Finc Mgmt - Final Assignment

Response:

Good questions, thanks for asking.

First and foremost, this assignment is structured to encourage you think about how a CFO would approach the analysis of growth opportunities for a business - most business want to grow.

Organic growth means to cause the business to grow internally, without having to merge or buy other firms.  Generally this will be a process that is slower and occurs over time.

Merger/Acquisition means that the firm will grow by joining with another firm (merger) or by buying another firm(s).

To boil the answer down to the essentials, organic growth means that the CFO will need to make assumptions about future growth (rates) and financing (borrowing, new stock, retained earnings). To do this analysis with eVal means changing the appropriate "Forecasting Assumptions" to reflect those decisions.  With organic growth, the changes will likely take place incrementally over time.

To examine merger or acquisition means that the firm will need to buy or join with another firm, which means the effects of the strategy will occur at a point in time.  The assets will grow.  The purchase price will have to be paid by new borrowing, new stock, or use of existing retained earnings and cash.  It would probably be best to make those assumptions occur in a single year.  Again, the assumptions showing how the business will change will be made on the eVal "Forecasting Assumptions" worksheet.

In each case, the "Forecasting Assumptions" worksheet in eVal allows you as the analyst to make changes in Sales Growth and related variables, and in how the business is financed (working capital ratios, debt ratios, etc.).

I hope this helps.....

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Question:

I may have missed something. What data are we supposed to put into the eVal model to determine the data that we are to analyze?

Response:

You may want to look at the Q&A section in this week's classroom (Ask the Professor).  I received several similar questions and in the response I tried to explain what should be in the eVal analyses.

Basically, you need to alter the Forecasting Assumptions (Income Statement and Balance Sheet) to reflect what the company will look like after implementing an Organic Growth strategy or becoming involved in a Merger or Acquisition.  Essentially, your job is to make the adjustments so that the balance sheet and income statement reflect the outcomes of each strategy.

The Organic Growth strategy probably means that changes occur over time.  The Merger/Acquisition strategy will probably include more immediate changes in assets, liabilities, and other operating variables.

I will post this answer, too, so others can see the information.

Hope this helps.

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