SUNY a Case Study and A Discussion About Finance

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funlarubr

Business Finance

State University of New York System

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see the attached files

The requirement for case study is below:

[In week three, we move further along in our analysis of case scenarios, incorporating the WACC and using it in association with the techniques of Capital Budgeting. This week we have the Worldwide Paper Company and need to evaluate the potential cash flows in order to make a recommendation. Your job is to evaluate the data using what you know, and some calculations, to draw solid conclusions - then advise the CEO and Controller what you found

This week the work is broken down into a few sections, less writing, and more numbers work. A few helpful videos (some to refresh, others to demonstrate) on concepts that would be helpful are provided, along with some readings to for those who want to brush up on the concepts.]

About two pages


The requirement for discussion is below:

Week 3- we are looking a bit more deeply into the numbers as a method of making a decision. Last week we discussed the importance of Risk.

Now, let's consider some of the other issues that can/should impact our decision making - Thinking about the Case for this week - what other challenges, beyond the numbers, should we consider? If it is a major concern, should you put that into the calculations in some way or form? From the ethical to the practical - what should we also consider?

For full credit on these discussions, make certain you go back through the week and review some of the other posts - the content is amazing, and it is wonderful to see so many ideas and opinions being clearly related. Keep up the good work.


About half page

Unformatted Attachment Preview

Worldwide Paper Co Cash Flows (estimated) 2016 2017 2018 Investment Capital Oultay Net Working Capital (10% of Sales) Total Invested $ 16,000.00 $ 2,000.00 $ $ $ 400.00 $ $ 16,000.00 $ 2,400.00 $ 600.00 600.00 Equipment Salvage Recovery of NWC Earnings before Interest & Tax Sales Revenue Cost of Goods Sold (75% of Sales) SG&A (5% Sales) Operating Savings Depreciation ($18,000/6)* Total Costs & Expenses EBIT minus Taxes (40%) Net Operating Profit After Tax (NOPAT) add in Depreciatioin Less Investment equals FREE CASH FLOW * straight line depreciation $ 4,000.00 $-3,000.00 $ -200.00 $ 2,000.00 $ -3,000.00 $-3,000.00 $-4,200.00 $ -200.00 $ 80.00 $ -120.00 $ 3,000.00 $-2,400.00 ######### $ 480.00 ######## stimated) 2019 $ - 2020 $ - 2021 $ - 2022 $ - ######## ######## ######## ######## ######## ######## Worldwide Paper Co PMBA 8240 Week 3 Case Study Assignment Worldwide Paper Co.  Read the case study in its entirety, making notes  This case is based upon a ‘real company’ from the late 1990’s  The case discusses the business of the paper industry and it’s unique ups and downs  Your task will include an analysis which evaluates some of the key components of this case, and presenting your thoughts and ideas as to a potential capital investment Assignment  There are 4 parts to this assignment  1) Explain your understanding of the situation, and the relevant cash flows for this case (1-2 page)  2) complete an analysis of the WACC (with information provided)  3) Complete a Statement of Cash Flows with findings  4) Develop a Memo to Mr. Prescott (1 Page business style letter/memo format) detailing your findings Your Paper: Section 1  In the first section of your paper, describe what you understand the nature of the investment (opportunity) to be  Relevant Cash Flows are a critical first step in any capital budgeting process – decide and discuss what you feel will be the relevant cash flows for Worldwide Paper  Develop a basic spread sheet with these cash flows expected over the 6 years period  Utilization in the this industry is key. As the business cycle of the paper industry can have many ups and downs, maintaining full or almost full capacity is important Your Paper: Section 2  Cost of Debt: by using the long term debt, bank rates, etc. A good estimate of the cost of debt for you to use is 3.85% (before tax).  Cost of Equity: The cost of equity is based upon market value, and for your purpose of analysis, use 8.6%  The components of capital breakdown: Debt 20%; Equity 80%  Calculate the WACC to be used for further evaluation of the case Section 3 Statement of Cash Flows  Locate the Cash Flow Worksheet provided, and complete this Statement of Cash flows to identify the Free Cash Flows, for use in your capital budgeting analysis (include this completed spreadsheet in your submitted work  can you explain how the cost savings from operations are being achieved?  Using the newly established Cash Flows (from your statement) complete an NPV(Net Present Value) Analysis and Internal Rate of Return (IRR) - from your knowledge of Capital Budgeting.  After completing this analysis, how do you interpret your findings (above) . Summarize briefly your thoughts Section 4  What conclusions do you draw, recommendations would you make to the CEO  Are there other considerations that should be included in the analysis, risks, or issues  Would it have made a difference to use the corporate hurdle rate mentioned instead of the WACC calculated?  Develop a MEMO to Mr. Prescott, explaining your recommendations and briefly support your comments.  Must be in a formal business style (memo/letter)
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Worldwide paper case analysis
The attached excel form shows the working done
One of the first and most crucial tasks of capital budgeting is to determine whether a
project will be profitable or not. There are several different methods of evaluating project cash
flows for a capital budget process. These calculations can be useful in making decisions on
investments. Cash flow metrics are important to understand and are a part of cash flow analysis.
Some specific metrics of the cash flow process include NPV, payback value, and return to
investment. Internal Rate of Return tools are used for evaluation of finance acquisitions,
investments, programs, project proposals. Also, the IRR provide expected financial results from
an investment view. The Investment would be explained as a current cash flow project, and It
means that the project generates positive cash flows. Analysis of income and outcome cash flows
is at a discount assumption rate of 9.7%. This discount rate was arrived at by using the given the
Worldwide paper debt-equity structure. When analyzing this we concluded that the weighted
average cost of capital stands at 9.7%. What makes the weighted average cost of capital all the
more critical in the company analys...


Anonymous
Really great stuff, couldn't ask for more.

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