CASES IN FINANCIAL STRATEGY
Professor J. Schallheim
FOR CASE BRIEFS: The answers to the following preparatory questions are not necessary or sufficient for your Case Briefs. Rather, the questions are to serve as a guide for your group discussion of the cases and a help to getting started on each case. Your final solution the case and recommendations should not necessarily be limited to the answers to these question or the assumptions in the case.
FOR INDVIDUAL ASSIGNMENTS: For individual assignments, you must answer the questions labeled “Memo.”
Individual Memo for Rapid Repair Auto Parts
Rapid Repair’s profitability appears good but their cash balance has shrunk. Write a report that provides a financial analysis
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How many shares will CPK be likely to repurchase under these scenarios?
4. What capital structure policy for CPK would you recommend?
Preparatory Questions for Aloha Hawaiian Airlines
1. A spreadsheet with the lease or buy NPV analysis has been given to you.
2. Should Aloha Hawaiian Airlines purchase or lease the Boeing 737 aircraft? Why or why not?
Preparatory Questions for AMG, Inc. & Forsythe Solutions
1. Should you recommend leasing or purchasing the PCs? Why?
2. Why are the debt rates different for hardware and software leased over the same term?
3. Qualitatively explain if you should choose a rolling or coterminous lease and why?
4. Which is more advantageous, quarterly or monthly takedowns? Explain qualitatively and quantitatively.
5. If you decide on leasing, which payment schedule and lease-line are most appropriate and why?
6. How much would Forsythe make on the AMG deal?
7. What are the key takeaways to remember when determining future lease versus buy decisions of this magnitude?
Preparatory Questions for Crocs, Inc.
1. Which of the comparable companies appears to be a good match to Crocs at the time of the case? Which would be a good match in five years? Use these multiples to provide additional estimates of the value of Crocs (in other words, calculate a value for Crocs using a current multiple and calculate a
In accounting there is much to be learned, about the financial aspects of a business. In the past five weeks I have learned the importance of financial reports and how they relate to the success of an establishment. These reports may include balance sheets and income statements, which help accountants and the public grasp the overall financial condition of a company. The information in these reports is really significant to, managers, owners, employees, and investors. Managers of a business can take and deduce financial
3. Using the cash flow indicator and investment valuation ratios, discuss which company is more likely to have satisfied stockholders.
When you invest in real estate to rent the property, make sure you're able to get your money back within a reasonable amount of time. If
In this task I’m going to analyse the figures on cash flow that I created in P3 and justify why you think the business might have problems also provide range of solutions.
By using the 7.2% after tax rate and assuming the equipment will be sold at the beginning of the 5th year for its book value, if Agro-Chem bought the equipment the company would achieve a project NPV of ($1,043,500.23). In contrast, if Agro-Chem decided to lease the equipment with the same assumptions they would obtain a project NPV of ($1,030,205). Given these assumptions and based off our calculated NPV we recommend that Agro-Chem lease the equipment rather than buy because of the $13,295.23 savings. This $13,295.23 savings is the NAL.
Commercial’s NPV is $.1516 million (see Table 3). This was determined by using the present values of the four year lease agreement between Prudent and Commercial. We concluded that Commercial’s discount rate will be 10% because of their opportunity cost. Commercial needs to have a residual value on the DAS of 6.8 million or greater, which will give them a positive net present value. Therefore, if their net present value shows negative, they would not want to lease to us. Assuming Commercial receives the same 5 year MACRS rate on the equipment purchase, then the system should be worth 7.01 million (book value) at the end of year 4 (see Table 4). This allows Commercial to have a positive NPV of $.1516 million (see Table 4). Therefore, they would be willing to lease the DAS to us.
Based on your analysis above, make at least two (2) recommendations as to how each company could improve its working capital positions. Provide support for your recommendations.
As the financial analyst of the company, this report is written in respect to how the financial position of the company can be improved. This report is aimed for the senior management team.
In today’s world, customers often face a dilemma about whether to buy or lease. Lease is an agreement in which one party gains a long term rental agreement, and the other party receives a form of secured long term debt. On the other hand, buying involves transfer of ownership from seller to buyer. Buying or leasing decision depends mostly on customer’s preference. There are many factors to consider before taking a buying or leasing decision.
The company’s debt ratios are 54.5% in 1988, 58.69% in 1989, 62.7% in 1990, and 67.37% in 1991. What this means is that the company is increasing its financial risk by taking on more leverage. The company has been taking an extensive amount of purchasing over the past couple of years, which could be the reason as to why net income has not grown much beyond several thousands of dollars. One could argue that the company is trying to expand its inventory to help accumulate future sales. But another problem is that the company’s
From your analysis of research materials, examine the company and provide a report on the short and long range financial problems that are evident from the review. If you find no short or long range financial problems, provide the evidence to justify this conclusion.
Present Value ($000) Operational Lease 1,781 Capital Lease 1,835 Buy 2,224 Samuel Malone the chief executive officer feels that the equipment is crucial to their research and development department and be a good long-term investment. He would prefer a capital lease to an operational lease. Nicholas Tortelli
The most significant difference between a capital lease and an operating lease is how each is recognized in the financial statements. According to U.S. GAAP, a lease is capitalized if it fulfills one of the following requirements: transfer of ownership, bargain purchase option, lease term is 75% or more of economic life, or present value of minimum lease payments is 90% or more of fair value. All other lease agreements are classified as operating leases (Wahlen et al., 2013, p.20-15). Operating leases present advantages to the leasee, as they are not required to be recognized on the balance sheet, yet operating lease agreements must be disclosed in the notes to the financial statements.
There are benefits to commercial leasing. When you lease, you avoid large cash outlays with a down payment. In addition, leasing payments are tax deductible. “Along with the tax advantages, commercial equipment leasing does not affect your business credit”. When you lease, the equipment pays for itself while generating revenues. Leasing saves working capital, it converts a large cash purchase into a low, affordable, tax-deductible monthly payment. It eases the strain on your working capital by providing 100% financing. Meaning you has more funds available for things like payroll, advertising and other expansion efforts.
The lease-versus-purchase-decision is made using basic capital budgeting procedures. The following steps are involved in the analysis: