Signature Assignment _ Company Selection
You have recently assumed the role of CFO at your company. The company’s CEO is looking to expand its operations by investing in new property, plant, and equipment. You are asked to do some capital budgeting analysis that will determine whether the company should invest in these new plant assets
Company selected: Microsoft
PPT needs to have calculations and speaker notes. must resemble the sample
1)Download the most recent copy of the company’s 10-K report, and submit your company choice for approval.
2) Attached is a word document with the assignment in full that includes the overview, signature assignment parameters and deliverables.
3) MUST FOLLOW THE INSTRUCTIONS. I have uploaded a SAMPLE PPT, DO NOT USE THIS !!!
Overview
Please note that this is an INDIVIDUAL project.
You have recently assumed the role of CFO at your company. The company’s CEO is looking to expand its operations by investing in new property, plant, and equipment. You are asked to do some capital budgeting analysis that will determine whether the company should invest in these new plant assets.
Signature Assignment Parameters
select a company, download the most recent copy of the company’s 10-K report, and submit your company choice to your professor for approval.
The parameters for the week 7 project deliverable are as follows.
The firm is looking to expand its operations by 10% of the firm’s net property, plant, and equipment. (Calculate this amount by taking 10% of the property, plant, and equipment figure that appears on the firm’s balance sheet.)
The estimated life of this new property, plant, and equipment will be 12 years. The salvage value of the equipment will be 5% of the property, plant and equipment’s cost.
The annual EBIT for this new project will be 18% of the project’s cost.
The company will use the straight-line method to depreciate this equipment. Also assume that there will be no increases in net working capital each year. Use 35% as the tax rate in this project.
The hurdle rate for this project will be the WACC that you are able to find on a financial website, such as Gurufocus.com. If you are unable to find the WACC for a company, contact your instructor. He or she will assign you a WACC rate.
Signature Assignment Deliverables
Prepare a narrated PowerPoint presentation that will highlight the following items.
Your calculations for the amount of property, plant, and equipment and the annual depreciation for the project
Your calculations that convert the project’s EBIT to free cash flow for the 12 years of the project.
The following capital budgeting results for the project
Net present value
Internal rate of return
Discounted payback period.
Your discussion of the results that you calculated above, including a recommendation for acceptance or rejection of the project
Once again, you may embed your Excel spreadsheets into your document. Be sure to follow APA standards for this project. Financial Statement Analysis
Return on Assets (ROA)
Googles return on assets is about one quarter of what it should be. Reallocating the excessive amount of cash balances would correct this.Instead of an average 11% ROA the companys adjusted ROA would vault to almost 45% annually.
Distributing the excess cash balances would not only raise the ROA but could drive up the stock price.
GOOGLEs
Current Year Ratios vs. Prior Year Ratios
Financial Ratio Formula Calculation 2016 Calculation 2017
Profitability ratio
Gross Margin Percentage Sales-Cost of goods sold including depreciation/sales 90,272 -35,138 /90,272 *100 61% 110,855 – 45,583/110,855 *100 58.90%
Debt Management ratios
Debt-to-Assets Ratio Total Debt/Total Assets 28,461/167,497 0.17 44,793/197,295 0.23
Debt-to-Equity Ratio Total Debt/Total common equity 28,461/139,036 0.2 44,793/152,502 0.29
Liquidity ratio
Current Ratio Current Assets/Current Liabilities 105,408/16,756 6.29 124,308/24,183 5.14
DuPont Equation
DuPont Equation
Total Assets
Equity Multiplier= Common Equity
2017 2016
$ 197,295.00 1046.34 771.82
Equity Multiplier= $ 152,502.00 Price per earnings= 18 21.35
Equity Multiplier= 1.294 Price per earnings= 58.13 36.15081967
$ 12,662.00 $ 3,969.00 $ 3,935.00
Profit Margin = $ 110,855.00 Debt-to assets ratio= $ 197,295.00 $ 167,497.00
Profit Margin = 0.11422128 Debt-to assets ratio= 0.02012 0.02349
$ 110,855.00
Total Assets Turnover = $ 197,295.00
Total Assets Turnover = 0.561874351
DuPont Equation 2016
Equity multiplier=total assets/ Common equity=167,497M/139,040M=1.20
ROE=Net income/ Common equity=19,478M/139,040M=14%
ROA=11.67%
Profit Margin = 1948B/89.73B=21.7%
Total assets turnover=53.76%
GOOGLEs Summary
Ratios vs. Industry ratios
During the past 13 years, Googles highest Current Ratio was 14.97. The lowest was 3.50. And the median was 5.96.
Google has a current ratio of 4.15 as of June 2018, which indicates the company may not be efficiently using its current assets or its short-term financing facilities. Additionally, this may also indicate problems in working capital management.
However, according to GuruFocus (2018), Googles Current Ratio is ranked higher than 88% of the 372 Companies in the Global industry.
References
(2018). Stock Analysis on Net. Analysis of Debt. Alphabet Inc. (GOOG). Retrieved from https://www.stock-analysis-on.net/NASDAQ/Company/Alphabet-Inc/Analysis/Debt
https://www.marketwatch.com/investing/stock/goog/financials
https://abc.xyz/investor/static/pdf/20161231_alphabet_10K.pdf?cache=2c695a9
(2017). UNITED STATES SECURITIES AND EXCHANGE COMMISSION. FORM 10-K. ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017. Retrieved from https://abc.xyz/investor/pdf/20171231_alphabet_10K.pdf
