| Course | GF520 Corporate Finance |
|---|---|
| Unit | Unit 5 |
| Paper type | Project appraisal memo |
| Length | About 840 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Finance |
| Updated | October 2026 |
Free sample paper for GF520 Unit 5
Proceed, If Two Hospitals Sign: A Unit 5 Project Appraisal Memo on a Second Distribution Center
[Student Name]
Purdue University Global
GF520: Corporate Finance
Unit 5 Project Appraisal Memo
[Instructor Name]
[Date]
The distributor, the hospital systems and every figure are composite and illustrative; the articles and textbook cited are real.
Memorandum
To: Treasurer From: Financial Analyst, Corporate Finance Date: October 6, 2025 Re: Appraisal of the proposed second distribution center
Recommendation
Proceed with the second distribution center, subject to signed supply agreements covering at least 85 percent of first-year volume before the lease is executed.
The Three Numbers
Value added: about $2.4 million at the company's 8.8 percent cost of capital, on an investment of $22.2 million.
Internal rate of return: about 11.0 percent, roughly 2.2 points above the cost of capital.
Margin of safety: about 10 percent. Annual cash flow can fall by about a tenth from forecast before the project's value is gone.
What the Investment Buys
The company serves hospitals and surgery centers in four states from one distribution center that is now running above 90 percent of capacity during peak months. The proposal leases and fits out a second center 220 miles away, with $18.2 million of racking, conveyors and automation and $4.0 million of inventory and other working capital. It would shorten delivery times to the eastern half of the territory from two days to one and free capacity at the existing center.
The forecast assumes after-tax cash flow of $3.5 million in each of ten years, from new volume and lower freight costs, and a terminal inflow of $4.4 million in year 10, mostly the recovery of working capital. Exhibit A summarizes the cash flows.
Why a 10 Percent Margin Is Thin
A margin of safety of 10 percent would be comfortable for a two-year equipment purchase, where the forecast covers a short, visible period. For a ten-year lease commitment it is thin. Forecasts for new facilities tend to be optimistic, because the people preparing them are often the ones who want them built and anchor on the plan rather than on the outcomes of similar past projects (Kahneman & Lovallo, 1993). A shortfall of 10 percent in average cash flow over ten years is well within the range of ordinary forecasting error.
Almost all of the project's margin depends on two customers: the forecast assumes contracts with two regional hospital systems that together supply about 60 percent of the new center's volume, so the decision is less about the building than about whether those two contracts are signed.
The Two Hospital Systems
The forecast includes two hospital systems in the eastern territory, one with eleven hospitals and one with seven, that have expressed interest in moving to next-day delivery. Neither has signed. If either declines, volume falls by roughly a quarter to a third, and Exhibit B shows the result: with cash flow 25 percent below forecast, net present value falls to about negative $3.3 million. The project cannot absorb the loss of either system without replacement volume.
The condition in the recommendation addresses this directly. Signed agreements covering 85 percent of first-year volume would include at least one of the two systems and enough smaller accounts to keep cash flow within the margin of safety. Requiring the signatures before the lease is executed costs a delay of perhaps three months; proceeding without them risks a ten-year commitment on unsigned demand.
The Number That Would Reverse the Recommendation
If annual after-tax cash flow is expected to fall below about $3.14 million, roughly 10 percent under forecast, the project should not proceed. In practice, that threshold would be crossed if the larger hospital system declines and no replacement is found among the three surgery-center groups now in discussion.
Other Risks
Freight savings depend on diesel prices and driver wages, which are volatile. A five-year renewal right in the lease is left out of the model, which adds some flexibility not captured in the net present value. Surveys of financial managers find that many adjust for such options and risks informally rather than in the model (Graham & Harvey, 2001); here, both are left outside the numbers and noted for the decision.
Exhibits
Exhibit A, cash flow summary. Year 0: outlay of $22.2 million. Years 1 to 10: after-tax cash flow of $3.5 million a year. Year 10: terminal inflow of $4.4 million. Present value of inflows at 8.8 percent: about $24.6 million.
Exhibit B, scenarios. Base case: about $2.4 million of value added. Both hospital systems sign and volume runs 10 percent above forecast: about $4.6 million. One system declines and cash flow falls 25 percent: about negative $3.3 million.
Exhibit C, discount rate. The 8.8 percent rate is the company's weighted average cost of capital, combining an after-tax cost of debt near 4.7 percent with a cost of equity near 10.4 percent at market weights. A distribution center serving existing customer types carries the company's ordinary risk, so no project premium is added (Brealey et al., 2023).
References
Brealey, R. A., Myers, S. C., & Allen, F. (2023). Principles of corporate finance (14th ed.). McGraw Hill.
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7
Kahneman, D., & Lovallo, D. (1993). Timid choices and bold forecasts: A cognitive perspective on risk taking. Management Science, 39(1), 17-31. https://doi.org/10.1287/mnsc.39.1.17
Reading the GF 520 Unit 5 instructions
The fifth GF520 unit asks you to present a project appraisal as a memo to a decision maker. Put the recommendation at the top, with any condition attached, and follow it with the few numbers that carry the case. Explain what the investment buys in operational terms. Then identify where the forecast is weakest, and show what happens if that weakness materializes, using a scenario. State the single figure that would reverse your recommendation. Note other risks and anything the model leaves out, such as an option to renew or expand. Move cash flows, scenarios and the discount rate derivation to exhibits so the body stays short. Write for a reader who will not open the spreadsheet. Cite the textbook and research on forecasting or capital budgeting practice in APA 7.
How the GF 520 Unit 5 example is put together
A heading block and a one-sentence recommendation open the memo. Three bolded figures follow, then a section on capacity and delivery times explaining what the center buys. The memo argues that a 10 percent margin is thin for a ten-year commitment, citing Kahneman and Lovallo on optimistic forecasts. The highlighted sentence shifts the decision from the building to two hospital contracts. A section on those systems explains the condition and its cost, a delay of about three months. The reversing number is stated as about $3.14 million of yearly cash flow. Other risks include freight costs and an unvalued renewal right, with Graham and Harvey on informal adjustments. Three exhibits carry the cash flows, three scenarios and the 8.8 percent rate.
Reading the GF520 Unit 5 grading rubric
Points for a GF520 appraisal memo depend heavily on structure and judgment. The recommendation must appear first and follow from the numbers; burying it costs points. Graders look for the few figures that matter, correctly computed, rather than a full model in the body. Identifying the weakest assumption and testing it with a scenario earns the largest analytical share, and stating a reversing threshold shows command of the decision. Conditions tied to that weakness are rewarded. Instructors in this MS in Finance course value exhibits that let a reader verify the figures without cluttering the argument. Professional tone, brevity, research support for claims about forecasting and APA 7 references round out the scoring.
GF520 Unit 5 help from the desk
Many GF520 Unit 5 memos read like the model's printout and save the verdict for the end. Others report net present value and stop, never asking which assumption the answer rests on. A positive result is treated as proof, even when a small change would erase it. Conditions are vague or missing. Exhibits are left out, so the treasurer cannot check anything, or the whole spreadsheet is pasted in. Some memos confuse internal return with the margin of safety. If your project is a new product line, a plant upgrade or an acquisition, the memo works the same way: verdict and condition first, three numbers, the weak point tested, the reversing figure and exhibits behind it.
Get a GF520 Unit 5 example written to your instructions
Who signs off in your GF520 Unit 5 case, and what did the model produce? Send those outputs, or the case data if the model is still unbuilt, with the prompt and rubric. The memo returns addressed to that reader, recommendation first and conditions stated. It is free as a first custom sample and usually ready in 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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GF520 Unit 5 questions, answered
How long should an appraisal memo be?
Usually one to three pages plus exhibits, though your prompt governs. Treasurers and committees read memos quickly, so length beyond what the decision needs tends to cost rather than earn. The sample keeps the body to two pages and places the full model in exhibits, which satisfies rubrics that ask for both concision and supporting analysis in the same submission.
Can the memo recommend rejecting the project?
Yes, and a well-argued rejection often scores as well as an approval. What matters is that the verdict follows from the analysis and names what would change it. A memo recommending rejection would state the shortfall in value, the assumption that would have to improve, and whether a smaller or delayed version of the project might pass instead.
Should the spreadsheet go inside the memo?
Summary exhibits belong in the memo; the spreadsheet is attached when the instructions call for one. Treasurers rarely want raw model tabs inside a decision document. The sample shows three exhibits, cash flows, scenarios and the rate derivation, and the custom version can supply the underlying file separately when your section requires one.
Where can I find a free GF520 Unit 5 sample paper?
This page carries a full GF520 Unit 5 project appraisal memo on a second distribution center, with a conditional recommendation, a reversing figure, three scenarios, exhibits and APA 7 references.
What is a margin of safety in project appraisal?
The share by which forecast cash flow can fall before net present value reaches zero. Here it is about 10 percent, meaning yearly cash flow of about $3.14 million rather than $3.5 million would leave the project worth nothing.