MBA 6400 Case Study: Case Excess Cash and Short Term Investments

User Generated

Weyrafob

Economics

MBA 6400

Wilmington University

Description

Your report must: 

1. Be presented in Word file format 

2. Analysis must be between 3 to 5 pages maximum, including spreadsheet analysis 

3. Excel spreadsheet is embedded into the Word file 

4. Submit Excel file separately



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MBA 6400 Case Study #1 Short-term investment returns: money market instruments Part of your responsibilities as a junior financial analyst is researching and identifying potential shortterm liquid investment options for your firm. These investment vehicles are at times used by the firm during periods when their cash inflows exceed projections. The firm, at times, uses excess cash to purchase short-term debt instruments providing a low, but safe marginal return on invested capital. Your Director, who reports to the firm’s Chief Financial Officer (CFO) has come to you seeking your recommendation on short-term investment options for the upcoming year. The Director has asked for recommendations and a report illustrating your optimal analysis for investing $2.5m of excess cash. Current background info: We have a potential impending compound money market problem: The U.S. is issuing more debt, in part due to the recent tax cuts. Simultaneously, the Fed, China, Japan and to a lesser degree Russia have been reducing their holdings of U.S. Debt. Therefore, if the U.S. Treasury Department can’t get entities to their positions holding U.S. debt, then the pressure to increase interest rates to make newly issued securities attractive increases. Increased interest rates at the Treasury means securities prices fall with cascading impacts. Therefore, the current interest rate environment is one where rates are expected to increase. Parameters for the research and analysis report are as follows: 1. Investments selections are primarily short term (one year or less), but will consider U.S. Treasury Bills of shorter duration as well as TIPS. 2. A minimum of 3 short term debt money market security types are to be recommended. They may include Federal money market bills, U.S. Savings Bonds, CDs, U.S. Treasury Notes, Treasury Bills, and TIPS. a. Note: money market investments of the range of two to five years are acceptable. b. However, no more than 40% of the portfolio can be invested in a security of with duration of greater than 12 months. 3. A recommendation on the optimal allocation of $2.5 m across the investment portfolio is required. 4. Current (as of the date of this assignment) rates and investments are to be used. The analysis report to be presented to the Director is to include: 1. Your concise statement and recommendation of the specific short-term investment options that meets the firm’s criteria. Followed by: 2. A detailed summary of the investment asset and the parameters you will use in which to base your recommendation. 3. A detailed description of the upside and downside risk of each investment. The latter is of particular importance as the firm may decide to manage excess cash in one or more vehicles for longer than one year. 4. Source identifier for all investment selections 5. 6. 7. 8. 9. a. Example: website URL A spreadsheet (embedded into the report) illustrating the following: a. Asset category/classification b. Specific money market instrument identifier i. Example: U.S. Treasury CUSIP EAR for each investment YTM for each investment a. If held to maturity b. If sold at the end of 12 months Total return for investment portfolio if held to maturity Spreadsheet model is to include all cell-based formulas for all calculations Your conclusion is to summarize the recommendation made in item #1 above Format for report. Your report must: 1. 2. 3. 4. Be presented in Word file format Analysis must be between 3 to 5 pages maximum, including spreadsheet analysis Excel spreadsheet is embedded into the Word file Submit Excel file separately
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Explanation & Answer

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Running Head: Investment Analysis

1

Short-Term Investment Analysis
Name
Institution
Date

Investment Analysis

2

Statement and Short-Term Investment Option Recommendation
From the research work I engaged in, I favored three investment options that the
company can consider investing in with the excess cash available of USD 2.5 million. I
deliberately settled on the three options because they satisfied the four parameters issued by the
department’s director. Also of interest will be the explanation to the analysis that will focus on
providing further details pertaining to the three short-term investment options, including risks of
upside as well as downside nature (Treasurydirect.gov, 2019). An insightful consideration of the
explicit instrument identifier of the money market together with asset classification and
categorization will as well be issued. In the foregoing, it will be of the optimal outcome if the
excess cash is invested now without any delays. Making such a move would be very opportune
given the problems that the money market is currently going through. As have been captured by
the case brief, product prices are consistently going down while the yields are continuing to
serge. Also, to consider in the report explanation will be investment trends currently enjoying an
unprecedented boom.
Summary of the Investment Report based on Recommendation
As things stand, our organization has the best opportunity to invest the USD 2.5 million
cash it has in excess and earns some good returns from it. Having gone through all the available
possible investment options, I settled on three options which include a six-month Treasury bill, a
three-month Treasury bill and a Treasury Inflation-Protected Security running for five years
(Trea...


Anonymous
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