Instructions:
You may answer each case discussion question in each paragraph and separate different paragraphs for different questions.
Although quantity is not quality, however I do not accept 1-2 sentence answers to each question. Please make a thorough case analysis, post 300 to 500 words’ case analysis (roughly 1.5-3 pages double spaced with12-font), and post it in the text entry format online.
Team work is encouraged for the work.
Team solution for the write up. Every team member should contribute to the discussion and writing.
Team presentation. You can use zoom and team-snap to record the team presentations.
Case 1: Burton Sensor, Inc.
Tasks:
1. Prepare pro-forma financial statements to learn the fundamentals of financial forecasting, financial ratio analysis, and debt covenant analysis.
2. Apply the discounted cash flow (DCF) approach to value both an equipment investment and the acquisition of an entire company.
3. Review financial policy and financial execution, including target leverage and debt capacity, costs of financial distress, and various approaches to raising capital.
4. Understand the interactions between corporate investment and financing decisions.
Assignment Questions
1. Should Marshall continue to pursue a high-growth strategy? How can she finance it? What is the potential effect of growth on Burtons stock price?
2. Should Marshall purchase the thermowell machines? In calculating the weighted-average cost of capital, use 5.8% as the equity risk premium.
3. Should Marshall accept the offer of the private investor and issue new equity? How does the deal affect Burtons existing shareholders? 4. What is the effect of the issuance on Burtons balance sheets?
5. Should Marshall acquire Electro-Engineering, Inc. (EE)? What is the most important consideration? Even if the NPV of the acquisition is zero, should she still proceed?
6. Does the acquisition allow EE to gain enough funding to invest in the purchase of thermowell machines?
