Chat with us, powered by LiveChat Instructions: • This assignment carries 15% of the grade. • You can purchase the case, ‘Magic timber and steel: Investment evaluation with Net Present Value’ search (9B16N010) (you can choose digital download) at • Update: The |



• This assignment carries 15% of the grade. • You can purchase the case, ‘Magic timber and steel: Investment evaluation with Net Present Value’ search (9B16N010) (you can choose digital download) at • Update: The cost of new machine Delta is 135,000 instead of 140,000 given in the case.

 Report Submission Instruction: • Maximum 4 pages excluding Reference/Appendix. You may consider using Refernce/Appendix section to include your research references, calculations, relevant graphs, charts, illustrations, and tables.

 • Report due date and time: 6 June 2021 23:59 Hour Pacific Standard Time • Report must be submitted in Week 9 Turn-it-in link “Assignment 2, Due 6 th June – Submit here”. • A separate link ‘Assignment 2 – Submit Excel File here (if any)’ will be provided if you want to submit your excel file, if any available. Report submission by email will not be accepted. • Please include the statement with your signature in your paper: “I agree that the work in this assignment is my own work and that I have given credit to all sources of information used in my assignment by including citations and references in the APA format. I acknowledge that I am expected to exercise the utmost academic integrity in all work submitted for this course. SIGNATURE: Your name” Report Expectation: You will be reading the case, research relevant facts, perform analysis, and document your findings, analysis, and recommendation in a written report to John Davidson to assist in the decision of whether to buy the new machine or maintaining the existing one. 

You may consider the following guided questions to prepare your report. If you have made assumption(s) as part of the case analysis, please include them in the report. • Using NPV analysis, should Magic Timber and Steel (Magic) purchase the new Delta finishing machine? • What other quantitative and/or qualitative factors (see below) need to be taken into consideration? • Sensitivity analysis (e.g., different discount rates, different selling prices, change in maintenance cost) • You may assume discount rate as 11% and tax rate as 30%. Cash Flows: Matrix: • Salvage value, Repair, Maintenance, Scheduled service, Machine Sales Delta: • Machine investment, Labour savings, Electricity savings, Maintenance, Salvage value, Profit/Loss from sale Non-Cash Flows: Matrix: • Depreciation (given in case) Delta: • Depreciation (10% per year of cost $135,000) Tax Impact relevant Cash Flows: Which of the above cash flows and non-cash flows could impact the cash flow for tax saving/payment? • Savings (+ taxable income), Costs (- taxable income), Depreciation (Matrix, Delta), Profit/Loss from Sale Cash Flows for NPV: Which of the above cash flows (including tax impact relevant cash flows) are relevant for purchase of Delta decision? 



Scott McCarthy wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective
or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to
protect confidentiality.

This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected];

Copyright © 2015, Richard Ivey School of Business Foundation Version: 2016-04-21


Magic Timber and Steel (Magic) was formed in 1999 in Caloundra on the Queensland Sunshine Coast,
Australia.1 Located about 100 kilometres (60 miles) north of the state capital of Brisbane, the coast was
known for its clean, protected beaches and safe waters. The business peaked in terms of sales revenue in
about 2011, and went on to experience a steady decrease in turnover that was attributed to a number of
reasons, including infrastructure issues on the coast and a slowing in the tourism market.

To reinvigorate the business, in early 2015, Magic’s owner, John Davidson, believed his company required
an investment in fixed assets, specifically, a large finisher that would increase capacity and reduce
maintenance. Since the new machine required a large financial investment, Davidson used the net present
value method to determine whether the purchase would add value to the firm. In addition, he needed to
consider some important qualitative factors before a decision could be made.


Magic’s original owners, John Davidson and Kelly Peters, leased the company’s first premises on the site
of a disused service station, and specialized in packs of “seconds” timber that was sold to the retail market
at discounted prices. The business was successful and eventually outgrew the small premises.

In July 2002, Magic purchased an industrial block of land that was approximately 10 times the size of the
leased premises and on which was built a large, secure shed. The owners decided to move on from the
timber packs and instead set up the new location as a timber yard. As the business continued to grow,
Davidson and Peters began stocking hardware supplies and purchased a large Scania truck that could be
used for

error: Content is protected !!