5.2

Genesis Capital Plan Report

The Genesis operations management team, nearing completion of its agreement with Sensible Essentials, was asked by senior management to present a capital plan for the operating expansion. The capital plan was not to be a wish list but an analysis of the necessary expenditures to successfully establish a fully equipped operating facility overseas.

 

In addition, senior management requested meaningful financial and operating metrics to ensure that the performance objectives for the facility were being met. The operations management team was given five days to accomplish the following:

 

1. Calculate the firm’s WACC.
2. Prepare and analyze each planned capital expenditure.
3. Evaluate, rank, and recommend the capital expenditures according to beneficial value to the organization, using the evaluation tools NPV, payback, and IRR. Evaluation, ranking, and recommendations should be by category of expenditures. For example, facility, equipment 1, 2, and 3, and inspection.
4. Using the selected choices in part three, calculate the full cost of establishing a fully equipped facility. This would include the facility, equipment 1, 2, and 3, and inspection. In addition, calculate the payback, NPV, and IRR for the completed facility.
5. Construct and recommend between three and five metrics to measure the performance of the organization. At least one metric should be dividend decision-making driven.
6. Prepare an executive summary along with a separate document showing the calculations.

 

Part I

 

Following the example of the operations management team, do the following:

 

1. Download the Capital Budgeting spreadsheet, and compute the WACC for Genesis.
2. Using the information provided in the spreadsheet, analyze Genesis’s project options. Then, calculate the periodic and cumulative net cash flows for each potential project and its associated options. Please note that there are five projects (facility, equipment pieces 1, 2, and 3, and internal inspection), and that each project offers multiple-configuration options (facility size, equipment type, etc.).
3. Evaluate, rank, and recommend a specific option for each capital project according to beneficial value to the organization, using the evaluation tools NPV, payback, and IRR.
4. Construct and recommend between three and five metrics to measure the performance of the new operating strategy. At least one metric should reflect dividend policy as it relates to rewarding shareholders.
5. Prepare an executive summary describing your recommendations for each project and the overall cost, net cash flows, and expected returns of the operating configuration that you recommend. Be sure to justify your recommendations in terms of the investment criteria applied in Step 3 above. Be sure to report the full cost of the facility as it is configured per your recommendations. Present and justify your operating strategy performance metrics.

 

Your complete report should include all of your calculations as appendices (5 pages, or 1 page for each project).

 

Part II—Executive Summary Presentation

 

Because of limited resources in an era of plentiful opportunities, companies must carefully select investments. You analyzed Genesis’ expansion plans and explained your findings in M5: Assignment 1.

 

This assignment is based on those findings. In this assignment, you will create a PowerPoint presentation that will include the following information:

 

• An executive summary of your findings from M5: Assignment 1. Be sure to adhere to the following:The presentation should be approximately 6–8 minutes (or 10–12 slides).A statement of the problem or topic is included.A concise analysis of the findings is included.Specific details from M5: Assignment 1 to highlight or support the summary are incorporated.

Develop a 10–12-slide presentation in PowerPoint format. Apply APA standards to citation of sources.

 

 

 

 

 

 

 

 

Grading Criteria	Maximum Points
Computed the WACC for Genesis.
Calculated the periodic and cumulative net cash flows for each of the five potential projects and their associated options.
Evaluated, ranked, and recommended a specific option for each capital project according to beneficial value to the organization using evaluation tools, NPV, payback, and IRR.
Constructed and recommended 3–5 metrics to measure the performance of the organization (At least one metric should be dividend decision-making driven.).
Prepared an executive summary describing your project recommendations and the full cost of the new facility.
Wrote in a clear, concise, and organized manner; demonstrated ethical scholarship in accurate representation and attribution of sources; displayed accurate spelling, grammar, and punctuation.
Total:

Sheet1

WACC

Rate

,000

,000

,000

400,000

,000

,000

,000

500,000

Cash Flow Cash Flow

Cash Flow

200 400

0

-200 -200 100 400 400

0

-300 -400

600

2000

-100 100 200 400 200

1000

-100 200 200 300 600

150 150 150 150 150 750

800

200 250 250 300 700

1500 -100

325 325 1500

700 -200

250 300

600 -175 -100 175 175 175

750 -300 -200 300 400 400

100 500 500 300 300 800

200 200 200 100 100

													Genesis
Item	Amount ($000)	%	Interest	Weighted
Total		Rate
Accounts Payable							300	7.50%
Short-term Note Payable						100	2.50%
Total Current Liabilities								400
Long-term Note Payable	10.00%
Mortgage Payable	1,									200	30.00%
Total Liabilites	1,			600
Common Stock Equity	1,			500	37.50%
Operating Equity	12.50%
Total Liabilities and Equity	4,000,000	100.00%
Genesis Captial Projects
Initial Investment				Cash Flow	Cash flow	Cashflow
Y1	Y2	Y3	Y4	Y5	Y6-10
Project A: 25-emp facility		2000					-200			-300		-400		1000
Project B: 40-emp facility				250							150
Project C: 75-emp facility	3000					-100			700
Equipment 1 – fully automatic		1500			800
Equipment 1 – semi-automatic	-50
Equipment 1 – manual			750
Equipment 2 – Standard		–			175
Equipment 2 – top of line	275			325
Equipment 3 – 3-man machine	-150	350
Equipment 3 – 2-man machine
Equipment 3 – 5-man machine
In-house inspection	1800
Contract inspection