2. MAKE OUR SHAREHOLDERS HAPPY!
● Boost sales through advertising
● Produce enough units to meet market
demand and avoid stockouts
Overall Goals and Strategies
3. ● In an attempt to save money, we cut dividends. This ended up backfiring
and our share price was severely affected
Performance Evaluation
5. Performance Evaluation cont.
Accumulated wealth, like many
other indicators of performance
peak in quarter six, then enter a
period of decline. While
accumulated wealth continued to
decline, net income and ROE both
picked up from quarter nine to ten.
6. As is common
with a perfectly
competitive
market
structure, all
groups had very
similar patterns
of earnings.
Performance Evaluation cont.
7. ● Our high production costs combined with our large
production scale drove up expenses
● We weren’t able to reap the kinds of benefits from
advertising that we had hoped. Downfalls of a
perfectly competitive market
● There were misunderstandings regarding the
investor perceptions of dividend
Why didn’t our strategy work?
9. ● Q4: Penalty loan:
Reason: did not finance enough while
purchased a lot of plant and
machinery
● From Q6 to Q7, our cash balance
dropped a lot.
Reasons:
+ A lot of interest payments from
quarter 6’s debt
+ Did not finance enough in quarter
7
Cash Management
10. 1. Calculate each period’s free cash flows:
(Overhead + Labor savings - Dep.) x (1-Tax rate) +Depreciation
2. Calculate the present value of all the future cash flows
3. Calculate NPV of the project
4. Use NPV Decision Rule: accept NPV-positive projects
Capital Budgeting Analysis:
11. ● NPV of project A and B:
● Investment Decisions:
Capital Budgeting Analysis
12. Capital Structure
● Maintaining a healthy ratio of debt to assets is something that every company would
like to do.
● As we got into the later quarters, we wanted to change our capital structure so that it
would be more evenly distributed between debt and equity. This coupled with
retirement of stock contributed to the sharp increase in debt/equity ratio in quarters
nine and ten.
14. Capital Structure
● Our relative stability of
WACC through the first
six quarters is an
instance of low-risk
policies. After round six,
our corporation is
viewed by investors as
risky. As a result,
investors will demand a
higher premium on
returns.
15. If we could do everything again, we would:
● Increase leverage up to the point where
we see WACC start increasing
● After the optimal debt level has been
reached, issue more shares if we still
need money.
Capital Structure
16. Why should you trust us in the future?
● Only incurred a penalty loan once, and always
maintained a sufficient balance of cash and
marketable securities
● Despite bad showings in quarters eight and nine, we
were able to turn things around in quarter ten
● Showed the consistent ability to mass produce units
