The following report Is Intended for the management team and Investors In Sky-blue. The financial report will provide detailed analysis on the feasibility of ‘mutually exclusive projects’, in which a recommendation will be made on one project, in which alternative proposals cannot be followed simultaneously (Daytona D et al,2002). The report will represent the detailed research and financial analysis of each proposal taking into consideration the investment amount, subsequent returns and related risks. The analysis will Include the necessary financial models NP,AIR and

Sensitively by calculating the discounted cash flows, but also take Into consideration economic characteristics (PESTLE) as well as other driving forces in relevant to the mobile phone industry such as competition (Porter’s Five Forces ) 2 Recommendations (See Figures 1 &2 for visual representation of NP and AIR) The ethos of Sky-Blue’s business activities are based on technological advances and market capitalization therefore the company must seek an applicable Investment In order to maintain revenues and profits on a secure basis as well as developing its innovative product range.

In the recommendation of this corporate vision and the financial analysis I advise CEO Jose Mourning and the board of directors for the selection of PI for the realization of the financial analysis solely. Fields an expected NP of E 5. 4 million with an expected AIR of 29% and an expected payback period of 3. 45 years which represents a better financial outcomes of the three proposals (Greater AIR and Greater NP) . The expected sensitivity is 21% therefore PI may compensates for any decrease in the value of NP or any fluctuations which may affect the expected cash flows and subsequent NP.

In relation to market dynamics, Porters 5 forces states late entry into the market may make products obsolete In relation to dated or substituted technology therefore this report advises the board of directors to hasten their decision to launch PI as a threat from potential new entrants as well existing manufacturers rivaling for market share (Grant 2012). 3 Company Background Sky-Blue Inc. Is a multinational technological company providing operating systems and technology services for global mobile phone manufactures such as Samsung, ETC and Sony. The organization was established in the United Kingdom during the

High- revolution era of 1987. The company headquarters are based in Stamford Bridge alongside the R&D centre in the Emirates, however majority of the manufacture and assembly has been outsourced to LLC tech centre In the operations Fernando Tortes, currently CEO and COO respectively have taken the company from its humble starting as a pager manufacture to one of the market leading companies in the world for the design and manufacture of smart phone operation systems called SO BLUE. The company currently occupies 7% of the market share with companies such as Android, Apple and Windows making up the majority.

See figure 3 & 4 The recent growths in new markets in South Asia, Western Africa and the Middle-East has subsequently increased demand from brand manufactures for smart phone operating systems. However the company has seen a slight decreases in revenue for 2012 from (BIT) IEEE. 5 (mil) to IEEE. 5 (mil). This decrease in revenues, has been taken well as per the recent slump in the financial market plus the predicted release of Apple’s revolutionary ISO . 7 platform in 2011. In relation to this, the 2012 financial year saw Sky-Blue generate a EWE. 7(mil) profit (5%) BIT. 3. 1 Corporate Statement

In relation to the competitive market conditions the primary aim of Sky-Blue, is to progress the company further in relation to mobile technological innovations as to increase market share in emerging markets. 4. Project Proposals There are 3 projects which are proposed by the R Department in which there is diverse risks associated with each of them in terms of their financial volatility & capital investment. The table below represents, the capital outlays which are projected in relation to the risk factor I. E. Least risky appraisal has the lowest capital outlay, and so forth. 4.

Project 1 – Low risk idea This project will marginally improve our current mobile phone series with a better camera, screen as well a better memory and processor 4. 2 Project 2- Medium risk idea (2 Probabilities of Capital Investment) This project will cohere with our new operating systems. It is a mobile phone in a design similar to our operating systems but includes retina scan, which can detect eye movements for making a phone call 4. 3 Project 3- High risk idea This project will yield a complete new product. This phone can synchronize brain waves for phone calling and social networking.

The design of this product is yet unsure but will be different than any phone already launched to the market. 5 Methodology The proposed projects encompass making strategic decisions that involve an investment in the hope that the project returns future profits, therefore the 3 proposed projects require committing funds with the expectation of earning a return on those funds in the future in the form of additional cash inflows and in some cases cash outflows (Brewer et al,2008) However in relation to the above, Sky-Blue must understand that capital has time value of money therefore the investment of capital s a calculated decision I. . Million is worth more today than 5 years from now, as the capital can be utilized in other projects in terms of ‘opportunity costs’ or can be securely placed in a high yield savings account where it can make return on investments of 5-10 %. Another factor in relation to money being worth less in future is a result of risk and the external environment I. E. Inflation, Political environment etc. (Brewer teal , 2008). 5. 1 Financial Indicators 5. 1. Net Present Value (NP) NP calculations are the focus of this analysis as they are good for appraising long- ERM projects because it considers the potential future incoming cash flow which can be discounted . NP will also able us to consider the risks of future cash flow and problems with overall net cash flow. The sum of cash flows will be added together and then subtracted from the initial capital outlay. NP is an indicator of how much value is in a certain investments or project. (Brewer et al 2008) 5. 1. 2 Discount rate (DRY) The NP tool requires setting a discount rate for the future cash flows.

The discount rate determines the amount of money in which the cash flows are reducing over time or it can be perceived as the cost of capital I. . WAC, (Hurdle rate = Companies addition risk factor). (Bradley R et al,2008) If a cash flow is deemed risky, or volatile, we then deal with the decision by increasing the required discount rate or Hurdle rate. (Cornell J, 2012) 5. 1. 3 Internal Rate of Return (AIR) The AIR is the rate of return when NP is at O, AIR will be used to report the expected rate of return in terms off % figure.

The AIR is a good indicator and can be utilized as ranking tool in order of the projects profitability. (Hetman P, 2011) We can manually calculate AIR by calculating the discounted the cash flows at various rates until we reach the investment proposal at E or nearest to E. However this reported computed the AIR through substituting the discount rate until the figures where as close to the E-NP (Cornell J, 2012) 6. Analysis Pl, upon analysis appears a very much feasible project as the NP calculates a return of E. Million, with a profitability index of 21% (Sensitivity). The calculated AIR exceeds the hurdle rate with a premium of 8%. If there is O % discount rate there is a positive NP of Million, however this analysis takes into consideration the borrowing cost of capital, therefore we must neglect this assumption . Pl could be regarded as a viable investment as it creates a positive NP and ample AIR with a payback period of 3. 6 years. Table 1: NP calculation for Project 1 including discounted cash flows 6. Project 2 PI on the other hand yields a greater NP than Pl, even with a higher discount factor 20% (However we must still consider that the inflows are estimated figures and there is a risk related with such technology, therefore it is quite reasonable for the board to choose a higher rate) The two scenarios in PI are complicated and there is uncertainty in the capital outlay as the level of investment is undecided. However here is a 0. 4 probability of Meme and a 0. 6 probability of Meme investment, therefore an expected NP of E. 4 million, expected AIR of 29%, with a commendable sensitivity of 21%.

The expected values were calculated to simplify matters in relation to the probability and risk factors. However if we calculate the EYE million and в?35 million capital outlays separately we can see that scenario 1 equates to a AIR of approximately 39% (19% premium) in which scenario 2 creates a AIR of 21. 8% (1. 8% premium). Scenario 1 will also yields a higher profitability index of 45% compare to the 4% of the EYE million investment. See appendix 2 Table 2: Expected NP calculation for Project 2 including discounted cash flows 6. Project 3 The calculations for PI (appendix 3) illustrates different cash inflows in relation to 4 scenarios. Due to the high risks involved for R and the relatively high hurdle rate at 30%, all scenarios equate to negative Naps. Scenario 2 as an example, with relatively lower cost of capital of ENUM and relatively higher year 3 income of ENUM comparing to other probabilities, the NP still results in a negative figures of about EYE. Man. However upon changing the discount rate to 0% on scenario 2 it yields a costive NP fee million but we must take into consideration there is a cost of capital for financing the project.

The expected NP for this idea is -EYE. Mann which proves that this idea is not feasible . In addition, we cannot perform the AIR calculation due to negative results in Naps. Sensitivity ranges from 44. 62% to 64. 51%. These figures suggest GAG to drive down the cost of capital to achieve profitability however it is quite idealistic therefore idea 3 is not feasible Table 3: Expected NP calculation for Project 3 6. 4 Ranked Results In relation to calculating the NP for the 3 appraisal the following tables represents he results of the analysis.

There is only two feasible options Pl and PI as they provide positive Wv;s, PI provides a negative NP . Table 4: Ranked Projects As an financial indicator, If PI is chosen the injection of resources (capital investment) must be available to fund such projects (expected investment is EYE million). In relation to this and information made available by the finance department the following figures represent the current capital which is available and the remainder which will need to be financed through equity shares and business loans.