Phase 4 > > > > course finc615 – applied managerial finance phase 4

 

Phase 4 - Task 1 
Task Type: 	Discussion Board 
Deliverable Length: 	400–600 words 
 	 
 	 
Primary Discussion Response is due by Wednesday 
Primary Task Response: Within the Discussion Board area, write 400–600 words that respond to the following questions with your thoughts, ideas, and comments. This will be the foundation for future discussions by your classmates. Be substantive and clear, and use examples to reinforce your ideas.
The Apix Printing Inc. executive team has indicated that an assessment of the project will be due in a week’s time.
As you review your calendar for the coming week, you are reminded that the due date for an assessment of the expansion project is fast-approaching. Mary sees you in your office and walks in to talk.
“I’m glad I caught you in your office,” she says. “I’ve been thinking about the cost of issuing equity and debt because I know it will be burdensome for Apix,” says Mary. “On the other hand, we know that if we are to grow as a company, we must comply with the requirements of the Securities and Exchange Commission (SEC) and issue equity as well as debt.”
“It’s a big decision,” you agree. “Maybe it would help if I identified the costs of issuing equity as well as any advantages and disadvantages of engaging in this process. I could also isolate two primary compliance requirements, specifically those indicated by the SEC for an initial public offering (IPO) to which the firm must adhere, as well.” 
“You know, sometimes it’s helpful to see things written down when making a big decision,” she says. “Thanks.”
For this discussion, identify the costs of issuing equity as well as any advantages and disadvantages of engaging in this process. Also, isolate 2 primary compliance requirements, specifically those indicated by the SEC for an initial public offering to which the firm must adhere.
In your response, contrast the process of issuing external equity with that of obtaining venture capital. Would it be optimal for Apix to seek venture capital instead of engaging in an initial public offering (IPO)? Why or why not?

 
Phase 4 - Task 2 
Task Type: 	Individual Project 
Deliverable Length: 	Completed worksheet 
 
Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas. 
Over lunch, you and Mary meet to discuss next steps with the expansion project. 
“Do we have everything we need on sales and costs?” you ask. ”It must be time to compute the net present value (NPV) and internal rate of return (IRR) of the Apix expansion project.” 
“We have the data from James and Luke regarding projected sales and costs, respectively, for the food packaging project,” says Mary. “It is feasible to project that we will receive a tax break from this implementation. I have information from our audit firm that indicates that future depreciation methods for taxes will be straight-line; however, the corporate rates will be reduced to 35% as we assumed in our weighted average cost of capital (WACC) calculation.”
“That sounds good,” you say.
“Right," says Mary. "You can use the WACC of 1% listed in the Excel file posted for the computation of the NPV and comparison for IRR."
“I’ve got the information I need from Luke and James,” you say. "Does this look right to you? Here’s what they gave me,” you say, as you hand a sheet of paper to Mary. 
“Let’s look at this now while we’re together,” she says.
The information you hand to Mary shows the following:
•	Initial investment outlay of $30 million, consisting of $25 million for equipment and $5 million for net working capital (NWC) (plastic substrate and ink inventory); NWC recoverable in terminal year 
•	Project and equipment life: 5 years 
•	Sales: $25 million per year for five years 
•	Assume gross margin of 60% (exclusive of depreciation) 
•	Depreciation: Straight-line for tax purposes 
•	Selling, general, and administrative expenses: 10% of sales 
•	Tax rate: 35% 
You continue your conversation.
“It looks good,” says Mary. “Use this information from Luke and James to compute the cash flows for the project.”
“No problem,” you say. 
“Then, compute NPV and IRR of the project using the Excel spreadsheet I sent earlier today,” says Mary. “Use the IRR financial function for the computation of IRR.” 
“Okay,” you say. "I’ll submit my Excel file showing the computation of cash flows, NPV, and IRR by the end of week so you can look at it over the weekend.” 
“Thanks,” says Mary.
Complete the above worksheet for this assignment.

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