Hrm/531 Capstone Case

CFO’s must be wise about their investments. They must have a strategic plan called capital budgeting. When considering global capital budgeting, investments must be identified, analyzed selected and implemented with the intentions of having returns to cross over more than one year. Some of them make investments because they are not seeing beyond what they want and are not thinking about what risks can take

This mini-case provides a review of the methodology and rationale associated with the various capital budgeting evaluation methods such as payback period, discounted payback period, NPV, IRR, MIRR,

We would recommend the capital structure with 30% debt. This is because with 30% debt, they would be able to repurchase 19.8 million shares outstanding as well as save 37.8 million in taxes. EBIT is high in this company, and because of this, financial leverage will raise EPS and ROE. However, variability also increases as financial leverage increases, so the company would not want to take on too much debt and become very risky.

Our estimated cost of capital, 20.81%, is lower than Ricketts’ expected return, 30%-50%, thus the investment is worthy. However, it’s higher than other pessimistic members’ expected return, 10%-15%, making the decision more complex and requiring further valuation。

Portfolio Recovery Associates is a debt collection company. Debt collection is the process of pursuing payments of debts owed by individuals or business. Portfolio Recovery Associates is a 3rd party collection company, this company buys defaulted consumer debt for pennies on the dollar.

This past legislative session saw a major win for the wrongly convicted with H.B. 48. H.B. 48 creates a commission to review convictions after exoneration and aims to prevent wrongful conviction. This bill is a supported across the political spectrum on the part of author Ruth Jones McClendon (D) and Sen. Rodney Ellis (D) along with joint authors Rep. Jeff Leach (R), Rep. David Simpson (R), Rep. Abel Herrero (D), Rep. Joe Moody (D) and The Texas Public Policy Foundation’s Center for Effective Justice.

Currently, Starbucks is considering making an investment in a new manufacturing plant in Augusta, GA. The capital budgeting project requires an initial investment outlay of $ 40 million and is expected to general annual cash flows of 5.200.000, 6.500.000, 8.200.000, 8.700.000, 9.000.000, 9.550.000, and 11.500.000 for years 1 to 7, respectively. Starbucks estimates that the project has a below-average risk and sets the discount rate at 8.06 % -- based on the company’s Weighted Average Cost Of Capital (WACC). The discount rate is effectively the desired return on an investment an

The statement of cash flows outlines some of the changes to the capital structure. The company added $164.5 million in a consolidated loan facility, and it paid out $138.1 million in dividends. There were no share buybacks during the year. The company states in the annual report (p.4) that it intends to maintain a conservative gearing ratio. The company in this section attributes its increased borrowings to projects and opportunities on which it has embarked. These investments lie within the integrated retail, franchise and property system. One of the

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?

This requires assumptions to be made about the firm’s capital structure. The beginning capital structureis given, and shows that the company has negative net debt of $20 million. This arises from the prior year’s decision to raise new equity to meet future growth plans. This implies that it will probably drawdown cash for the next year. It seems reasonable to assume that the company expects to draw down itscash ($37 million in Feb. 2002) almost completely to finance its growth. This would imply that net debtwould be close to zero in one year’s time, leaving no interest income or expense.

Since there are significant changes in the company for the last 3 years such as descending trend in car and truck market in 1991, sale of one of their core electronics business, terminated Volvo agreement etc.; the company thinks that their financial value (equity and debt ratios and weights) and accordingly cost of capital is changed. Also company has free cash (derived from the sales of electronics

Our analysis attempts to answer the question, “What are the things a company must consider when analyzing a new investment or project?” According to the text, a firm’s first objective when deciding to take on new debt should be that its return on net assets (RONA) should be greater than its weighted average cost of capital (WACC). Since we are working with an income statement only and do not have an amount for net assets, we will instead use return on invested capital (ROIC), which measures how well a company is using its money to generate returns. Comparing a company 's return on capital (ROIC) with its cost of capital (WACC) reveals whether invested capital was used effectively. From our spreadsheet calculations we see that using our estimated operating profit provides us with a 19.9% return on invested capital with only a 7.2% weighted average cost for that same capital. If these numbers are even close to correct, George should definitely make the move.

Aspects of the company itself also reduce the risk of investing. RBS’ sales growth is 65% over previous year. RBS already has a product, they are profitable, and they have been around for several years. The firm is at the right spot in its lifecycle for a capital injection. RBS is ready to grow its sales and marketing as well as its balance sheet. Product development would likely continue with or without this capital, though this development is one of the stated purposes of this financing.

The current financial performance is pretty optimistic for RL Corporation. At the same time, we also need to forecast the future financial data after 2012. To forecast the future free cash flow, only the internal employees can get the real and accurate information and ratios. As an external observer, we usually analyze the linear relation between the cost of capital and growth rate, considered as the constant growth model. First of all, we need find the WACC, Weighted Average Cost of Capital. The weighted average of the after-tax

We valued the company using four different methods; Net Present Value, Internal Rate of Return, Modified Internal Rate of Return and Profitability Index. We began with the Net Present Value, or NPV, calculation. NPV values an investment’s profitability based on the projected future cash inflows and outflows of the investment, discounted back to present value using the WACC. The calculations for NPV are presented in Appendix 2. We started by separating cash inflows and outflows by each year. We used Bob Prescott’s estimates for the revenue per year and related operating costs of cost of goods sold as