of each year.

Producing recycled plastic has several financial benefits for the company. First, sales revenue of the
company’s existing products, which will be packaged in the recycled plastic, is predicted to increase
due to consumer demand for environmentally responsible products. Excluding this benefit, the
company’s forecast sales revenue for the coming year is $200 million and this is expected to grow by
4% each year after that. The benefit of recycled packaging is expected to increase these sales forecasts
2% during the 5 year life of the project.

The second benefit is that the cost of plastic packaging for the company’s existing products will
decrease. The recycled plastic will be cheaper than buying virgin plastic due to lower energy costs and
avoiding a supplier margin. The reduced energy costs will shave 15% off total variable packaging costs,
currently (without recycling) estimated at $22 million for the coming year and expected to grow by 3%
per year after that. Avoiding a supplier margin will reduce total variable packaging costs by 10%.
However, the benefits of avoiding the current supplier margin will be offset by the need to pay a new
partner, Clean World Ltd, who will set up a plastic waste collection system to supply sufficient raw
material for the recycling plant. Apart from these changes, it is expected that variable costs and net
working capital will be equivalent to existing forecasts. However, an additional $2 million annually in
selling, administrative and general expenses directly related to the project (excluding depreciation)
will be incurred.

Option 2:

Option 2 involves licensing use of the patented recycling method to another company, Clean World
Ltd, which has shown interest in taking on the entire project, not just supply of raw material. Initial
negotiations between DuoLever and Clean World have reached some agreement on what the terms
of the arrangement would involve. Clean World would produce recycled plastic using DuoLever’s
method for the next 5 years and all output during that time would be supplied exclusively to DuoLever
for the same cost as DuoLever’s existing virgin plastic supply forecasts. This means that Clean World
would capture the energy savings associated with the new recycling method, along with a supplier
margin. The benefits for DuoLever would be no initial outlay for plant and equipment and locked in
packaging materials supply costs for the next 5 years. DuoLever would also retain the ability to market

2
the environmentally responsible characteristics of its recycled packaging and so retain the expected
additional sales revenue benefits of Option 1. Annual selling, administrative and general expenses
would be just $1 million annually under Option 2, as no additional production administration would
be required.

Other information:

DuoLever has an 8% weighted average cost of capital and is subject to a 25% tax rate on its income.

Required:

Prepare (1) a spreadsheet financial analysis of the proposed options and (2) a memo to DuoLever’s
CEO that briefly explains and justifies your chosen methods, inputs and any assumptions made,
summarises your findings, and presents your recommendations on the proposed options. Ensure you
not only address base case cash flows but also analyse potential uncertainty. Recommendations
should address the decision to be made, along with any further follow up or other matters the
company should consider prior to making a final decision.

Instructions:

Submit your spreadsheet separately in the provided spreadsheet link in the BCS2 section of the unit
site. By submitting the spreadsheet, you are confirming that it is entirely your own work. Save the
spreadsheet with your details in the file name using the following format (failure to do so could result
in your spreadsheet not being considered in marking):

Student ID_Full_name_ACC00716A3

The memo will be submitted as a word document via a Turnitin assignment link in the BCS2 section of
the unit site and include your name, student ID, unit code (ACC00716), assessment number (A3) and
word count at the beginning of the document. The remainder of the document should be set up as a
formal memo and include an appendix with a screen shot(s) of your base case figures from the
spreadsheet. Within the memo body, you may provide tables and figures that are discussed in the text
and assist decision makers understand your methods, findings and their implications for decision
making. The word document submission must not exceed 1,000 words (excluding the screen shot
appendix and reference list).

This is an individual assessment exercise. The unit teaching team is very experienced at marking such
assessments and recognising the differences between individual and “group” work, as well as data,
facts, statements and ideas of others that have not been appropriately acknowledged. To avoid any
potential for academic misconduct investigation, ensure that every aspect of your work is your own
and that you acknowledge all sources you have directly drawn upon in your submitted work.
Quotations should be shown as such. We are not fussy about referencing style, just that you reference
when needed.

3
 MARKING
CRITERIA Excellent Very Good Good Satisfactory Poor
About half the relevant
Nearly all relevant base case base case cash flows have Less than half the relevant
Accurate Most relevant base case cash
All relevant base case cash flows cash flows have been been accurately base case cash flows have
estimation of flows have been accurately
have been accurately accurately incorporated into incorporated into the been accurately incorporated
relevant base case incorporated into the analysis
incorporated into the analysis the analysis and decision analysis and decision into the analysis and decision
cash flows and and decision criteria are
and net cash flows and decision criteria are correct based on criteria are mostly correct criteria may be mostly
decision criteria mostly correct based on your
criteria are correct. (12 marks) your net cash flows (10 incorrect based on your net
(12 marks) net cash flows. (8 marks) based on your net cash
marks) cash flows. (0 to 4 marks)
flows. (6 marks)

You have not analysed project

You have accurately analysed
project uncertainty using
Accurate and
appropriate techniques. You have
appropriate
shown insight by judicious input
analysis of
choices that are well-articulated
uncertainty (5
and linked to case facts. The
marks) analysis is easy to follow. (5
marks)
You have accurately analysed
project uncertainty using
appropriate techniques and
judicious input choices that
are mostly well-articulated
and linked to case facts. The
analysis is easy to follow. (4
marks)
You have analysed project
uncertainty using appropriate
one appropriate technique.
techniques and mostly
judicious input choices that
are mostly well-articulated
and linked to case facts. The
analysis is easy to follow. (3.5
marks)
You have analysed project uncertainty using appropriate
uncertainty using at least techniques or have
attempted to use at least one
appropriate technique but
Input choices lack
with no demonstrated
justification, are
unreasonable or the consideration of input choices
in a hard to follow analysis or
analysis is not easy to
follow. (2.5 marks) there are major inaccuracies.
(0 to 2 marks)
 You have accurately interpreted
the results of your financial
analysis and made appropriate
and insightful recommendations
with the basis of those
recommendations clearly and
Appropriate concisely explained.
interpretation and Recommendations go further
recommendations than simply accepting or rejecting
based on the the project by recognising the
project analysis (8 subtleties of project decision
marks) making and needed additional
analysis or considerations. Use of
language makes meaning
consistently clear; no or very few meaning clear; no or very few
grammar, syntax and spelling
errors. (8 marks)
You have accurately
interpreted the results of your
You have accurately
financial analysis and made
interpreted most of the You have not correctly
appropriate You have accurately
results of your financial interpreted most results from
recommendations. interpreted some of the
analysis and made some your financial analysis or no
Recommendations go further results of your financial
appropriate recommendations have been
than simply accepting or analysis and made at least
recommendations. Subtleties made or recommendations
rejecting the project by one appropriate
of project analysis and do not follow from the results
recognising some subtleties of recommendation. Use of
decision making have or interpretation. Use of
project decision making language mostly makes
generally not been language mostly makes
and/or needed additional meaning clear; several
recognised. Use of language meaning unclear; many
analysis or considerations. grammar, syntax and grammar, syntax and spelling
mostly makes meaning clear;
Use of language mostly makes spelling errors. (4 marks)
several grammar, syntax and errors. (0 to 3 marks)
grammar, syntax and spelling spelling errors. (5.5 marks)
errors. (6.5 marks)