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Question 3 (20 marks)
You have built your model and generated the results. You will now present your findings and
recommendations to the board.
The board has indicated that they would prefer to recoup their investment within seven years, if possible.
They also would like to earn at least 25% internal rate of return on this investment, given the level of risk
associated with this transaction.
Please answer the following questions
a.) What do your results from the Net Present Value and Internal Rate of Return tell you about the viability of buying Hepal? (4 marks)
b.) How long will it take for the initial investment to recoup its initial investment based on the Payback Period and the Discounted Payback Period? Comment on your findings (5 marks)
c.) Identify two key risk factors in this transaction and conduct the sensitivity tests using your model to
see how these factors will affect the profitability of this transaction. Discuss the implication of your
findings. (8 marks)
d.) Is it a good idea for Darwin Brighton to make an offer of $370 million to purchase Hepal, given the
constraints set by the board? Explain your reasoning. (3 marks)
