- The company focuses on advertising to attract more customers and increase production capacity to avoid stock-outs. - It maintains sizable cash reserves for liquidity but recognizes excess cash provides no returns, so invests in areas like forecasting and equipment. - It evaluates capital budgeting projects using NPV and accepts positive NPV projects, prioritizing those with higher NPV when constraints require choosing one. - It increased leverage through debt to finance investments but did not consider how this affected its WACC and firm value.

1. TN(T) CORPORATION
Page 1 of 5
REPORT TO THE BOARD
Overall Strategy:
Seeing that we are in a competitive market where the market controls the price, we focus more on
advertising to attract more customers because more customers means more sales and higher net income.
We also plan to buy enough machine and plant capacity in order to produce enough units and avoid stock
out.
Cash Management:
Due to its liquidity, cash is a very practical asset to have on hand. Marketable securities are similar in the
sense that they can be sold and converted into cash. For this reason, it was good to maintain a sizeable
balance of cash on hand. See table 1 and graph 1 (Appendix pg.1) for the quarterly reserves of cash for
our corporation.
While there are certainly benefits to having cash and marketable securities on hand, there are
disadvantages to having excess quantities of them. While having liquid assets is good, cash and
marketable securities in particular are not the types of assets that provide any kinds of positive returns. By
investing excess cash into areas such as improved forecasting, capital budgeting, and equipment purchase,
we were able to see positive returns in the form of increased sales.
Capital Budgeting Analysis:
In order to do capital budgeting evaluation in each quarter,we followed the following procedure to
calculate NPV of each project:
● Deducted depreciation from the sum of labor savings and overhead savings in order to calculate
EBIT.
● Subtracted income tax from EBIT to get the net income after tax and added depreciation back to
get the period’s free cash flow.

2. TN(T) CORPORATION
Page 2 of 5
● Discounted all the future cash flows that the project would bring using 2.85%, the cost of capital
as the discount rate.
● Summed up the present values of all the future cash flows and deducted the cost of the project at
the beginning to get the project’s NPV. (See table 2a for the NPV of project A and B in each
quarter.)
When making investment decisions, we followed the NPV Decision Rule, which states that we should
accept positive NPV projects and reject negative NPV ones. In the case when both projects had positive
NPVs,we normally accepted both of them. However,there were some quarters that we only chose one
project even though both had positive NPVs. Those quarters were:
● Quarter 3 and quarter 6: Both NPVs were positive. However, because we only wanted to invest
in one project to save money to buy PP&E,we chose the one that had a higher positive NPV.
● Quarter 2: Although project B’s NPV was higher, we invested in project A because A had a
higher and more constant future labor savings than project B (See Table 2b). When making this
decision, we overlooked fact that project B would last four more quarters than project A and thus
benefit us over a longer period of time.
Except for those quarters,we normally accepted both projects when their NPVs were positive. Table 2c
summarizes our investment decisions throughout the quarters.
Capital structure:
a. Strategy in determining debt/equity mix: We tried to increase leverage of our company. We
chose this strategy because we needed to raise a lot of money to finance our investment activities
and at the same time we did not want to issue more shares to prevent our share price from falling.
b. Strategy in determining the maturity structure ofdebt:
(See table 3a for the amount of each type of debt and equity issues in each quarter.)

3. TN(T) CORPORATION
Page 3 of 5
● From quarter 2 to quarter 6, we borrowed more short term and intermediate loans than bonds
because these loans had lower interest rates than bonds.
● However,in quarter 7 and 8, we decided to finance mainly through bonds because although
interest of bonds was higher than that of the other loans, their required repayment in each quarter
was lower.
● In quarter 9, we borrowed a lot of short and intermediate loans and repurchased shares because
we wanted to increase our firm’s leverage. We were also able to use our large cash reserves to
retire $100,000 worth of bonds.
c. Mistake:We did not take into account the effect of increased debt on our firm’s value and our
WACC. We should have increased our debt only up to the point where we saw our WACC start
to increase.
If we had adopted this strategy instead of trying to borrow to balance between debt and equity
financing, we would have stopped increasing our leverage once we reached our lowest WACC of 2.204%
in quarter 6. Had we maintained the optimal level of debt that would bring us the lowest WACC,we
would have been able to prevent our equity cost of capital from increasing in the last four quarters of the
game. We would also have kept our WACC from rising and lowering our firm’s value if we had adopted
the alternative strategy. Table 3c shows our WACC and firm’s value through market value of equity.
Performance Evaluation:
a. Mistakes:
● 1st quarter: We borrowed too much for our expense. We purchased 40,000 plants but borrowed 6
million, while around 3 million should be enough. This only increased our payments required in
future rounds.
● 2nd and 3rd quarters: In quarter two, we did not produce as many units as were needed to keep up
with market demand. This led to a stock-out and eventually forced us to increase production in
quarter three. Additionally, we increased our dividend too rapidly (from $0.10 in quarter 1 to

4. TN(T) CORPORATION
Page 4 of 5
$0.35 in quarter 2, and $0.35 in quarter 2 to $0.42 in quarter 3). This increase had a severe effect
on our net income transferred to retained earnings.
● 4th quarter: We borrowed too little, which led to liquidation of marketable securities and around
$300,000 penalty loan.
● 5th quarter: Once again, we were unprepared for the amount of units that needed to be produced
to satisfy market demand. When we saw that demand was projected to be at 123,000 for quarter
five, we did not have the facilities to meet that level of production. Thus, once again, we had a
stock-out.
● In quarters of 7, 8, 9 and 10, we had very high machine and plant capacity, but we did not use this
capacity to our full advantage, and produce as many units as possible. We did not make use of
economies of scale, and as a result we saw production costs skyrocket. The production costs for
quarters 7-10 ranged from $74.90 to $80.80, while production costs for quarters 1-6 ranged from
$69.36 to $72.21. Despite undertaking capital budgeting projects, we were not able to reduce
production costs.
● Reduced dividend in the later rounds in an attempt to save money. These sudden decreases in
dividend caused a major drop in investor confidence and we saw our share price plummet.
b. Success:
● Maintain high machine and plant capacity which has allowed us to produce large quantities of
units, and rarely face stock-outs.
 Have enough marketable securities and/or cash to prevent incurrence of penalty loans
Production Strategy:
Production of goods required the continued use and purchase of machine and plant capacity. Inadequate
amounts of either machinery or plant, would adversely affect the ability to produce goods, and
subsequently it would have a negative effect on sales. With regards to the purchase of machine and plant
capacity, it was very important to know the number of units that would be demanded in the next quarter.

5. TN(T) CORPORATION
Page 5 of 5
In order to produce one unit of good, one unit of machinery was required. With respect to the plant, there
was no established ratio that compared the required plant capacity to the quantity of units produced.
Units of plant and machinery could not be built immediately, and this delay presented a challenge. An
order of machinery took one quarter to build whereas an order of plant required two quarters to build. The
forecasts provided accurate estimates for the amount of units that would be demanded in future quarters in
addition to providing vital information regarding the depreciation of plant and machinery.
Every quarter, we decided to produce more units than the forecasted demand. While forecasts were
generally accurate,in the event of actual demand being higher than the forecasted count, we did not want
sales to be constrained by our lack of production. Any unsold units were left in inventory and could be
sold in future rounds at a potentially higher price. Table 5a shows the beginning and ending balances of
inventory for each quarter.