OVERVIEW: Prepare either a 3-4 page report or a 12-slide presentation in which you analyze financial information and risks associated with an investment to expand an organization and make a recommendation on whether or not to invest in expansion.
The following interactive course provides step-by-step instruction and practice with concepts related to this assessment:
The following articles cover a variety of considerations involved in making expansion decisions:
- Momani, A. M., Al-Hawari, T. H., & Mousa, R. W. (2016). Using expanded real options analysis to evaluate capacity expansion decisions under uncertainty in the construction material industry. South African Journal of Industrial Engineering, 27(2), 1–14.
- Deossa, P., De Vos, K., Deconinck, G., & Espinosa, J. (2017). Generation expansion models including technical constraints and demand uncertainty. Journal of Applied Mathematics, 2017, 1–11.
- Energy costs factor into business development, expansion decisions. (2017, February 15). Energy Monitor Worldwide.
- ZXY Company is a food product company. ZXY is considering expanding to two new products and a second production facility. The food products are staples with steady demands. The proposed expansion will require an investment of $7,000,000 for equipment with an assumed ten-year life, after which all equipment and other assets can be sold for an estimated $1,000,000. They will be renting the facility. ZXY requires a 12 percent return on investments. You have been asked to recommend whether or not to make the investment.
In preparing and supporting your recommendation to either make the investment or not, include the following items as part of your analysis:
- Analysis of financial information.
- Identification of risks associated with the investment. Consider:
- Recommendation for a course of action.
- Explanation of criteria supporting your recommendation.
- How risky the project appears.
- How far off your estimates of revenues and expenses can be before your decision would change.
- The difference if the company were to use a straight line versus a MACRS depreciation.
As part of your analysis you might find that additional information from marketing, accounting, or finance would be useful in making an informed and well-supported recommendation. In a real workplace setting you would have the ability to ask for that information. However, for the purposes of this assessment, you can make assumptions about the values of that data or ratios in support of your recommendation.
Accounting worked with the marketing group to create the ZXY Company Financial Statements spreadsheet for the new products business and the new facility.
Notes about the financial information:
- The expense line labeled SQF FDA Mandates refers to the costs of complying with Food and Drug Administration requirements.
- Depreciation expense is calculated using 7-year life modified accelerated cost recovery system (MACRS).
Depending on the audience you choose to address, use one of the following options:
- Report for a mid-management audience. Prepare a 3–4 page report detailing your recommendation and the information you used to make your recommendation.
- Presentation for top leadership. Prepare a presentation of at least 12 slides detailing your recommendation and the information you used to make your recommendation. You may use your choice of presentation software. Include notes with additional details.
Keep in mind that your recommendation may be shared with others, so your materials should be designed for clarity and readability.
Related company standards for either format:
- The recommendation report is a professional document and should therefore follow the corresponding MBA Academic and Professional Document Guidelines, including single-spaced paragraphs.
- In addition to the report or presentation, include:
- Title (slide or page).
- References (slide or page).
- Appendix with supporting materials.
- At least two APA-formatted references.
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Explanation & Answer
Running head: XYZ COMPANY EXPANSION RECOMMENDATION REPORT
XYZ Company Expansion Recommendation Report
XYZ COMPANY EXPANSION RECOMMENDATION REPORT
XYZ Company wants to expand its operations by introducing two new products and a
new production facility. However, the facility will be rented, and the cost of the equipment will
be $7,000,000. The organization encompasses a ten-year life; thus the selling price of the
equipment will be $1,000,000. The final thing to look at is that the organization needs a return of
12% on investments. According to the above data are given and financial information, there will
be a consideration of the recommendation of whether this is a smart investment or not.
Analysis of Financial Information
According to the information in the financial statements, the company does not support
expansion at the moment. Regarding the profit creation in the forecast financial statement, there
is a clear picture to the investors. $840,000 results from the 12% return on investment that fail
registration on XYZ financial statements year 1,2, and 3 of investing. The organization breaks
even during year four; thus the project will end up facing rejection. If allowed, the company will
incur losses, which is not wish of any given investor. Besides, the estimated value of assets of