Cover letters - 2012

Cover letters may seen like an anachronism in the age of email and text messages; and that probably is true for many cases. However, there will be an occasion where you must use them in this course: the final SDL project hand-in. And for those of you that work in larger companies, you will find that you require these letters when you deal with government agencies (e.g. the Ministry of the Environment. Larger companies also use them to preface important documents read internally by colleagues whom you have never met.

Three groups have allowed me to use their cover letters from Assignment 2. Thank you.

This first letter is too short and doesn't convey a deep enough sense of what the assignment accomplished. Remember we do reserve the right to grade the report solely on the cover letter.

Dear Kevin,

Please find in the attached document our group’s answers to questions in assignment 2 for the 4N4 course. This assignment mainly reviewed concepts of time value of money (TVM) and measures of profitability, such as payback time, net present value (NPV) analysis. Each group member practised calculation of net present values (NPV) and its application in evaluating financial decisions for several hypothetical economic scenarios described in the questions. Please provide any constructive feedback if you feel necessary. Thanks for your time!

Sincerely,

Members of group NN

The next letter is too long, and contains details of everything done in the assignment, meaning the reader will see everything twice:

Dear Kevin Dunn,

As requested group NN has put together an analysis of five time value of money problems. We have dealt with various problems including the present values of future revenue, profit and break even points for projects that require an investment. Additionally, the long term value of a university education is compared to the value of starting a career subsequent to high school. This analysis has been divided into sections concerning the aforementioned problems.

Problem one is concerned with the time value of money and alternate ways of accounting for the present value of future income. It was determined that after a ten year period of energy production at $ 0.04 per kWh, the present value of the revenue earned would be $18 925 300.

In problem two, Company X is met with a choice between accepting a lump sum prepayment of $70 000 for a patent license agreement, or an annual payment at a rate of $ 6000 for the first five years, $ 9000 in the next four years and $ 13000 for the last three years. The annual payment plan was found to have a present value of $ 59 586 which is a loss of $ 10 414 over the $70 000 prepayment. Resultantly, the prepayment plan is the best option. The third problem concerns a Chinese manufacturer considering two options: to invest ¥ 600 000 in system A with a return of ¥ 100 000 for 7 years or system B for ¥ 115 000 and a return of ¥ 15 000 for 15 years. It was determined that without the consideration of time value of money system A would be the best choice since it gives a the fastest payback time and highest earnings over it’s lifespan. Despite this, when the time value of money is accounted for, system B produces higher total earnings than system A. The fourth problem presents three investment opportunities: A, B, and C. A offered a revenue of $150 000 for 5 years with an investment of $160 000 and a salvage of $50 000. B offered a $275 000 dollar revenue for 4 years, with an investment of $320 000 and a salvage of $70. C, with an investment of $480 000, provided a revenue of $500 000 for 3 years and a salvage of $100 000. Taking into account net present value and an internal discount rate of 20% it was found that investing in both projects A and B would be the most beneficial.

In the last problem, the cost of a university education (assessed by the cash flow of an average student) was compared to the cost to an individual that decided to enter the workforce without post-secondary education. It was found that the 15 year period following high school would be more profitable without a post-secondary education. In depth calculations and explanations of the problems can be found in the report attached.

Best Regards,

Group NN

This letter strikes a balance between the previous two situations. It is an example of giving a level of detail that leaves me to decide whether I should read the rest of the report (assignment in this case), but still enough information that I can act on the report without reading the rest of it. (There are still a few minor issues I have with this letter; for example, I'm not sure what the conclusion of the last question was without reading the full report).

Dear Mr. Dunn,

In response to the second 4N04 assignment, we are submitting our net present value report. This is a final copy report that deals with a comparative analysis of several investments to determine which will yield the highest expected net profit. The present value allows us to compare how much the profits made in the future will be worth to us on a scale of today’s dollars.

It was found that it is typically the ideal case to get the highest profits as soon as possible into the investment. For instance between choosing a lump sum or annual payments a lump sum is probably better since the money will depreciate less and the company will have the freedom to invest it as desired. This is why company X should select the lump sum option.

The chinese manufacturer considering between option A and B will see that before the time value of money is taken into account, A appears to be a superior choice since the payback time is shorter than B. In addition, although A has a much higher start up cost, each year it is expected to pay back more generously than B. However, once the time value of money is taken into account it can be seen that A will result in a net loss and B would be a much more profitable endeavour.

The unequal life capital projects were compared through a net present value analysis and it was determined the most profitable way to proceed would be to invest in both A and B.

Also included in this report is a financial comparison between the next 14 years in the lives of a chemical engineering graduate and a high school graduate who entered the workforce immediately.

Sincerely,

Group NN

Hopefully these help your group practice your cover letter writing skills, so your final report's letter will be pitched at the right level.