EXECUTIVE SUMMARY 3
ADDITIONAL ASSUMPTIONS AND METHODOLOGY 4
THE USE OF NPV AND IRR 4
INCREMENTS AND DECREMENTS 4
RELEVANCE OF INFORMATION 5
PURCHASE COSTS 6
TRANSPORT COSTS 6
CAPITAL EXPENDITURE AND TRANSITION COSTS 7
RESULTS AND FINDINGS 7
SENSITIVITY ANALYSIS 8
PRACTICE IN CARBON TAX/C02 8
CONCLUSION AND RECOMMENDATIONS 9
This report analyses and evaluates a Woolworths Limited (WOW) energy efficient initiative, which involves a comparison of two scenarios, focusing on the permanent closure of the National Distribution Centre (NDC).
These scenarios are broken down into Project A, to close the NDC, and Project B, if it is not closed, the required capital expenditure for refurbishment. The report will determine the most profitable outcome via the Net Present Value (NPV), over a period of 10 years, and other reasonable calculations.
The methods of analysis and evaluation contain both financial and non-financial factors. The financial analysis looks at calculations of volume, various costs, sales, capital expenditure and transition costs, evaluation of cash flows and finally a sensitivity analysis. All the calculations can be found in the financial modeling of excel.
The non-financial analysis of this report looks dividing the relevant and irrelevant information, and discusses the most profitable scenario.
In this report we compare the emission of CO2 for both Projects A and B. The analysis in the report gives us the total CO2-e reduction in Project A as 8.226971 tones. In Project B there is no carbon dioxide reduction.
The incremental EBIT of Project A is greater that in Project B. This information indicates that the Project A will significantly increase the EBIT for Woolworths Limited.
After substantial research and analysis of the ‘significant numbers’, we suggest Woolworths Ltd undertake Project A, to close the NDC. The financial model is used to verify the feasibility of this project, although the IRR rate is inappropriately large. The following report discusses in detail the reasoning behind these decisions.
As one Australia’s largest companies, with approximately 198,000 employees and over 3000 stores across Australia and New Zealand, Woolworths Ltd. constantly faces both internal and external pressure on their sustainability. Shareholders, employees, the government, and the public challenge and expect WOW to be aware and responsible to the marketplace, the workplace community, and the environment.
This report has identified the company’s corporate responsibility model and course of business. Woolworths Ltd. places the use of energy and greenhouse gas emission to the top of the priority list. They emphasise the connection of the use of fuel, electricity and carbon dioxide emission.
WOW’s immense usage of electricity for refrigeration (50% of all electricity usage) and massive fuel consumption for their distribution network (truck and business travels). It has been identified that a National Distribution Centre (NDC), which is currently used for refrigeration purposes, could be energy inefficient. The focus of this report is to analyse the economic viability of implementation of two alternative investment decisions, Project A and Project B.
The analysis looks at the three affected areas (sales, costs and asset’s structure). At the end of the report, we provide our inferences and recommendations.
Additional Assumptions and Methodology
The use of NPV and IRR
We used these methods as they incorporate the time value of money
Increments and decrements
We focused only on increments and decrements of relevant information for the NPV/IRR decision-making.
The data in this report was not adjusted for the inflation rate. This is because the NPV/IRR analysis requires the treatment of inflation only, when particular cash flows…