1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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