The CFO of Flash Memory, Inc. prepares the company's investing and financing plans for the next three years. Flash Memory is a small firm that specializes in the design and manufacture of solid state drives (SSDs) and memory modules for the computer and electronics industries. The company invests aggressively in research and development of new products to stay ahead of the competition. Increased working capital requirements force the CFO to consider alternatives for additional financing. In addition, he must also consider an investment opportunity in a new product line that has the potential to be extremely profitable. Students must prepare financial forecasts, calculate the weighted average cost of capital (WACC), estimate cash flows, and …show more content…
a.Any decision to invest in the new product line will require an estimate of the discount rate (i.e., WACC). When estimating a WACC you should be clear on the inputs you used to calculate the cost of equity, cost of debt, and the relative weights of equity and debt. For this analysis use the target debt-to-equity ratio that is sought by the board of directors. 3.Estimate the pro-forma financial statements (i.e., income statement and balance sheet) for the years 2010, 2011, and 2012 assuming that Flash takes the new investment project and finances the project with debt. What issues might arise if Flash only uses debt financing? If debt financing turns out to have problems what are Flash’s alternatives?
As sales of Flash Memory Inc. (Flash) increases rapidly in the first few months of 2010, additional working capital is required to ensure smooth operations and maintain their current growth rate. However, Flash currently has almost reached its notes payable limit of 70% accounts receivables with its current commercial bank and thus, need to look for various alternative financing means to provide the required amount of funds it needs to finance its forecasted sales for year 2010 onwards. This report is written to provide an insight to Flash’s financial position for the following 3 years (2010 till 2012) through the use of pro-forma income statement and balance sheet. For Flash to be able to keep up with the
Estimate the cost of capital for financing (Hint: Interest expense and total debt – Ascertain the return on equity to provide measures for the interest rate and the return to stockholders.
Assuming the company does not invest in the new product line; prepare forecasted income statements and balance sheets at year-end 2010, 2011, and 2012. Based on these forecasts, estimate Flash's required external financing: in this case all required external financing takes the form of additional notes payable from its commercial bank, for the same period.
General speaking, WACC is the rate that a company’s shareholders expect to be paid on average to finance its assets, and it is the overall required return on the firm as a whole. Therefore, company directors often use WACC to determine whether a financial decision is feasible or not. In this case, I will choose 9.38% as discount rate. The reason why I choose 9.38% as discount rate is because the estimated Debt/Equity is 26% under the assumptions by CFO Sheila Dowling, which is most close to 25% of Debt/Equity from the projected WACC schedule. There might be some flaws existing by using WACC as discount rate. As we know, the cost of debt would be raised significantly as the leverage increased. The investment will definitely increase the firm’s current debt. So, the cost of debt would not keep at 7.75%.
A flashbulb memory is an exceptionally clear reflection of an important event (openstax 8.2). In most instances, people can recall the weather, what they were wearing, dialogue, etc.
The Castillo Products Company was started in 2008. The company manufactures components for personal digital assistant (PDA) products and for other handheld electronic products. A difficult operating year, 2009, was followed by a profitable 2010. The founders (Cindy and Rob Castillo) are interested in estimating their cost of financial capital because they are expecting to secure additional external financing to support planned growth.
Reading your post about 9/11 from such a young age was very interesting. My son was five at the time of the attacks and to this day he remembers the fact that he was upset because PBS interrupted their programming for the news coverage and he did not get to watch Clifford the Big Red Dog. My son may not remember the details of that day, but he will forever remember the disruption in his everyday routine caused by the attacks. Goldstein (2015) points out that the “idea that people believe flashbulb memories are stronger and more accurate has led to the conclusion that the special nature of flashbulb memories can be traced to the emotional nature of flashbulb events” (p. 216). For my son, he remembers his television programs being interrupted
The research article Tv or not Tv? Does the immediacy of viewing images of a momentous news event affect the quality and stability of flashbulb memories? was authored by Evelyn G. Schaefer, Micheal K. Halldorson, and Cheryl Dizon-Reynante at the University of Winnipeg in Canada. These researchers sought to investigate if the time in which an individual these images of traumatic events would affect the formation of flashbulb memories (Schaefer, 2011). A flashbulb memories as defined by Brown & Kulik are, “an extremely vivid and detailed recollection of one’s contextual personal circumstances on first learning of an extraordinary, shocking event either public or personal (Schaefer, 2011)”. These vivid types of memories rely on “canonical categories” when being recalled, such as the activity preformed when the event took place, who told them about the event, and where they were when it happened (Schaefer, 2011).
Star Appliance is looking to expand their product line and is considering three different projects: dishwashers, garbage disposals, and trash compactors. We want to determine which project would be worth doing by determining if they will add value to Star. Thus, the project(s) that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value, or by solving for the internal rate of return, we should be able to see which projects Star should undertake.
The Conch Republic is an organization which produces reputable electronics is seeking to advance one of their current production lines to stay abreast to changing technology. The company is seeking to introduce a new smart phone with the hopes of boosting the company’s revenue and reputation as a smart phone producer. As a person hired to assess the financial undertaking of Conch Republic an overview of the projects planned expense must be generated. However, in order to accomplish this task a capital investment analysis must be conducted in order to determine the projects viability. This will be done by analyzing several things. Those things that must be understood are the projects payback period, the net present value (NPV), internal
We rely on memory every day to provide us with an accurate recount of our past. In most cases, our memory does its job, but this is not to say that our memory is not fallible. Research has proven that sometimes there are many flaws with our memory. We seem to be too confident in our recollections. This is the case with Jim and his memory of his parents winning the lottery. This memory was vivid in his head, he could picture everything. So when he found out he was completely wrong about this recollection, he was probably extremely shocked, but there is an explanation for what happened to Jim.
During lecture, we learned about a flashbulb memory, a highly detailed and vivid snapshot of a shocking or important event. One example of this given in lecture was the 911 attack that occurred in September. Similarly, this article explains a postdoctoral researcher’s vivid memory of the 911 attack.
Assuming the company does not invest in the new product line; prepare forecasted income statements and balance sheets at year-end 2010, 2011, and 2012. Based on these forecasts, estimate Flash's required external financing: in this case all required external financing takes the form of additional notes payable from its commercial bank, for the same period.
Sunflower Nutraceuticals (SNC) is barely breaking even and is strategizing on methods improve its growth and cash flow through capital budgeting. This paper will discuss the decisions the CEO made in each area of the 3-phase process, and evaluate how the decisions affected SNC. The numbers in this analysis are in thousands.
How can a human forget to turn the lights off when they leave the house, but remember exactly where they were when JFK was assassinated? The answer to this phenomenon has long been researched and the answer is a term referred to as flashbulb memories, which can be defined as a detailed and vivid memory that is stored on one occasion and retained for a lifetime (Schachter, Gilbert, Wegner, & Nock, 2015). These memories can be composed of insignificant but vivid details about the situation in which the news was received (Demiray & Freund, 2015). Flash bulb memories are believed to encompass various memories including positive and negative events that have affected entire nations or just one individual, and have correlation with age, proximity, and importance.
For future cash flows, evaluation is done with WACC rate which consists from cost of equity and cost of debt in a weighted average. In this case, using cost of equity is not appropriate since we doesn’t know cost of debt and weights of equity and debt, it doesn’t reflect the actual rate for WACC.