Project 5: Financial Decision Making for Managers Start Here

Over the past eight weeks working at Maryland Creative Solutions, LLC (MCS), you have continued to prove your expertise through your ethical organizational analysis and ability to build effective virtual teams, while working hard in the areas of economics, finance, and accounting. Frank Marinara and Elisa Izuki are happy with your progress, and have decided to offer you a junior partner position with MCS. Congratulations! You’re excited to continue working for the company and believe you are on the right path to someday making senior partner.

INBOX (2 NEW EMAILS)

From: Frank Marinara, MCS Director of Finance

To: You

Congrats on the promotion, we couldn’t have asked for a better junior partner. Keep it up!

Frank

From: Elisa, MCS Managing Senior Director Partnerships

To: You

We’re glad to have you as the newest junior partner at MCS. You will now be responsible for a greater depth of analysis as you make recommendations for our clients.

McCormick & Company is very satisfied with the work finance analysts did on the previous project, and they would like us to continue working with them. In our ongoing work with this client, we are expecting you to be able to determine the cost of capital and make capital budgeting decisions.

McCormick has expanded their current product line through an acquisition and is now considering a new project that requires an initial investment to build a new plant and purchase equipment. Given the information on capital structure and valuation that I’ll pass along to you, you’ll need to determine if McCormick should accept this project. You’ll be digging into the company’s market capitalization figures and value of debt to make cost of capital decisions and you’ll be analyzing the valuation of multiple cash flows to provide guidance on key budgeting choices.

I also want you to join a meeting next week on the topic of capital budgeting with the other financial analysts. This discussion will help the client decide how they should organize their capital budget for making financial decisions.

Ultimately, we’d like you to summarize your guidance and file a report that highlights your recommendations through an executive summary. Now that you are junior partner, I am expecting you to give the executive summary to the client. I’ll need all of these tasks complete within the next two weeks. I know it’s a lot, but I have no doubts about your abilities.

Reach out if you need anything,

Elisa

Elisa needs all these tasks done within two weeks. As usual, you can get started in Step 1, but first, take two minutes to view the video below.

Transcript

Course Touchpoint

When you submit your project, your work will be evaluated using the competencies listed below. You can use the list below to self-check your work before submission.

· 1.3: Provide sufficient, correctly cited support that substantiates the writer’s ideas.

· 1.6: Follow conventions of Standard Written English.

· 1.7: Create neat and professional looking documents appropriate for the project or presentation.

· 3.1: Identify numerical or mathematical information that is relevant in a problem or situation.

· 3.2: Employ mathematical or statistical operations and data analysis techniques to arrive at a correct or optimal solution.

· 3.3: Analyze mathematical or statistical information, or the results of quantitative inquiry and manipulation of data.

· 3.4: Employ software applications and analytic tools to analyze, visualize, and present data to inform decision-making.

· 5.3: Create, implement, and evaluate a personal leadership development plan.

· 10.4: Make strategic managerial decisions for obtaining capital required for achieving organizational goals.

Step 1: Make Cost of Capital Decisions

MCS provides consulting services for clients to help them identify areas of improvement in their financial structure and apply industry best practices in future business decisions. McCormick needs the expertise of MCS consultants to better understand the financial implications of developing a capital structure for a recent acquisition of new product lines. To provide these services, a junior partner must first understand the cost of capital by exploring weighted average cost of capital (WACC), capital asset pricing model (CAPM), and market value ratios.

Working in this Project 5 McCormick Workbook (see attachment) that Elisa has provided, complete the Cost of Capital worksheet. The Cost of Capital worksheet contains information about weight of equity and debt, cost of equity and debt, and the weighted average cost of capital, as well as questions that will help the client in selecting the best financing decision.

Now that you have completed Step 1, proceed to Step 2, where you will make capital budgeting decisions.

Step 2: Make Capital Budgeting Decisions

McCormick & Company will also need assistance in understanding how their anticipated growth, debt, market return, and marginal tax rate will affect their bottom line if they choose to pursue this new project.

Recalling what you have learned in the previous project about the time value of money and present value, you will also need to be knowledgeable about the ROE, ROA, and the DuPont Equationas well as valuation of multiple cash flows to help McCormick make the decision on the project.

Working with the same Project 5 Excel Workbook you will use in Step 1, complete the Capital Budgeting worksheet. This worksheet contains additional information on the data that will drive McCormick’s investment decision—whether or not to build a new plant and purchase equipment.

Step 3: Discuss Capital Budgeting

Calendar Invite

Event: Capital Budgeting Discussion

Location: Compass Room

Meeting Organizer: Elisa Izuki, MCS Managing Senior Director Partnerships

Elisa has asked the finance team to meet and discuss how capital budgeting will influence McCormick’s investment decision. Complete the following tasks within your group:

· Discuss the best estimates of McCormick & Company’s capital structure used for the acquisition of new product lines. Give credit to any sources you use to support your statements.

· Discuss how understanding capital budgeting will impact the decision of McCormick and Company’s potential investment in a new factory. Give credit to any sources you use to support your statements.

Submit one original posting of at least 250 words for the Capital Budgeting Discussion.

When you have completed Step 3, proceed to Step 4, where you will prepare an executive summary about the work you have completed.

Step 4: Step 4: Prepare Executive Summary

INBOX (1 NEW EMAIL)

From: Frank Marinara, Director of Finance

To: You

Hope all is going well.

Now that you’re concluding your project for McCormick & Company, please prepare an executive summary based on your analysis and recommendations from the previous steps. This executive summary, along with citations for any sources you use, should be about one page in length.

Within your executive summary, I'd like you to highlight your analysis and recommendations to help McCormick & Company identify areas of improvement in their operations and explore options to make capital budgeting decisons based on the cost of capital.

Can’t wait to see the executive summary.

Best,

Frank

The executive summary should demonstrate your ability to think critically. This is your chance to be recognized for your knowledge in the accounting and finance field.

Step 5: Submit Your Work

Final Deliverable Instructions

Recommended Project Delivery

Cost of Capital Worksheet Project 5 Workbook

Capital Budgeting Worksheet Project 5 Workbook

Discuss Capital Budgeting minimum of 250 words

Executive Summary

pur-new-sol

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