The Examiner's Answers – May 2011 E3 - Enterprise Strategy SECTION A Answer to Question One Requirement (a) Financial consequences of Desserts Division's proposed relocation Year(s) Moving cost Net inflow (1) Costs (2) Net cash flow Present Value factors Discounted cash flow
Notes 1 Incentive payment Total employed of which: 10% Offices 90% Factory/Distribution
Redundancy Establishment Vacancies 98% redundant Net inflow
0 £000's (1,820) 1,931
1 to 10 £000's
Net Present Value £000's
175 175 5.019 878
989
People 5,600
£000's
£000's
560 5,040
2 1
1,120 5,040 6,160
4,700 (385) 4,315 4,229
1
(4,229) 1,931
111 1.000 111
2 Costs Local taxes saving Transport saving Labour increase
75 300 (200)
Net saving
175
The tabulation above shows that the proposed relocation will produce a positive net present value of £989,000.
Enterprise Strategy
1
May 2011