Project 4: Finance for Managers
As a senior analyst at Maryland Creative Solutions (MCS), you have continued to prove your value after helping Choice Hotels make strategic decisions by analyzing their financial reports. Frank Marinara and Elisa Izuki, continually happy with your work, have decided to transfer you to the finance team. You’re excited to continue working for MCS and you strongly believe you are capable of someday making senior partner.
Dialogue with Frank Marinara
You meet with Frank so he can orient you to the upcoming task. “The finance operations have a slightly different focus than the accounting operations,” he says. “The financial analysis part of our business is more involved with analyzing financing and investment decisions, making corporate asset valuations, evaluating corporate financial performance, and providing corporate valuations. You will be working to complete a project for our Maryland-based client McCormick & Company.”
Given your position as a senior analyst, you are anticipating that Frank will have several separate requests. Frank explains that McCormick & Company is considering expanding their operations by building another factory to increase the production volumes of their spice products. The client has asked MCS to help them determine if this financial investment is worthwhile.
Frank continues by delineating your responsibilities for the project: “To get started, we will need to look at the variables involved in this purchase and the questions McCormick & Company has provided. Ultimately, MCS will help them determine their corporate valuation, responsibly raise capital, and make the right financing and investing decisions. This information will help you determine which financing and investing options would provide McCormick & Company with the best potential outcomes for sustainability and growth.
“You will also need to participate in a meeting with the other finance analysts to discuss risk and returns,” Frank says. This discussion will help the client decide if they should invest in the new factory.
“The client also mentioned they would like MCS to provide them with guidance on retirement plan options and other employee benefits,” Frank elaborates. “Finally, I will need you to complete the project by preparing an executive summary that highlights your recommendations.”
Frank needs all of these tasks done within two weeks and suggests you begin right away. Click Step 1 to get started!
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.
From: Frank Marinara, Director of Finance
To: You and Finance Team
I hope you are ready to move forward with the project at hand. I want to give you the background on the McCormick & Company case and instructions for this project.
McCormick & Company approached MCS because they would like to increase the production of their spice products and are considering the construction of a new factory in Largo, Maryland. The new factory would allow the company to increase its overall production capacity. As McCormick decides whether to build the factory, they are asking our finance team to evaluate options to finance this construction. McCormick has provided MCS with the purchase price, expected cash flow, and two new product lines projects they expect to run in the newly built factory.
To understand which financing option would be best for the client, you must first understand time value of money, present value, future value, and loan amortization. These topics will help you make recommendations about the relative benefits and drawbacks of each option.
Working in the attached Excel Workbook, complete the Financing and Investing worksheet. The Financing and Investing worksheet contains information about present value, revenue, expenses, and cash flows, as well as questions that will help Frank guide the client in selecting the best financing option.
When you have completed the Financing and Investing worksheet, submit it to the submission folder located in the final step of this project. You should aim to complete this step during Week 7. Then, proceed to Step 3, where you will examine the factors affecting McCormick’s corporate valuation.
Looking forward to seeing your work,
McCormick & Company Workbook.xlsx
McCormick & Company is also interested in gaining further insight on the corporate valuation of the company, as they need to know how much capital they’ll need to raise to construct the factory. To understand valuation, you must review dividends, options, warrants, derivatives, discount rate, and yield.
Frank tasks you with recommending a method for raising sufficient capital. “McCormick & Company has been paying dividends to its shareholders for several years now,” he says. “The company has given us some data and would like us to recommend ways they can further leverage their financing activities. The company is interested in potentially issuing more stock or purchasing bonds to raise additional capital for the construction of the new factory. I will need you to answer a few questions about the company’s stock prices and minimum acceptable rate of return. Your answers will help me make a recommendation to McCormick.”
Working with the same Project 4 Excel Workbook you worked with in Step 1, complete the Valuation of Performance worksheet. This worksheet contains information on McCormick’s dividends, stocks, and risk premiums, as well as questions that will guide the client’s decisions.
When you have completed the Valuation of Performance worksheet, submit the Project 4 Excel Workbook to the folder located in the final step of this project. Next, proceed to Step 3, in which you will advise the client on selecting a retirement plan for its employees.
Project 4: Finance for Managers
Step 3: Evaluate Annuities
As McCormick & Company reviews its capital in preparation for constructing the factory, it has asked MCS to help with the process of selecting the best retirement options for their employees. To help McCormick make the best decision based on our recommendations, you will need to understand several concepts:
You will also apply what you learned about present value and future value.
Working with the same Project 4 Excel Workbook you will use in Steps 1 and 2, complete the Annuities worksheet. The worksheet poses questions about the retirement annuities, US treasury bond rates for the employees’ portfolios managed by a retirement fund company, and annuities for employee’s personal investments. This information will clarify the best choice of retirement plan for McCormick employees.
When you have answered the questions provided, submit the Project 4 Excel Workbook to the submission folder in the final step of this project. Then continue to Step 4, where you will discuss risk and returns with your colleagues.
Project 4: Finance for Managers
Step 4: Discuss Risk and Returns
Dialogue with Frank Marinara
As McCormick decides whether they will invest in an additional factory to keep up with demand, the company remains uncertain if the investment will yield worthwhile returns. “That is where they need us to provide them with a risk and return evaluation,” Frank says. “Risk is the financial liability a company takes in a given investment in consideration of a potential return on the investment.”
Meet and Discuss
Frank has asked you to meet with your colleagues and discuss how risk and returns will influence McCormick’s investment decision. Complete the following tasks:
· Discuss whether McCormick & Company should invest in building a new factory in Largo, Maryland. Give credit to any sources you use to support your statements.
· Discuss how understanding risk and returns will impact this decision. Give credit to any sources you use to support your statements.
· Later in the week, after you are back in your office, you have a follow-up discussion with your MCS colleagues in an effort to summarize the key lessons from your discussion on risk and returns at the meeting. Respond to your colleagues’ original discussion posts and give credit to any sources you use to support your statements.
During Week 8, submit one original posting of at least 250 words in the Risk and Returns Discussion by Saturday and post two responses of at least 50 words each to other discussion participants by Tuesday. Consult the MBA discussion guidelines for assistance.
When you have finished Step 4, proceed to Step 5, where you will review your recent findings in a report to management.
At the conclusion of your project, Frank requests an executive summary based on your analysis and recommendations in the previous steps. He is planning on using this executive summary to provide the client, McCormick & Company, with guidance on the potential construction of an additional factory. This executive summary should include facts and figures to support your recommendations. The report should highlight your analysis and recommendations based on the work you completed in the Project 4 Excel Workbook. Be creative and use charts, graphs, or any other tools you feel would be useful to convey your analysis and recommendations. Post your executive summary to management in the submission folder located in the final step of this project.
When you have completed Step 5, proceed to Step 6, where you will submit all work for Project 4.
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