THERE ARE 5 PARTS TO THIS ASSIGNMENT
APA FORMAT WITH REFERENCES & IN TEXT CITATIONS. REFERENCES MUST BE VERIFIABLE
1. Due Date: Wed, 10/09/18
10–15 slides with 150–200 words in the notes page
Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas.
Mary Francis comes into your office later that morning.
“Good news! I think we’ve got strong potential investors!” Mary announces.
“That’s great!” you reply.
“And now, they are asking for financial information” Mary states.
“Ok, I could provide a 50-page analysis for them!” you say.
“That’s exactly what they don’t want. I’m beginning to notice that some of the investors don’t have a strong finance background, and the last thing we want to do is scare them off with too many financial figures” Mary explains. I would like for you to complete a presentation. However, I want you to keep it simple and clear. Using all 3 Financial Statements(BELOW), please provide an analysis on Apix’s assets, liabilities, cash, and profit. As well, choose 2 additional components on each of the sheets, and provide your initial impression on the company financial situation. Do you think you could handle this?”
Apex Printing Balance Sheets As of December 31, 2013 and 2012
000$ 000$
Assets 2013 2012 Cash 6,000 5,700 Accounts Receivable 2,350 2,300 Inventory 12,100 6,500 Total Current Assets 20,450 14,500
Land 25,000 20,000 Building & Equipment 300,000 300,000 Less: Accumulated Depreciation – Building & Equipment (187,850) (160,000) Total Long Term Assets 137,150 160,000 Total Assets 157,600 174,500
Liabilities and Stockholders’ Equity Accounts Payable 4,600 3,500 Salaries Payable 0 2,100 Interest Payable 1,500 0 Short Term Notes Payable 12,000 0 Taxes Payable 0 5,600 Total Current Liabilities 18,100 11,200
Mortgate Payable 54,950 100,000 Total Long Term Liabilities 54,950 100,000
Common Stock 60,000 60,000 Retained Earnings 24,550 3,300 Total Stockholders’ Equity 84,550 63,300 Total Liabilities and Stockholders’ Equity 157,600 174,500
Apex Printing Income Statements
For the Periods Ended December 31, 2013 and 2012 000$ 000$
2013 2012 Revenue: 450,000 475,000 Less: Cost of Goods Sold (324,300) (374,500) Less: Depreciation Expense (27,850) (26,000) Gross Margin 97,850 74,500 Selling, General & Administrative Expenses (29,100) (32,000) Income Before Interest & Taxes 68,750 42,500 Interest Expense (7,500) (6,000) Income Before Taxes 61,250 36,500 Income Taxes (35,000) (30,000) Net Income 26,250 6,500
Apex Printing Statement of Cash Flows For the Period Ended December 31, 2013
000$ Cash Flows from Operating Activities:
Net Income 26,250 Adjustments to reconcile net income to net cash provided by operating activities Depreciation Expense 27,850 Increase in accounts receivable (50) Increase in inventory (5,600) Decrease in salaries payable (2,100) Increase in interest payable 1,500 Decrease in taxes payable (5,600) Increase in Short Term notes Payable 12,000 Increase in accounts payable 1,100 Net Cash Flow from Operating Activities 55,350
Cash Flows from Investing Activities: Cash paid to purchase land (5,000) Net Cash Flow from Investing Activities (5,000)
Cash Flows From Financing Activities: Cash paid for mortgage (45,050) Cash paid for dividends (5,000) Net Cash Flow from Financing Activities (50,050)
Net Increase in Cash 300
Plus: Cash Balance at December 31, 2012 5,700
Cash Balance at December 31, 2013 6,000
“Of course! I’ll get started on this right away.”
Mary also indicates that she would like between 10–15 slides with 150–200 words in the notes page.
2. Due Date: Wed, 10/15/18
Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas.
In anticipation of Mary’s request for comparative analysis, it will be useful at this time to do some research. You know that you can obtain the financials of companies within the same sector or Standard Industry Code as Apix Printing (e.g., commercial printing), and that the North American Industry Classification System (NAICS) Standard Industry 2012 code for Apix Printing is presently 323111. Use the FINC615 Library Guide to search for two other companies in the same industry as Apix Printing.
When you get to work the next day, you see the following e-mail from Mary:
Here is the list of financial ratios you asked for. I need you to explain the computation of each and compute these for Apix’s results for the financial statements you are using for the PowerPoint presentation. Also, compare Apix’s 2-year trend results to that of two other firms in the sector. Indicate how each of Apix’s ratios differ, and indicate whether the two other companies’ ratios or Apix’s ratios are indicative of better performance.
Explain the computation for each of the following, and compute each for Apix and two other companies in the same industry as Apix Printing:
Current ratio
(Long-term) debt to equity ratio
Gross margin percentage
Net profit margin percentage
Return on equity percentage
Present your findings of the above data in a table. Add a paragraph that summarizes your results, indicating whether investors would find the financial analysis results of Apix competitive as compared to rivals in the sector. Be sure to include both positive and negative trends in your analysis.
3. Due Date: Wed, 10/20/18
Deliverable Length: 750–1,000 words
Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas.
Mary Francis has just returned to her office after attending preliminary discussions with investment bankers. Her last meeting regarding the intended capital structure of Apix went well, and she calls you into her office to discuss the next steps.
“We will need to determine the required return for our intended project so that we have a decision criteria defined for the project,” she says.
“Do you have the information I need to describe capital structure and to calculate the weighted average cost of capital (WACC)?” you ask.
“I do,” she smiles. “We can determine the target WACC for Apix Printing Inc., given these assumptions,” she says as she hands you a piece of paper that says the following:
Weights of 40% debt and 60% common equity (no preferred equity)
A 35% tax rate
Cost of debt is 8%
Beta of the company is 1.5
Risk-free rate is 2%
Return on the market is 11%
“Great,” you say. “Thanks.”
“Be sure to indicate how these costs of capital might be used to determine the feasibility of the capital project,” Mary says. “I want your recommendation about which is more appropriate to apply to project evaluation, too. Let me know what you think.”
“One more thing,” she says as she stands up to signal the end of the meeting. “You did a good job with the explanations that you provided Luke the other day. Would you have time to define marginal cost of capital for me so I can include it in my discussions with investors? You seem to have a knack for making things accessible to nonfinancial folks.”
“No problem,” you say. “I’m glad my explanations are so useful!”
For this assignment, complete the following:
Describe capital structure.
Determine the WACC given the above assumptions.
Indicate how these might be useful to determine the feasibility of the capital project.
Recommend which is more appropriate to apply to project evaluation.
Define marginal cost of capital.
4. Due Date: Wed, 10/25/18
Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas.
Over lunch, you and Mary meet to discuss next steps with the expansion project.
“Do we have everything we need on sales and costs?” you ask. ”It must be time to compute the net present value (NPV) and internal rate of return (IRR) of the Apix expansion project.”
“We have the data from James and Luke regarding projected sales and costs, respectively, for the food packaging project,” says Mary. “It is feasible to project that we will receive a tax break from this implementation. I have information from our audit firm that indicates that future depreciation methods for taxes will be straight-line; however, the corporate rates will be reduced to 35% as we assumed in our weighted average cost of capital (WACC) calculation.”
“That sounds good,” you say.
“Right,” says Mary. “You can use a WACC of 10% for the computation of the NPV and comparison for IRR.”
“I’ve got the information I need from Luke and James,” you say. “Does this look right to you? Here’s what they gave me,” you say, as you hand a sheet of paper to Mary.
“Let’s look at this now while we’re together,” she says.
The information you hand to Mary shows the following:
Initial investment outlay of $30 million, consisting of $25 million for equipment and $5 million for net working capital (NWC) (plastic substrate and ink inventory); NWC recoverable in terminal year
Project and equipment life: 5 years
Sales: $25 million per year for five years
Assume gross margin of 60% (exclusive of depreciation)
Depreciation: Straight-line for tax purposes
Selling, general, and administrative expenses: 10% of sales
Tax rate: 35%
You continue your conversation.
“It looks good,” says Mary. “Use this information from Luke and James to compute the cash flows for the project.”
“No problem,” you say.
“Then, compute NPV and IRR of the project using the Excel spreadsheet I sent earlier today,” says Mary. “Use the IRR financial function for the computation of IRR.”
“Okay,” you say. “I’ll submit my Excel file showing the computation of cash flows, NPV, and IRR by the end of week so you can look at it over the weekend.”
“Thanks,” says Mary.
Complete the above worksheet for this assignment.
NPV and IRR calculations
Cost of Capital 10.00% t
Time/yr 0 1 2 3 4 5
Cash flow Input here
Discounted CF 0 0 0 0 0 0
NPV 0 =cf1/((1+n)^1) =cf2/((1+n)^2) =cf3/((1+n)^3) =cf4/((1+n)^4) =cf5/((1+n)^5)
PV factor 0.909090909 0.826446281 0.751314801 0.683013455 0.620921323
IRR #NUM!
5. Due Date: Wed, 10/30/18
Deliverable Length: 6–12 slides with 150–200 words in notes sections with in text citation
Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas.
Apix is considering coffee packaging as an additional diversification to its product line. Here’s information regarding the coffee packaging project:
Initial investment outlay of $40 million, consisting of $35 million for equipment and $5 million for net working capital (NWC) (plastic substrate and ink inventory); NWC recoverable in terminal year
Project and equipment life: 5 years
Sales: $27 million per year for five years
Assume gross margin of 50% (exclusive of depreciation)
Depreciation: Straight-line for tax purposes
Selling, general, and administrative expenses: 10% of sales
Tax rate: 35%
Assume a WACC of 10%.
Should the coffee packaging project be accepted? Why or why not? Compute the project’s IRR and NPV.
In addition, answer the following questions:
Do you believe that there was sufficient financial information to make a solid decision on what to do?
Was there further financial information that you required that was not provided to you?
What financial figure do you believe was the determinant to your decision and why?
How would you be able to apply this particular financial information to other situations?
Discuss risk methodologies used in capital budgeting.
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