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Internal
Assignment Applicable for April 2018 Examination
Strategic Cost Management
1. A company is
considering a number of prospective project proposals. Although the company has
the potential to fund all the projects simultaneously, it does not want to grow
too fast and out of control. The company has therefore allocated a total amount
of Rs. 1000 crore in the current year for Capital Expenditure. Cost of capital
of the company is 10%. The relevant details of the proposed projects are shared
below.
|
Project
|
Initial Investment
(Rs. Crore)
|
NPV (Rs. Crore)
|
IRR (%)
|
|
A
|
300
|
780
|
17.5
|
|
B
|
200
|
-10
|
9.8
|
|
C
|
250
|
450
|
16.7
|
|
D
|
100
|
140
|
12.4
|
|
E
|
350
|
700
|
12
|
|
F
|
100
|
60
|
18
|
|
G
|
400
|
400
|
13.8
|
SAs
a specialist in the subject, you have been approached by the Management of the
company. Explain with proper reasoning which of the above projects should the
company accept to stay within the Rs. 1000 crore budget.
2. A brown goods
manufacturer is struggling to regain market share, and does not feature among
the top five players in the industry. The past few years have also witnessed
high attrition rate among top executives of the company. A newly appointed
General Manager has recommended implementation of Business Process
Reengineering as the way forward for the company. However, across the Board,
there are concerns regarding the success of such an initiative. As a specialist
in the area, you are expected to guide the Management through the above.
3 a) A diversified
conglomerate is taking a fresh look at the lines of businesses in which it
operates. Although it has identified three businesses which are non – core and
can be hived off, a segment of the Management is firmly against the concept
fearing that outsiders will perceive it as inability of the company to
successfully manage those businesses, and consider it as the company’s failure,
which can tarnish the image of the Management. As a newly joined expert in the
company, briefly explain your viewpoint about the same, and suggest how you
will convince the Management in this regard.
3 b) Now that you
have convinced the Management regarding utility of the restructuring exercise,
prepare a detailed report for the Management highlighting the various forms in
which the restructuring can be carried out, along with the associated benefits
and pitfalls of each.
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