Prepare projected statements of earnings
1. Submitting Preparation Assignments (Days 1-3, 5 and 6)
You are required to turn in preparation assignments for Days 1-6, except for Day 4. Preparation assignments should be approximately one to two pages in length. Study and review all of the exercises even when they do not need to be submitted as a preparation assignment. The deadlines for preparation assignments are as follows: Full-time class-by the class starting time, Part-time class-up to one hour after the class starting time.
Preparation assignments will only be accepted from students who have attended class and uploaded the assignment in the designated way. If students are absent, the assignment will be marked as “Not Submitted.” Note that an assignment may not be accepted if it is judged to be incomplete.
How to Complete a Preparation Assignment:
(1) Write your opinions and come to your own conclusion
The most important point in completing assignments is to develop and explain your own opinions which should be thought through thoroughly and lead you to make your own conclusion. Merely summarizing cases, methods or frameworks is not sufficient.
(2) Explain your thoughts clearly and concisely
Take note of the following points to make your assignment more persuasive:
A) Analyze the case and explain the facts that support your conclusion.
B) Use methods and frameworks for analysis and strategy planning.
C) Convey your thoughts logically and clearly.
D) Consider who your audience is and try to make your explanation easy to understand.
2. Submitting a Report (Day 4)
A report is required for Day 4. The deadlines are as follows: Full-time class-by the class starting time, Part-time class-up to one hour after the class starting time.
Note that when attending a substitute class in the same term for Day 4, you are required to submit the report by the specified deadline of whichever class comes first, either the registered class or the substitute class.
Be sure to submit your report on time. Late submissions will not be accepted and your report evaluation will be marked as “Not submitted.” In such a case, you will be neither evaluated nor given feedback from the lecturer, and your grade will be marked as “Ineligible for grading.”
How to Write a Report
(1) Write your opinions and come to your own conclusion
The most important point in completing a report is to develop and explain your own opinions which should be thought through thoroughly and lead you to make your own conclusion. Merely summarizing cases, methods or frameworks is not sufficient.
(2) Explain your thoughts clearly and concisely
Take note of the following points to make your assignment more persuasive.
A) Analyze the case and explain the facts that support your conclusion
B) Use methods and frameworks for analysis and strategy planning
C) Convey your thoughts logically and clearly
D) Consider who your audience is and try to make your explanation easy to understand
(3) Use simple and clear expressions
If you want readers to understand your thoughts or proposals, first of all, you need to make them easy to read and understand. Clarify facts and organize your ideas using simple and clear expressions. The evaluation of your report will be based NOT on the length but on the content and organization. If you use any charts in your report, clarify and explain what information those can tell readers.
3. Submitting a Review Assignment (Day 6)
You are required to turn in a review assignment on Day 6, both to communicate what you have learned and to help deepen your learning in a practical way. Review assignments should be one to two pages in length and uploaded as PDF files via the Student Page or Student Portal (List of Registered Courses > Details). The deadlines for the review assignment are as follows: Full-time class-by the Day 6 class starting time, Part-time class-up to one hour after the Day 6 class starting time.
Review assignments will only be accepted from students who have attended class and uploaded the assignment in the designated way. If students are absent, the assignment will be marked as “Not Submitted.” Note that an assignment may not be accepted if it is judged to be incomplete. Review assignment must be uploaded separately from preparation assignment.
Submit your thoughts on the points below:
(1) What you learned in class
What was the most important learning point for you during the entire course? Be as specific as possible.
(2) The learning points that you can apply to your job
What was the most important learning point that you can directly apply to your job? Be as specific as possible.
(3) How you plan to continue applying what you have learned
What actions do you intend to take to enhance what you have learned during this course?
Day 1
Session A – Confirming basic Financial Framework and Principles
Students will confirm basic principles which they have learned through Essencial of Finance class. This Session covers concept of free cash flow, present value and Discounted Cash Flow method, NPV/IRR, WACC, Working Capital which all of them are essential to study Finance clases at Globis.
Session B – Analysis of Projected Financial Statements and Sourcing of Required Funds Based on Certain Business Strategies
Students will simulate and analyze the impacts of business strategies on the company’s financial statements. The study process starts with a projection of financial statements, and then an evaluation of various sources of funds to support expansion of the business. The case is designed for students to obtain a good understanding of the interaction of both sides of a balance sheet.
Exercises –
1. Prepare projected statements of earnings, statement of retained earnings, balance sheets, and cash flow statements for 2008 and 2009, respectively.
2. If you were MacDougall, account manager at the Canadian Commercial Bank, what would be your decision on the request? Provide detailed support for your decision from your qualitative and quantitative analysis.
Day 2
Session A – Incremental Analysis of Cash Flow and Verification of Investment Economics
Students will learn how to verify the economics of investment projects with a focus on the cash flow that will be generated by the project in question using incremental cash flow analysis. The case focuses on the DCF method and how to appraise the project based on the Net Present Value (NPV) and Internal Rate of Return (IRR).
Exercises
1. With the Preparation Worksheet, analyze the incremental cash flows to be generated by implementing an enterprise resource planning system, and calculate the economic value for Whirlpool in aggregate as well as by each specific source of cash flows.
2. Would you recommend the ERP investment? Provide your reasoning on your judgment.
Session B – Incremental Analysis of Cash Flow and Verification of Investment Economics (continued)
Students will learn how to verify the economics of investment projects with a focus on the cash flow that will be generated by the project in question using incremental cash flow analysis. The case focuses on the DCF method and how to appraise the project based on the Net Present Value (NPV) and Internal Rate of Return (IRR).
Exercise –
3. Identify the managerial issues that Stryker faces. Compare and evaluate options to resolve these issues from various perspectives.
4. Calculate the NPV and the IRR based on the incremental cash flows for Option 3 that is under investigation, and evaluate how attractive Option 3 is for Stryker.
5. Based on your findings in Exercise 3 and 4 above, which option plan would you recommend to Stryker’s management?
Day 3 –
Session A – The Valuation Techniques and Financing Options
Through the Industrial Accessories case, students will learn how to estimate the offer price for a business to succeed from its founder based on the discounted cash flow (DCF) method. They will also deepen their understanding of how to secure funds for the offer price and also what effects the financing plan may have on future business development.
Exercises:
1. Analyze the external business circumstances around Industrial Accessories. Evaluate whether it makes strategic sense to buy out the firm from the perspective of the management team.
2. Evaluate whether the $30 million that chairman Gerald Stone offered is appropriate. Use 5% as the market risk premium in calculating the expected return on equity. Also apply 30% as an illiquidity discount in estimating the equity value, considering that Industrial Accessories is not publicly traded in the market. Assume 25% as the target debt to total capital ratio for the firm on a market value basis.
Session B – The Valuation Techniques and Financing Options (Continued)
Through the Industrial Accessories case, students will learn how to estimate the offer price for a business to succeed from its founder based on the discounted cash flow (DCF) method. They will also deepen their understanding of how to secure funds for the offer price and also what effects the financing plan may have on future business development.
Exercise:
3. Assuming $30 million is appropriate and thus necessary to finance the buyout of the firm from the chairman, evaluate and conclude which financing alternative – the equity option or the debt option – is better for management.
Day 4 –
Session A – Valuation and Investment Decision
Students will resolve the management problems, consolidating and applying the knowledge and perspectives learned in Day 1 though 3.
Exercises:
1. Estimate the free cash flows generated by the investment in 1980 in the Collinsville plant, with and without investment in the laminate technology.
2. How attractive is the investment in the Collinsville plan from the view point of Dixon? Assume 16 per cent as the discount rate in discounting the free cash flows. What are your key findings from the quantitative analysis?
Session B – Valuation and Investment Decision (Continued)
Students will resolve the management problems, consolidating and applying the knowledge and perspectives learned in Day 1 though 3.
Exercise:
3. Suppose that “Dixon agreed to acquire the net asset of the Collinsville plant for $12 million” in the case is tentative. How would you evaluate the investment opportunity as a member of the board of Dixon? Explain your conclusion with reference to Dixon’s corporate strategy based on the qualitative analysis as well as your evaluation in Exercise 2.
Day 5 –
Session A – The Impacts of Fund Procurement on the Corporate Strategy (Debt and Equity)
Under the circumstances where the management contemplates to buy out a company’s equity owned by the founder (Management Buy-Out), students will learn to analyze the sources of corporate value, the potential impacts of fund procurement options (debt or equity) on the future business plan, and the relative merits and demerits of debt and equity. The case is designed for students to make a comprehensive decision based on the business strategy and its close relationship with the fund procurement options.
Exercises:
1. Project the cash flows for the next seven years based respectively on the two financing alternatives (all debt and all equity), and evaluate the merits and demerits as well as the potential constraints on the business operations for the two financing alternatives.
2. At what price must Harmonic Hearing repurchase the building and land from Frank Thomas in seven years to produce his required 15% after-tax return? (Hint: Create cash flow diagrams from the Frank Thomas viewpoint and identify how much he needs to receive at year 7 so that he can earn a 15% IRR on an after-tax basis. Based on the analysis result, evaluate how appropriate the all debt financing alternative is.
Session B – The Impacts of Fund Procurement on the Corporate Strategy (Debt and Equity) (Continued)
Under the circumstances where the management contemplates to buy out a company’s equity owned by the founder (Management Buy-Out), students will learn to analyze the sources of corporate value, the potential impacts of fund procurement options (debt or equity) on the future business plan, and the relative merits and demerits of debt and equity. The case is designed for students to make a comprehensive decision based on the business strategy and its close relationship with the fund procurement options.
Exercises:
3. What proportion of the terminal value must be distributed to Comet Capital to produce its required 25% before-tax rate of return?
4. Based on your overall analysis, which financing alternative would you recommend to Burns and Irvine?
Day 6 –
Session A – Comprehensive Investment Judgment and Decision
Students are required to fully utilize all the analytical skills, business frame works, and managerial perspectives they have accumulated to date : specifically to evaluate the acquisition of a company broadly in terms of the strategic fit of the two firms and more narrowly in terms of the financial value of the target company as an acquisition. This value can be assessed from a variety of approaches, including (1) the DCF analysis, (2) impact of the acquisition price on Monmouth’s earnings per share as a function of the price paid for the target company, Robertson. And the form of the transaction, and (3) market multiples.
Exercise:
1. What is the maximum price that Monmouth can afford to pay, based on the performance improvement plan for Robertson Tool prepared by Monmouth? Estimate the stock price, using various evaluation approaches, including but not limited to the DCF method. Use 9% when discounting the free cash flows.
Session B – Comprehensive Investment Judgment and Decision (Continued)
Students are required to fully utilize all the analytical skills, business frame works, and managerial perspectives they have accumulated to date : specifically to evaluate the acquisition of a company broadly in terms of the strategic fit of the two firms and more narrowly in terms of the financial value of the target company as an acquisition. This value can be assessed from a variety of approaches, including (1) the DCF analysis, (2) impact of the acquisition price on Monmouth’s earnings per share as a function of the price paid for the target company, Robertson. And the form of the transaction, and (3) market multiples.
Exercise:
2. What offer (price and form of payment) would you make in an effort to gain support of the Robertson family and the great majority of the stockholders; in considerations of the concerns the Monmouth management has as well as the analysis result in Exercise 1?
Assignment Link – https://www.dropbox.com/s/gs0ksj8lmmmgcpi/Assignment.zip?dl=0
