Red Rose Railways is a UK publicly traded company that operates a range of bus and rail services. The company is currently considering bidding for an exclusive franchise to operate rail services from Manchester across the North of England. The board of directors has asked you to prepare a financial appraisal of this opportunity. The franchise will be for a period of five years. The rail infrastructure is owned by a Government agency. The franchisee will need to own and operate all rolling stock. The cost of the franchise will be paid to the Government in two instalments. 80% of the total amount bid is due at the start of the contract. The balance of 20% is due to be paid at the end of the second year. Red Rose Railways will need to order £175m of new rolling stock but will also need to use £75m worth of older rolling stock that is currently sitting idle. £75m is the best estimate of what this older rolling stock could be sold for if not used in the new North of England contract. It is estimated that all the rolling stock could be sold for £100m at the end of the franchise period. Accounts receivable and inventories will increase by £25m at the start of the franchise but only £20m of this is expected to be recovered at the end of the franchise period. Based on expected levels of services, passenger numbers and regulated fare increases over the period, the best estimates of operating cash flows over the five year operating period are: Assume that the company is exempt from corporation tax during the period of the franchise. Please answer the following questions: • Red Rose Railways expects a minimum 8% return on all rail franchise bids. What is the maximum price you can bid? • Red Rose Railways likes to achieve a three year payback on rail franchise operations. What is the maximum price you can bid and still achieve a three year payback? • The board of directors asks you explain whether it is better to base their bid price on the NPV method or Payback method. Explain the advantages and disadvantages of the two methods. Which would you recommend and why?   Question 2 (1500 Words) A. Using AstraZeneca plc's 2013 annual report and financial statements, explain how an adjusted book value approach to valuing assets and liabilities moves book value nearer to economic value. You are required to provide a written response which highlights four specific elements in AstraZeneca plc's balance sheet that might require adjusting to arrive at an economic value. For each element, explain the type of adjustment and the type of information that might be required before an adjustment could be made to arrive at an economic value for AstraZeneca plc at its 2013 financial year-end. B. Calculate the following market multiple ratios for AstraZeneca plc at its 2013 financial year-end: • EV/EBITDA • Price-to-earnings ratio (PE ratio) • Price-to-cash-flow ratio • Contrast and explain the results of the different market multiple ratios that you calculated. Evaluate the usefulness of market multiple ratios in company valuation.   Question 3 (1200 Words) Read the following article: Danielson, M., and Scott J. (2006) 'The capital budgeting decisions of small business' Journal of Applied Finance, Fall/Winter, pp. 45–56. After reading it closely answer the following questions: • a.What is the main aim of the article's argument? How does the article seek to achieve this aim? • b.Review Section C 'Project Evaluation Methods' (pp. 51–54), that is, summarise the section and critically appraise it. • c.The authors put forward various reasons as to why small firms might evaluate projects differently. What are they? Do you find them convincing? Why or why not?