Introduction

Technology Company Loop plc, founded in Hertfordshire (United Kingdom), is primarily

focused on developing wireless electronic gaming systems. Its products are available in the

U.S.A, United Kingdom, South Korea and Western Europe. The company plans to sell the

Galactic Lite, a brand-new portable gaming system it developed, to the aforementioned region.

Recently, the highest levels of management within the corporation admitted that operations are

reaching their limit. The existing program must be greatly expanded in scope in order to compete

with current and future initiatives. This report's objective is to provide Loop plc with a

thoroughly researched and written business report in which can be used to evaluate the venture

idea, offer assessment of the initiative's financial viability, and any pertinent remarks on the

impact of any unidentified financial risk. The emphasizes on a number of different ways to raise

capital for the project.

Computation of Galactic Lite product:

Net present value:

The net present value (NPV) of an investment is calculated by taking the cash inflows

over a predetermined period of time and deducting the cash outflows from that total (NPV).

Consideration of Net Present Value (NPV) is essential when making investment and capital

investment plans. The present value of a sum of money must be computed with interest when

completing an NPV analysis (Anderson, 2021). Investments having a negative net present value

ought to be avoided since the discount rate is determined by the cost of capital. A project's net

present value calculation necessitates the use of forecasting assumptions. The investment's net

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 present value is obtained by comparing the investment's expected future value to its current value

(Anderson, 2021).

Net present value (NPV) is the term used to describe the financial value of future cash

infusions that will arise from an investment, in addition to the initial outlay (William, 2010). By

discounting upcoming cash flows at a specific rate, present value in NPV is calculated. One

method of determining profitability is to subtract the cash flow from activities from the overall

operating costs. Equity and borrowing costs must be taken into account when calculating the

Galactic Lite product's NPV to get the WACC (William, 2010).

Computation of equity cost:

The return on investment (ROI) measures how profitable an investment. The capital

asset pricing models and dividend capitalization are used as tools in the computation of equity

costs. We determined the equity price for the Galactic Lite product using the CAPM model. A

straightforward theoretical framework known as the capital asset pricing model makes an attempt

to explain the variables that affect security prices and, in consequence, investment returns in

global financial markets. Investors may use the technique for purposes other than risk assessment

to estimate the anticipated rate of return (Ke and Liu, 2014).

CAMP formula:

CAMP = Risk – free rate of return + (market premium

rate X beta)
CAMP = 2.89% + (11.6% X 1.4)
CAMP = 19.13%

Table 1: Equity costs through CAMP

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 The cost of equity was calculated using the CAPM technique, and the result is

19.13%.

Calculation of equity debt:

The "effective rate of interest" is the interest rate applied to derivative products

like bonds and loans. The capital structure of a corporation consists of both debt and equity. A

company's average yearly interest rate on all of its outstanding loans can be used to estimate its

debt costs (Wong, 2018).

Cost of debt
Bond price 5,000,000
Face value of bond 104700
Coupon rate 10%
Tenor 4
Annual payment 10470
Interest rate 28%

Cost of debt 22.40%

Table 2: Computation of cost of debt

Table 2 indicates that the typical APR for debt is 22.40 percent. This sum will be

used in the NPV calculation for the Galactic Lite product as the debt rate.

WACC is calculated as follows: (weighted average cost of capital) + (weighted

average cost of debt) X (1 – Tax rate)

WACC = 22.40%

Following computation of the cost of equity and cost of debt for the Galactic Lite

product, the WACC is shown above 20 million shares of weightage equity, which consists of

both preferred and common stock, are produced by multiplying the cost of equity by 21.7%. We

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 multiply the $110,000,000 in total debt (which includes both redeemable and nonredeemable

bonds and debentures) by the debt cost of 22.4% to get the WACC.

NPV analysis:

Total fixed cost

Variable cost 80,000,000 199,680,000 259,575,000 359,960,000 112,302,000

Fixed costs 25,000,000 25,000,000 25,000,000 25,000,000 25,000,000

Total costs 105,000,00 224,680,000 274,600,000 371,112,000 35,788,000
0.
Table 3: Total fixed cost of product

Cost of Machinery (180,000,000)

Working Capital (45,000,000)

Production & 500, 000 1,200,000 1,500,000 2,000,000 600,000

sales(units/year)

Contribution
320 321 322 323 324
Margin
Total Contribution 160,000,000 385,236,000 483,090,000 646,180,000 194,472,000

Total costs 105,0 224,6 284,5 384,9 137,3

00,000 80,000 75,000 60,000 02,000
Advertisement 30,000, 30,900, 31,827, 32,781, 33,765,
cost 000 000 000 810 264

Net Profit (225,000,000) 25,000,000 129,656,000 166,688,000 228,438, 190 23,404, 736
Return Working 45,000,000
Capital

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 Salvage of 1,000,000
Machinery

Total cash flow (225,000,000) 25,000,000 174,656,000 166,688,000 228,438,190 24,404,736

Tax @20% 5,000,000 34,931,200 33,337,600 45,687,638 4,880,947

Net cash flow (225,000,000) 20,000,000 139,724,800 133,350,400 182,750,552 19,523,789

Cost of capital @ (225,000,000) 16,129,032 90,872,008 69,940,586 77,298,658 6,659,715

24%
PV of all CF 260,900,001

PV of Negative (225,000,000)
CF
Net present value 35,900,001

Table 4: NPV computation

Net Present Value can be calculated using Table 4. A total of £225,000,000 was invested.

A total of £45,000,000 was spent on equipment, while the remaining $1,800,000,000 was used to

cover operating expenses. The product's contribution margin is predicted to increase by 3% per

year up until the project's conclusion. The total contribution amount, which can be expressed as a

percentage, is obtained by multiplying the anticipated number of units produced by the

contribution margin per unit: £ 160,000,000.00 in year 1, £ 385,236,000 in year 2, € 483,000,000

in year 3, £ 646,180,000 in year 4, and £ 194,472,000 in year 3. Contrarily, rent prices only rise

by 1%, but advertising costs rise at the same rate as inflation (now 3%).

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 Prices in marketing increase by 3% a year, but labor expenses are determined by

multiplying the output volume by the hourly pay rate (now 9%). Each workday is divided in half

to reflect the reality that producing a single item takes 30 minutes.

The agreement states that all working capital will be repaid and equipment valued at £

10,000,000 will be deactivated before the end of the year. Cash flow would total

£25,000,000,000 throughout the course of the four years. In years three, four, and five, this

would rise to a total of £129,656,000, 166,000, 228,438,190, and 23,404,736 respectively. This is

the amount that remains after all essential expenses have been deducted from the sales earnings.

The net cash flow is then divided by the number of years utilized in the computation after

accounting for the 20% tax and the 24% cost of capital/discount rate (in this case, four). Using a

discount rate of 24 percent, we arrive at discounted CF values for the first year of £16.129.032,

the second of £90.872.008, the third of £69.940.586, the fourth of £77.298.558, and the fifth of

£6.659.715.

After adding the full positive discounted cash flow of £260,900,001 and the complete

negative discounted cash flow of -£225,000,001, the net present value was found to be

$35,900,000.

Proposal 2

The business to contact while making electrical items is Nitro Dynamic Ltd. Loop plc is

willing to sell the intellectual rights to Nitro Dynamic Ltd, a manufacturer of electronic devices,

for £70 million. It is due immediately in one instantaneous payment. Loop Plc won't be allowed

to make the patented invention when the patent is sold. Although there are advantages to

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 outsourcing production, Loop plc will benefit far more once their own facility is constructed. By

the conclusion of the third year, the company will make a sizable profit, as shown in Table 4.

Impact of exchange rate:

The price of imported goods changes in lockstep with changes in the value of a nation's

currency. In the event that the value of the domestic currency falls, the majority of people won't

be able to afford imported items. This implies that imports from other nations may be less

expensive if the local currency is stronger. Prices for products made in the US and Europe will

rise as the pound gains strength (Mia, 2021).

Payback of PRODUCT

Payback
- 1 2 3 4 5
Cash Flow (225,000,000) 20,000,000 139,724,800 133,350,400 182,750,552 19,523,789

Accumulated CF (225,000,000) (205,000,000) (65,275,200) 68,075,200 250,825,752 270,349,541

Table 5: payback period computation

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