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Transcription of this question: 5.Su is considering two options.Option 1: The joint ventureIf AS goes ahead with the joint venture in 2019, there will be consequences it will need to face.DF would have majority ownership in the joint venture, provide most of the senior managers, andis likely to expect changes in the way AS operates. AS would have to significantly increase theproduction of solar power systems and would have to restructure. Some managers may loseinfluence over decisions. Su is worried that her Afghanistan project (AS) would take second place.Having a close working relationship with DF would reduce AS’s risk of failure. Employees at AShave heard rumours about the joint venture and are unhappy with the idea. They fear a loss ofidentity, being overwhelmed by a much larger organization and possibly losing their jobs. Su isconcerned that resistance to change, particularly by employees and managers, is going to be animportant consideration in the decision. However she sees the situation as a huge opportunity tomake a real change in young people’s lives.AS would invest $1 million. The net cash inflows to AS (ignoring inflows to DF and beforededuction of the investment cost) are forecast to be $0.4 million per year, giving a net present value(NPV) at 6% discount rate of $0.68 million and a payback of two years and six months. Su givesthe project a life of five years.Option 2: Diversification into biomassThe research and development section of AS has developed a portable electricity generationsystem based on biomass, a biomas power system (BPS), as an altemative to solar powersystems. A new factory costing $3 million will be needed. BPS will be particularly useful to thosecommunities that keep cattle – the dung* produced provides the fuel for BPS. Su has assembledsome relevant information.Table 4: Information relevant to the BPS projectStartLikely level of BPS sales per yearLikely payback periodAccounting rate of return (ARR)Probable net present value (NPV)Impact on sales of solar power systemsLocation of factoryEmployment createdRiskMid-201910000 (target level of sales)Four years13.3%+$1.04 millionNot knownOne idea is to locate in Afghanistan100 new jobsHigh[Source: International Baccalaureate Organization 2018]Using the case study, additional information on pages 6 and 7 and appropriate planningtools, recommend whether Su should choose Option 1, Option 2, or neither. You will find ituseful to calculate the ARR for Option 1.[20]

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