Overview Case considerations Key topics 7/7/2019 Carded Graphics, LLC Overview Case considerations Key topics 7/7/2019 Senior Seminar in Finance Senior Seminar in Finance
Senior Seminar in Finance 7/7/2019 Overview Time of case: early 2010 Owner Murray Pitts is considering whether to replace the current sheeter with a newer and higher capacity machine. Spreadsheet file available: Carded Graphics.xls Note: capital budget template included 7/7/2019 Senior Seminar in Finance Senior Seminar in Finance
Senior Seminar in Finance Case considerations What are the relevant, marginal, after tax cash flows of the project alternatives? What is the appropriate discount rate and how is it derived? Apply appropriate decision tools to analysis of cash flows: NPV, IRR, Payback 7/7/2019 Senior Seminar in Finance
Senior Seminar in Finance Case considerations Sensitivity analysis: how do key results change when varying key inputs (consider growth and downstream waste)? In addition to quantitative results, what strategic factors affect the decision? Which alternative best supports the company’s success? 7/7/2019 Senior Seminar in Finance
Senior Seminar in Finance Case considerations Select one recommendation and show why it’s best and the others are not: “No-go” Adopt new machine Outsourcing Assume initial investment occurs at end of 2009; project runs through 2017. 7/7/2019 Senior Seminar in Finance
Senior Seminar in Finance Case considerations Exhibit 4 differs between casebook and spreadsheet exhibit. Use the spreadsheet figures for case analysis. 7/7/2019 Senior Seminar in Finance
Addendum: Hamada’s Equations Unlever industry beta Ba = Be / { 1 + [(D * (1 - T)) / E } (do for each comparable firm, then average) Lever target firm beta Be = Ba * { 1 + [(D * (1 - T)) / E } (using target firm’s debt & equity) 7/7/2019 Senior Seminar in Finance
Senior Seminar in Finance Key topics Marginal cash flow analysis Cost of capital analysis Capital budgeting analysis Sensitivity analysis Environmental/employment issues in capital projects 7/7/2019 Senior Seminar in Finance
Senior Seminar in Finance What does it take to succeed in folding carton biz Economic factors to succeed Appropriate Discount rate CFs issued re: keeping old vs. replacing old 7/7/2019 Senior Seminar in Finance