Financing Decisions Questions 1 and 2 only
Be comprehensive in your written analysis, discussion, and choice of this critical capital budgeting case below by answering the following questions:
1. Determine the capital asset pricing model rate for the firm in case below.
2. Combine that rate with the specific debt rates for each store model, using a tax rate of 34%.
The primary subject matter of this case concerns the current effect of the financing decision to expand sales of African art to new sales locations and markets. It
addresses the various types of opportunities available to the firm’s management and the determination of financing sources, and the ultimate decisions on strategic
choices of outlet size and inventories that the firm must make in order to execute their new capital budgeting plans for the upcoming accounting period.
Your Finance for Executives: Managing for Value Creation textbook and relevant outside resources necessary to complete the analysis and assist EMBACAP managers in the
expansion plans must be employed. The case has a difficulty level of four, appropriate for the first year graduate level. It serves as a pedagogically sound tool for
applied market strategy in capital budgeting, financing and strategic acquisition financing in line with those theories that utilize and optimize these practices to
produce more financially aware business managers. It is presented from the perspective of the corporate manager, who must determine both the size and number of new art
stores faced with both capital and property constraints.
This case affords students an opportunity—from strategic and analytical points of view—to evaluate the plight of corporate managers in their daily or periodical
decision-making tasks. Their tasks include selecting from alternative investments for the firm, based on the needs of the firm for organic and economic growth.
Financial managers need to evaluate projects and optimize the use of scarce corporate funding to literally obtain the largest return for the company’s dollars.
Mr. Akim Smith is the project officer for the potential strategic acquisition plan known as MoShops2012. He has been with the firm for 10 years, joining it following
an intensive MBA program at Howard University’s School of Business. As operations officer, this project has thus far taken more than two years, but his staff has
assisted him greatly in arriving at the point of the case where he must prepare the project, present it to the firm’s board of directors, and ensure that if the
project is accepted by the board, sufficient funding resources are present to make the project a success.
Typically, loans for projects of this sort are obtained by issues to capital markets in the form of debt or equity issues. In terms of handling all financing needs and
operations, officers are assisted by financial managers in the process. Thus, we will not focus on the financing of the project but on the preparation of the capital
budgeting plans assuming the financing will be available if the plan is accepted. The analysts for this case will become intimately familiar with the roles of
corporate financial and operational managers in preparing capital budgeting plans for purchases of items for corporate use. Your task is to assist Akim in analyzing
the elements of this budgeting decision by employing the financing tools acquired in XFIN-500 to resolve Akim’s capital budgeting problem.
The EMBACAP Corporation has operated and licensed others to operate sales and distribution centers for African art, pictures, figures, and other collector items
manufactured in the United States or acquired from various sources in the African continent, and to sell them under the name of EMBACAP Art. The items are sold under
the major categories of figurines, picture art, and other tribal articles from shields of various tribes to full dress for all ceremonial and customary occasions. The
first store was opened in Washington, D.C. on September 29, 1989 by Mr. Smith and two of his fellow students attending the business school at the University of
Maryland, College Park
Twenty-one years later, the firm has 20 stores throughout 7 east coast states, of which 10 are operated by the company and 10 by franchisees. Each store was built to
the same specifications for both interior and exterior design. Locations were chosen in heavily African-American populated areas since their success depended greatly
upon serving a target market of customers with the resources to purchase the firm’s art products. Inventory items were standardized into the three categories, and
advertising focused on one of the three product themes. Prospective franchisees signed a document that was designed to keep sales of items, locations and other details
standard irrespective to their geographical location, and each new location required an initial payment of $10,000. In addition, franchisees were obligated to a
royalty of 5% of gross sales, and each franchisee had to spend at least 2% of gross receipts on local advertising. The firm believed that properly trained employees
were the key to success; therefore, managers and company trainees were required to attend a two-week program covering all aspects of the company’s operations.
This case begins in June 2010 when Mr. Smith started preparing to complete his analysis for the construction of five new company-owned stores where the sizes have not
yet been determined. Mr. Smith and his management team believe that a larger capacity store with capacity to handle $100,000 in product inventory would be more
profitable than the present stores where inventory capacity is $70,000.
The company faces two choices that Mr. Smith must evaluate with your assistance: continue with the current smaller sized stores, or select larger stores for the firm’s
strategic growth or construction plan. The initial cost will be $2,100,000 for each of the smaller sized stores and $3,700,000 for each of the five larger ones.
Projected present value of cash flows for the smaller units projected for the firm’s five-year strategic plans are $450,000 for each year while the projected cash
flows for the larger units are projected to be $740,000 per year. Because the projects must be financed from different sources, unfortunately, financing costs will be
different. Mr. Smith’s data indicates that the current and projected 120-day Treasury bill rate is 9.75% and the firm’s expected market return is 12.5% for the plan
period. The beta for the African art industry and the planned new stores is 1.15. However, the bond rates for the projects are 10% for the smaller stores and 12.7% for
the larger store funds. Thus, the details have been provided for the analysts, namely you, to:
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Compelling correspondence is essential to the achievement all things considered but since of the changing idea of the present working environments, successful correspondence turns out to be more troublesome, and because of the numerous impediments that will permit beneficiaries to acknowledge the plan of the sender It is restricted. Misguided judgments.In spite of the fact that correspondence inside the association is rarely completely open, numerous straightforward arrangements can be executed to advance the effect of these hindrances.
Concerning specific contextual analysis, two significant correspondence standards, correspondence channel determination and commotion are self-evident. This course presents the standards of correspondence, the act of general correspondence, and different speculations to all the more likely comprehend the correspondence exchanges experienced in regular daily existence. The standards and practices that you learn in this course give the premise to additionally learning and correspondence.
This course starts with an outline of the correspondence cycle, the method of reasoning and hypothesis. In resulting modules of the course, we will look at explicit use of relational connections in close to home and expert life. These incorporate relational correspondence, bunch correspondence and dynamic, authoritative correspondence in the work environment or relational correspondence. Rule of Business Communication In request to make correspondence viable, it is important to follow a few rules and standards. Seven of them are fundamental and applicable, and these are clear, finished, brief, obliging, right, thought to be, concrete. These standards are frequently called 7C for business correspondence. The subtleties of these correspondence standards are examined underneath: Politeness Principle: When conveying, we should build up a cordial relationship with every individual who sends data to us.
To be inviting and polite is indistinguishable, and politeness requires an insightful and amicable activity against others. Axioms are notable that gracious “pay of graciousness is the main thing to win everything”. Correspondence staff ought to consistently remember this. The accompanying standards may assist with improving courtesy:Preliminary considering correspondence with family All glad families have the mystery of progress. This achievement originates from a strong establishment of closeness and closeness. Indeed, through private correspondence these cozy family connections become all the more intently. Correspondence is the foundation of different affiliations, building solid partners of obedient devotion, improving family way of life, and assisting with accomplishing satisfaction (Gosche, p. 1). In any case, so as to keep up an amicable relationship, a few families experienced tumultuous encounters. Correspondence in the family is an intricate and alluring marvel. Correspondence between families isn’t restricted to single messages between families or verbal correspondence.
It is a unique cycle that oversees force, closeness and limits, cohesiveness and flexibility of route frameworks, and makes pictures, topics, stories, ceremonies, rules, jobs, making implications, making a feeling of family life An intelligent cycle that makes a model. This model has passed ages. Notwithstanding the view as a family and family automatic framework, one of the greatest exploration establishments in between family correspondence centers around a family correspondence model. Family correspondence model (FCP) hypothesis clarifies why families impart in their own specific manner dependent on one another ‘s psychological direction. Early FCP research established in media research is keen on how families handle broad communications data. Family correspondence was perceived as an exceptional scholastic exploration field by the National Communications Association in 1989. Family correspondence researchers were at first impacted by family research, social brain science, and relational hypothesis, before long built up the hypothesis and began research in a family framework zeroed in on a significant job. Until 2001, the primary issue of the Family Communication Research Journal, Family Communication Magazine, was given. Family correspondence is more than the field of correspondence analysts in the family. Examination on family correspondence is normally done by individuals in brain science, humanism, and family research, to give some examples models. However, as the popular family correspondence researcher Leslie Baxter stated, it is the focal point of this intelligent semantic creation measure making the grant of family correspondence special. In the field of in-home correspondence, correspondence is normally not founded on autonomous messages from one sender to one beneficiary, yet dependent on the dynamic interdependency of data shared among families It is conceptualized. The focal point of this methodology is on the shared trait of semantic development inside family frameworks. As such, producing doesn’t happen in vacuum, however it happens in a wide scope of ages and social exchange.
Standards are rules end up being followed when performing work to agree to a given objective. Hierarchical achievement relies significantly upon compelling correspondence. So as to successfully impart, it is important to follow a few standards and rules. Coming up next are rules to guarantee powerful correspondence: clearness: lucidity of data is a significant guideline of correspondence. For beneficiaries to know the message plainly, the messages ought to be sorted out in a basic language. To guarantee that beneficiaries can without much of a stretch comprehend the importance of the message, the sender needs to impart unmistakably and unhesitatingly so the beneficiary can plainly and unquestionably comprehend the data.>