Homework For You



FINA 3042 Assignment 2For this assignment, you will be reviewing the growth and financing plan for Waterloo Brewing Company (“WBC”). Assignment 2 is to be done in groups of 3 or 4. Peer evaluations must be completed to receive marks. Grades can be adjusted based on peer evaluations. An Excel template is provided to complete the financial analysis. Please see FOL for the template. Be sure to use cell references for your calculations. (Do not type in numbers that are the result of calculations.) Rename the Excel workbook your group number and last names e.g. (1OttenSmith).The total assignment is worth 20% of your grade, with 15% allocated to the final submission, and 5% allocated to two checkpoints (2.5% each). Make sure to review the instructions, and due dates for the checkpoints. Checkpoints are graded as complete/incomplete, and the intent is to provide you with feedback on your progress.GROWTH & FINANCING PLAN (48)Financing SourcesBased on the information from WBC’s 2018 Annual Report what are WBC’s priorities for fiscal 2019? How have they financed their growth in the past and do they plan on requiring financing for their growth in fiscal 2019? (5 marks)What were WBC’s financing costs in fiscal 2018 related to? Will these costs continue? (3)Historically, what were the main sources of long-term financing for WBC? Were there any stipulations/restrictions on these sources? Be sure to fully describe all sources. (5)Identify 3 different possible sources of long-term financing for WBC. What are two advantages and disadvantages of each? (12)If WBC were to issue some 25 year bonds with a coupon of 3.5% paid semi-annually, what kind of price/yield would they be offered at? Use the schedule on the next page which describes current bond prices and yields for Molson Coors Brewing Company as a reference point. Explain how you picked your price and yield? What credit rating do the Molson Coors bonds have and what do you think WBC’s bonds would be rated at and why? What kind of risks are there for investors? (10)DividendsWhat is the company’s current dividend policy and do they expect this policy to change? Has it been possible for investors to make money on this stock? Provide numbers/research to substantiate your answer (5)Can we apply the dividend growth model to this company to value their stock? Has WBC historically paid dividends? When did they start paying dividends? Sales growth has averaged 11% over the last 3 years. Assume that dividends are expected to grow going forward by the same rate that sales have grown and assume a cost of capital of 14%. What share value do you get? Compare that to the price per share at the end of fiscal 2018. Give a plausible explanation for the difference between your calculation and the actual trading price. (8)CAPITAL BUDGETING AND RELEVANT COST (40)During fiscal 2018 WBC expanded its Kitchener production facility and closed its Formosa production facility. Let’s apply capital budgeting techniques that we learned to this scenario: Data gathering:What was the cost of the expansion that was done in fiscal 2018 to accommodate the closure of the Formosa production facility? Use this article as your source: that the article above also identifies the annual cost savings expected due to the closure of the Formosa site and moving production to the Kitchener facility.WBC also realized proceeds from the sale of the facility. Refer to this link: Use the combined statutory federal and provincial tax rate for 2018 as per the audited financial statements as the marginal tax rate (you have to look in the Notes to the Financial Statements to find this).For the fiscal 2018 investment assume the proceeds of disposition of the Formosa production facility was netted against the cost of the expansion in Kitchener. Of the net amount, assume 40% of the investment has a CCA rate of 10% (building for manufacturing) and the remaining 60% has a CCA rate of 50% (manufacturing and processing equipment).Assume a working capital investment of $560,000 (additional inventory).Assume that the company spent $350,000 on operations consultants to determine the feasibility of closing the Formosa production facility and moving the production to the Kitchener facility. Assume that the useful life for the purposes of the decision was 10 years. Assume the building will have a salvage value of 10% of its original cost and assume the equipment will have no salvage value.Assume that other assets will remain in the asset classes following the sale of the equipment and building and that the UCC of each class will be positive. Analyze the decision to expand and close the old facility based on the NPV capital budgeting analysis model. Assume the cost of capital for WBC is 14%. Should the company have closed the Formosa production facility and expanded its Kitchener facility? (15 marks)Now analyze the decision to expand and close the old facility based on IRR, Payback, discounted payback, and profitability index capital budgeting analysis models. Assume the cost of capital for WBC is 14%. Should the company have closed the Formosa production facility and expanded its Kitchener facility? (10 marks)What would happen to the decision in questions 2 and 3, if WBC’s cost of capital was 21%. What does the result of this change in one parameter tell you? (5 marks)What are WBC’s risks associated with deciding to close the Formosa production facility and expanding the Kitchener facility, and how would they impact this analysis? Review the risk analysis in the annual report for some ideas. (10 marks)ASSIGNMENT MILESTONESCheckpoint 1 due July 26th by midnightSign up for groups via FOL. Complete draft of financing sources sectionCheckpoint 2 due Aug. 2nd by midnightComplete draft of dividends section and questions 1 and 2 of the capital budgeting sectionFINAL SUBMISSION due Aug. 16th by midnight – all sections completed.The final group submission must include both the written report, and the completed excel spreadsheet to the dropbox: Assignment 2. Do not forget to complete the peer evaluation. If you want, you can also use Google Spreadsheets for the spreadsheet portion. A template will be provided that you can copy.Please be sure to use proper grammar, and business memo formats. You may write your analysis in point form. It should be succinct, and informative. Please be prepared to ask questions at the beginning of each class. ................
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