Colorado Technical University Capital Budgeting and Investment Valuation Paper Assignment Objectives- 700-1000 words apa format with citations and referenc | Course Hero

Colorado Technical University Capital Budgeting and Investment Valuation Paper Assignment Objectives- 700-1000 words apa format with citations and references

Assess the cost of capital and marginal cost of capital and their implications for capital budgeting.

Compare and contrast alternative valuation methodologies and explain how a firm can maximize its value.

Scenario:

Apix Printing, Inc.

Apix Printing, Inc. is a private, domestic United States printer of periodicals, newspaper inserts, and advertising materials that accompany distributions of Sunday and weekday circulations of large metropolitan newspapers. The company, headed by chief executive officer (CEO) John Matthews, generates $450 million in revenues from three product lines (periodicals, inserts, and advertising) and has long-term contracts with several large U.S. retailers to produce weekly sales flyer inserts as well as metropolitan newspapers to produce Sunday magazine inserts and coupons. Its printing presses are characterized by offset print technology and are capable of high-capacity output; in addition, the company recently migrated to water-soluble inks, which considerably reduces manufacturing emissions.

The company’s executive team, employees, and above all, its vice president (VP) of Production, Luke Stewart, are committed to environmentally-sustainable manufacturing practices. Presently, the only substrate Apix uses is paper, specifically newsprint of various weights. Trim and waste are recycled in accordance with the company’s sustainability commitment. Manufacturing divisions are geographically aligned with customers’ locations to minimize logistics costs and response time to customer requirements; however, a centralized corporate entity administers functions such as human resources, information technology, and financial reporting. The VP of sales and administration, James Simeon, oversees administration and quality compliance among the various divisions. There are presently five manufacturing divisions: Northwest, Southwest, Northeast, Southeast, and Midwest.

Currently, Apix is only marginally profitable, and as such, the chief financial officer (CFO), Mary Francis, has indicated that external financing will be required to support a company expansion into a new segment of the printing sector: food packaging. This endeavor will require new investments in equipment as well as substrate inventory; promotional costs will also increase. In addition, Timothy Russell, the new Audit Committee Chair, has pointed out that the company’s compliance with the requirements of the Sarbanes-Oxley Act (SOX) will also cause administrative costs to increase. Following the requirements is paramount to successfully file a registration statement and to issue equity to shareholders in an initial public offering (IPO).

As the newly hired VP of finance, you report to the CFO. In this capacity, your responsibilities include preparation of financial statements, comparative analysis and benchmarking to sector performance, and the assessment of new business investment opportunities to grow Apix’s expansion endeavors in a challenging market.

ASSIGNMNENT:

Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas.

Mary Francis has just returned to her office after attending preliminary discussions with investment bankers. Her last meeting regarding the intended capital structure of Apix went well, and she calls you into her office to discuss the next steps.

“We will need to determine the required return for our intended project so that we have a decision criteria defined for the project,” she says.
“Do you have the information I need to describe capital structure and to calculate the weighted average cost of capital (WACC)?” you ask.
“I do,” she smiles. “We can determine the target WACC for Apix Printing Inc., given these assumptions,” she says as she hands you a piece of paper that says the following:
Weights of 40% debt and 60% common equity (no preferred equity)
A 35% tax rate
Cost of debt is 8%
Beta of the company is 1.5
Risk-free rate is 2%
Return on the market is 11%
“Great,” you say. “Thanks.”
“Be sure to indicate how these costs of capital might be used to determine the feasibility of the capital project,” Mary says. “I want your recommendation about which is more appropriate to apply to project evaluation, too. Let me know what you think.”
“One more thing,” she says as she stands up to signal the end of the meeting. “You did a good job with the explanations that you provided Luke the other day. Would you have time to define marginal cost of capital for me so I can include it in my discussions with investors? You seem to have a knack for making things accessible to nonfinancial folks.”
“No problem,” you say. “I’m glad my explanations are so useful!”

For this assignment, complete the following:

Describe capital structure.
Determine the WACC given the above assumptions.
Indicate how these might be useful to determine the feasibility of the capital project.
Recommend which is more appropriate to apply to project evaluation.
Define marginal cost of capital. Apix Printing, Inc.
Financial Analysis
By Carla Dempsey
Colorado Technical University
Applied Managerial Finance
7/14/2020
Apix Printing, Inc
THIS PRESENTATION
FOCUSES ON PROVIDING THE
FINANCIAL ANALYSIS OF A
PRIVATE COMPANY KNOWN
AS APIX PRINTING, INC.
ITS PRODUCT LINES
INCLUDE: ADVERTISING,
INSERTS, AND
PERIODICALS.
ITS CEO (CHIEF
EXECUTIVE OFFICER) IS
CALLED JOHN
MATTHEWS.
The company hopes to expand in the food
packaging sector.
Expansion of
the Company
For expansion purposes, Apix Printing Inc
will need to make new investments
external finances from new shareholders.
The company will also have to make new
investments in substrate inventory,
promotional costs, and company
equipment.
Company Analysis
Three sectors of the company will be analyzed in
the subsequent slides which include:
? Assets
?
Profit
? Cash liabilities
ASSETS (Part 1 of the Balance sheet)
Liabilities (Part 2 of the Balance Sheet)
INCOME STATEMENT (Profit Analysis)
?
?
Calculations
Calculating the Net Income
Net income = total Revenue –total
expenses
?
?
$6,500=2012
?
$26,250=2013
Hence, there was a weighty
increase throughout the time of the
year. Thus indicating room for
expansion and growth.
Cash Flow
Statements:
Cash Flow
from
Operating
Activities
Cash Flow Statements Continued….
Cash Flows from the company’s
investing Activities
Cash Flows from the company’s
Financing Activities
References
?
Brunnermeier, M. K., & Sannikov, Y. (2014).
Monetary analysis: price and financial stability. In
Proceedings ECB Forum on Central Banking, Sintra
(pp. 61-80).
?
CTU Online Course Overview, FINC615. 2015.
https://classroom.ctuonline.edu/app/classResourceRe
direct.html
References
?
Hail, L. (2013). Financial reporting and firm
valuation: relevance lost or relevance regained?.
Accounting and Business Research, 43(4), 329-358.
?
Wahlen, J. M., Baginski, S. P., & Bradshaw, M.
(2014). Financial reporting, financial statement
analysis and valuation. Nelson Education.
FINANCIAL
FIGURES
AND
REPORTS
Carla Dempsey
Colorado Technical University
Applied Managerial Finance
7/22/2020
The presentation mainly aims to compare
Apix’s Inc. 2-year trend results to other two
companies within the same business
sector.
INTRODUCTION
It also shows how every of the Apix’s ratio
vary and shows if the two ratios of the
remaining companies are indicative of a
better or enhanced performance.
Other than Apix Inc. The
other two companies to
be analyzed include:
SGK LLC
Lee Enterprises
Inc.
? Formula for calculating the Current Ratio:
?????????????? ?????????? =
?????????????? ????????????
?????????????? ??????????????????????
? Apix’s current liabilities consist of the accounts payable, short-term
notes payable, salaries payable, interest payable, taxes payable, and
short-term notes payable.
? Calculating the current ratio using APIX Inc. figures:
? For 2012:
=
$14,500,000
= 1.295: 1
$11,200,000
=
$20,450,000
= 1.13: 1
$18,100,000
? For 2013
CURRENT
RATIO (APIX
INC.)
Computing the Current ratio using the SGK LLC
figures:
CURRENT
RATIO (SGX
LLC)
For the year 2012:
$139,000,030
????? ?????????????? ?????????? =
= 1.68: 1
$82,570,000
For the year 2013:
$132,690,000
????? ?????????????? ?????????? =
= 1.8: 1
$73,650,000
?Calculating the current ratio using Lee
Enterprises LLC.
CURRENT
RATIO (LEE
ENTERPRISES
LLC)
?For the year 2012:
$113,670,000
?????????????? ?????????? =
= 1.03: 1
$110,310,000
?For the year 2013:
$104,330,000
?????????????? ?????????? =
= .975: 1
$106,990,000
CURRENT RATIO CHART FOR
2012/2013
Current Ratio 2012/2013
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2012
2013
Apix
SGX LLC
Lee Enterprises
(LONG-TERM) DEBT TO
EQUITY RATIO (APIX INC)
? The equation for calculating the Debt-Equity Ratio:
?????????? ??????????????????????
=
:1
?
???????????????????? ?? ????????????
? Calculating the long-term debt to equity ratio using APIX
figures:
? For the year 2012: Debt to Equity ratio=
[($11,200,000 + $100,000,000)/$63,300,000]: 1 =
[$111,200,000/$63,300,000]: 1 = 1.757: 1
? For the year 2013: Debt to Equity ratio=
[($18,100,000 + $54,950,000)/$84,550,000]: 1 =
[$73,050,000/$84,550,000]: 1 = .864: 1
• Using the SGK LLC figures the debt to
equity ratio:
(LONGTERM) DEBT
TO EQUITY
RATIO (SGX
LLC)
• For the year 2012:
$208,000,040
=
: 1 = 0.83: 1
$250,780,000
• For the year 2013:
$179,690,000
=
$250,850,000
: 1 = .72: 1
?Using the Lee enterprise figures, the
debt to equity ratio
(LONG-TERM)
DEBT TO
EQUITY RATIO
(LEE
ENTERPRISE)
?For the year 2012
$1,175,770,000
=
: 1 = (10.26): 1
114,630,000
?For the year 2013
$998,000,060
=
: 1 = (5.86): 1
$170,350,000
(LONG-TERM) DEBT TO EQUITY
RATIO FOR 2012/2013
(Long-Term) Debt To Equity Ratio 2012/2103
2
0
-2
2012
2013
-4
-6
-8
-10
-12
Apix
SGX LLC
Lee Enterprises
• The formulae used for calculating the Gross Profit
Margin
?????????? ????????????
=
??????????????
• Calculating the Gross Profit Margin using the APIX’s
figures:
For the year 2012:
$74,500,000
=
= 15.7%
$475,000,000
For the year 2013:
$97,850,000
=
= 21.7%
$450,000,000
GROSS
MARGIN
RATIO (APIX
INC.)
GROSS
MARGIN
RATIO (SGX
LLC)
?Using the SGX LLC figures to calculate the Gross
Margin Ratio
?For the year 2012:
$157,250,000
=
= 34%
$460,730,000
?For the year 2013:
$172,000,080
=
= 38.9%
$442,640,000
GROSS
MARGIN
RATIO (LEE
ENTERPRISE)
?Using Lee figures the Gross Profit Margin
?For the year 2012:
$658,480,000
=
= 92.7%
$710,490,000
?For the year 2013:
$631,260,000
=
= 93.6%
$674,740,000
Gross Margin Ratio 2012/2013
GROSS
MARGIN
RATIO
2012/2013
100.00%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Lee Enterprises
SGX LLC
Apix
2012
2013
Apix
SGX LLC
Lee Enterprises
The formulae for calculating the Net Profit Margin
????????????
=
?????? ??????????????
For the year 2012:
$6,500,000
?????? =
= 1.37 %
$475,000,000
For the year 2013:
$26,250,000
?????? =
= 5.83 %
$450,000,000
NET PROFIT
MARGIN
RATIO (APIX
INC.)
NET PROFIT
MARGIN
RATIO (SGX
LLC)
?Using the SGX LLC figures, the Net profit margin;
?For the year 2012:
$ 23,
=
= ?5.1%
$460,730,000
?For the year 2013:
$6,530,000
=
= .015 ???? 1.5% ???? 0.015
$442,640,000
NET PROFIT
MARGIN RATIO
(LEE
ENTERPRISE)
? Using the Lee’s Net profit Margin Ratio: the net profit
margin;
? For the year 2012:
$16,700,000
=
= 0.024
$710,490,000
? For the year 2013:
$78,320,000
=
= 0.1161
$674,740,000
Net Profit Margin Ration 2012/2013
5.83%
6.00%
5.10%
5.00%
NET PROFIT
MARGIN
RATIO FOR
2012/2103
4.00%
3.00%
2.00%
1.50%
1.37%
1.00%
0.12%
0.02%
0.00%
2012
2013
Apix
SGX LLC
Lee Enterprises
RETURN ON EQUITY RATIO
(APIX INC.)
? The formulae for calculating the return on the equity
ratio the equation
?????? ????????????
=
????????????????????’?? ????????????
? Using the APIX’s figures, the Return on Equity Ratio
? For the year 2012
$6,500,000
=
= 0. 10
$63,300,000
? For the year 2013:
$26,250,000
=
= 0. 31
$84,550,000
?Using the SGX LLC figures, the Return on
Equity
RETURN ON
EQUITY RATIO
(SGX LLC)
?For the year 2012:
$23,420,000
=
= .093
$250,780,000
?For the year 2013:
$6,530000
=
= .026
$250,850,000
?Using the figures of Lee Enterprises, the
return on equity ratio
RETURN ON
EQUITY
RATIO (LEE
ENTERPRISE)
?For the year 2012:
$16,700,000
=
= .146
$114,630,000
?For the year 2013:
$78,320,000
=
= (.46)
170,350,000
RETURN ON EQUITY RATIO FOR
2012/2103
Return on Equity Ratio 2012/2013
2013
2012
-0.5
-0.4
-0.3
-0.2
-0.1
Lee Enterprises
0
RGX LCC
0.1
Apix
0.2
0.3
0.4
CONCLUSION
The most competitive company between SGK LLC and Lee Enterprise is SGK
LLC. This is on account that SGK LLC has a lot of current assets to help cover the
company’s liabilities.
However, Apix Inc is the most competitive when compared to them; this is
because it has more than enough assets to help cover the company’s
liabilities.
With regards to the debt-equity ratio, SDK has a much lower debt-equity ratio.
Yet, Apix’s Inc ratio has incremented due to a loan of $20million meant to
lessen the company’s debts.
With regards to the company’s gross profit margin, SGK LLC contains almost
twice the GPM. Yet, APIX Inc. is working much harder to enhance the general
efficiency and also increment the company’s gross profit.
? When compared to SGK LLC, APIX Inc. has a profit
margin of 5% while SGK LLC has a profit margin of
1.5%. Also, Apix has an ROE of 31%, while SGK has an
ROE of 2.6% implying that the APIX company does
generate a thirty-one percent of their profits from the
company’s shareholders investment.
CONCLUSION
(CONT..)
? Generally, both SGK and APIC are health and
developing firms with evident track of success. The only
distinction is that APIX Inc. does generate an enhanced
net profit and wisely capitalizes more its stockholder’s
investment. Lee Enterprises on the other hand, isn’t a
threat because its an easy picking for any right purchases,
or they will end up closing the business.
? Thus, with regards to the computations performed Apix
Inc, is considered a safe and a great investment for
anybody looking to invest in the company
REFERENCES
• Abubakar, A. (2015). Relationship between
financial leverage and financial performance of
deposit money banks in Nigeria. International
Journal of Economics, Commerce and
Management, 3(10), 759-778.
• Kamar, K. (2017). Analysis of the effect of return
on equity (ROE) and debt to equity ratio (DER) on
stock price on cement industry listed in Indonesia
stock exchange (IDX) in the year of 2011-2015.
IOSR Journal of Business and Management, 19(05),
66-76.
REFERENCES
?Herawati, A., & Fauzia, F. I. (2018). The Effect of
Current Ratio, Debt to Equity Ratio and Return on
Asset on Dividend Payout Ratio in Sub-sector
Automotive and Component Listed in Indonesia
Stock Exchange in Period 2012–2016. KnE Social
Sciences.
?Shaverdi, M., Heshmati, M. R., & Ramezani, I.
(2014). Application of fuzzy AHP approach for
financial performance evaluation of Iranian
petrochemical sector. Procedia Computer Science,
31, 995-1004.
Apex Printing
Balance Sheets
As of December 31, 2013 and 2012
Assets
Cash
Accounts Receivable
Inventory
Total Current Assets
Land
Building & Equipment
Less: Accumulated Depreciation – Building & Equipment
Total Long Term Assets
Total Assets
000$
000$
2013
6,000
2,350
12,100
20,450
2012
5,700
2,300
6,500
14,500
25,000
20,000
300,000
300,000
(187,850) (160,000)
137,150
160,000
157,600
174,500
Liabilities and Stockholders’ Equity
Accounts Payable
Salaries Payable
Interest Payable
Short Term Notes Payable
Taxes Payable
Total Current Liabilities
4,600
0
1,500
12,000
0
18,100
3,500
2,100
0
0
5,600
11,200
Mortgate Payable
Total Long Term Liabilities
54,950
54,950
100,000
100,000
60,000
24,550
84,550
157,600
60,000
3,300
63,300
174,500
Common Stock
Retained Earnings
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
Apex Printing
Income Statements
For the Periods Ended December 31, 2013 and 2012
Revenue:
Less: Cost of Goods Sold
Less: Depreciation Expense
Gross Margin
Selling, General & Administrative Expenses
Income Before Interest & Taxes
Interest Expense
Income Before Taxes
Income Taxes
Net Income
000$
000$
2013
2012
450,000
475,000
(324,300) (374,500)
(27,850) (26,000)
97,850
74,500
(29,100) (32,000)
68,750
42,500
(7,500)
(6,000)
61,250
36,500
(35,000) (30,000)
26,250
6,500
Apex Printing
Statement of Cash Flows
For the Period Ended December 31, 2013
000$
Cash Flows from Operating Activities:
Net Income
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation Expense
Increase in accounts receivable
Increase in inventory
Decrease in salaries payable
Increase in interest payable
Decrease in taxes payable
Increase in Short Term notes Payable
Increase in accounts payable
Net Cash Flow from Operating Activities
Cash Flows from Investing Activities:
Cash paid to purchase land
Net Cash Flow from Investing Activities
26,250
27,850
(50)
(5,600)
(2,100)
1,500
(5,600)
12,000
1,100
55,350
(5,000)
(5,000)
Cash Flows From Financing Activities:
Cash paid for mortgage
Cash paid for dividends
Net Cash Flow from Financing Activities
Net Increase in Cash
Plus: Cash Balance at December 31, 2012
Cash Balance at December 31, 2013
(45,050)
(5,000)
(50,050)
300
5,700
6,000

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