Investment Appraisal & Sources Of Finance Kerry Foods Has, As One Of Its Strategies: Financial Planning Assignment, UCD

Assignment

Investment Appraisal & Sources of Finance Kerry Foods has, as one of its strategies, an objective to make itself a European manufacturer of baby powder foods for families throughout the world which would capitalize on its ability to be a gateway to continents such as Europe and North America as well as emerging markets such as Asia. 

Due to its excellent production facility based in Charleville, County Cork, Kerry Foods have the unique capacity to exploit the current opportunities this affords them.

To help its marketing team to successfully market this concept throughout the world and to cater to this valuable area, Kerry Foods’ management is considering building a new production facility.

Kerry Foods’ management has asked its financial manager to consider in January 2020 whether they should proceed or not with this facility at the current time. 

The financial manager has presented to you, his financial assistance, with the following information and wishes that a project appraisal be performed so as to help the decision as regards proceeding or not with the building of the facility.

1. A specialized food architect company that specializes in designing these types of facilities have been hired to design the building.

Kerry Foods has already incurred €290,000 to date on preliminary fees with the architect company to be paid a further €620,000 payable in three tranches, 20% now, 40% in one year’s time and the balance in two years.

2. Planning permission will have to be given to Kerry Foods by Cork County Council. Kerry Foods has estimated that this planning permission process will cost them €125,000 in year 1. An environmental impact study will have to be conducted and paid at the same time as part of the planning permission application which will amount to €114,500.

3. The production facility build will consist of five main aspects;

a. 1,150 tonnes of steel. Steel currently can be purchased at €900 per tonne. Steel prices are expected to increase by 5% every six months starting on 1 January 2020. Kerry Foods expects to commence construction on 1 January 2021. 

They estimate that 70% (40% in 1st Half, 30% in 2nd Half) of the steel will be used by 31 December 2021, with the balance required in quarter one of 2022.

b. Bespoke insulated wall and roof panels. The wall panels come in 3-meter lengths x 2 meters width. 

The proposed production facility will be 10 meters high. The two long walls will each be 290 meters long whereas both ends will be 180 meters respectively.

Both ends will only require panels to cover 40% of the length due to specialized doors needed for access. The price quoted to Kerry Foods is €675 per panel. 

The company quoted will provide a 5% discount on quoted prices but they have recommended that Kerry Foods order 2% more panels than is required to cover any unforeseen circumstances.

The roof panels will cost €300 per panel and these come in the same dimensions as the wall panels. 20% of wall panels will be used and paid for in 2021 with the balance being paid the following year.

10% of the roof will be completed in 2021 with the balance completed in 2022. The roof will be paid for in 2022.