Planning For Expansion Via Capital Projects Essay

Their main focus for revenue growth will be expanding revenue opportunities and this also includes making the customer value stronger and better. The company’s financial goal is to expand in locations within three years and still being profitable consistently. With growth the company will have more employees hired on and this means training for the new employees. The factors of their competition must be considered as well when they expand in location. The company must know where they stand in the market compared to their competitors and with innovative and new technologies the company will be successful and profitable.

What is the net present value of this follow-up investment and the combined base and expansion investments?

* Assuming Dell’s sales will grow at 50% in 1997, how would you recommend that the Company funds this growth? How much capital would need to be reduced and/or profit margin increased if the company were to fund its growth by relying only on internal sources of capital? What steps would you recommend the company take?

EEC calculated the amount of time involved the anticipation of its cost ($3 million). The timeline in recovering their cost of investment ($2 million) initially for the foundation of this investment any profit made in the future of this investment will be justified as a profit for the company. If EEC can anticipate a fast return on its investment it is a profitable wise decision in making the investment financial, it is considered to be an easier way of formulating investments financially. On the basis of one year all cash flows is added together equal to the sum of $2 million originally invested, then it is divided by the annual cash flow of $500,000. The calculation of the payback period would equal four years. After this time frame any financial proceeds will be considered profitable for the company. I conclude that the timeframe is adequate in comparison of the investment in this worthwhile investment financial venture for the company.

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 primary purpose of the scorecard is to help measure the financial perspective of the project. This will help measure reflecting financial performance, for example number of debtors, cash flow or return on investment, Net Present Value (NPV) and Internal Rate of Return (IRR). Several different procedures are available to analyze potential business investments. First, the most important concept of evaluating these investments is the NPV. NPV of a project can be viewed as the difference between an investment 's market value and the cost of that investment. It is only a good investment if it makes money for the company, so a positive NPV will be needed. The projects can be ranked

In the attached file, there are calculations of relevant cash flows and their different impacts on the expansion analysis. The capital expenditure of the first year comes out to be about $43,500 which is financed via a 6% loan with monthly payments. Amortization of $9,300 per year will be charged to depreciate the capital expenditure which yields a tax shield (20% tax) of $1,860 annually. The per month interest payment comes out to be $1,927.95 and the entire loan will be paid off in two years. As a result, the annual interest tax

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.

Detail your plans are for expanding your business. What is your plan to grow your company?

When contemplating expansion and growth, it is imperative to understand the advantages and disadvantages as they relate to funding. Internal financing, or using profits for new investments, is advantageous as it is available immediately, there is no associated interest, there aren’t any restrictions imposed by outside parties, and overall, grants flexibility. However, it can be disadvantageous, as it is not tax-deductible, capital is not increased, and there is more available capital available on the outside market.

One way which expansion can be financed is to use part of the profit earned from sales from the previous years to open a new branch. This can be done by using half of the profit earned from sales earned every month. When owner have an idea to open a new branch, he or she can financed part of profit earlier for the new branch.

* A broader capital base gives the company more access to credit which gives the company an option to venture into new business opportunities

This case study analyzed five different projects Target Corporation had to decide on capital spent for which project created the most value and the most growth for the company and its shareholders. By analyzing the financial statements and exhibits of each project, I was able to determine the positives and negatives of each of these alternatives. The alternatives were Gopher Place, Whalen Court, The Barn, Goldie’s Square, or Stadium Remodel.

Johnson Controls, Inc. is a global company that offers services and products aimed at optimizing operational efficiencies and energy of buildings, electronics, automotive batteries and interior systems for automobiles. The company’s headquarters are located in Milwaukee, Wisconsin and is listed on the New York Stock Exchange as a fortune 500 company. Johnson Controls predicts that it will be able to increase its capital expenditures investments by $1.7 billion approximately. Most of the planned capital spending by the company will go to financing margin expansion and growth opportunities. This essay highlights the importance of companies to be able to evaluate investment decisions so that current and capital expenditure on proposed projects and schemes can be done prudently to ensure the company’s success (Johnson Controls (2015).

The Internal Rate of Return (IRR) is 60.38% which is much higher than the cost of capital of 14.5%., and the higher a project's internal rate of return, the more desirable it is to undertake the project. The profitability index would be 4.95 which is much greater than 1, and whenever the profitability index reaches a number above 1 the project should be accepted. Even if the company is interested in selling the Bernoulli division it would still increase the value of the division if they were to make the investment now and sell it later on. As we had mentioned above the opportunity cost of capital is only 14.5%, but the aforementioned benefits from the investment are much higher. Even thought the management is a bit weary of this investment, if the sales projections are correct then the additional investment will definitely turn around this division.