1) Create a sensitivity analysis, a scenario analysis or a Monte Carlo Simulation for the capital budgeting project. Plot the results. What do you notice?
2) Is wealth being generated by the company with this project over a period of 5 years (Hint: calculate the NPV using equal cash flows for years 1 – 4 (same sales and costs for 4 years) and adjusting the final cash flow with the change in NOWC)?
3)How would you improve the outcome, looking at either scenario analysis or sensitivity analysis (Hint: changing the most sensitive driver only a little bit will still have a big impact).
4) How does changing the weighted average cost of capital influence results? Does the company have any control over its WACC?
5) Create a forecast based on the current income statement under the assumption, that next years sales will change, that management is able to reduce fixed costs and that the company is able to reduce its asset base. What would be the effect on its ROE?
6) How would ROE equity change if the company were to employ more financial leverage. Is this always wise? What else do you expect would change if the company increase its ROE?
Cash Budget
7) Create an intra-year cash budget with the information above. Does the company need to borrow funds throughout the year? What happens to the cash budget if the company decreases its DSO, e.g. improve its cash collection proces?
8) Solely looking at the cash budget, does the company have enough cash in your opinion to pay a dividend in July? briefly explain your answer.
General Questions
9) What could the company do to reduce variability in results (Hint: for example, think about operational leverage)?
10) What would be a disadvantage if sales were denominated in USD, but costs were denominated in Japanese Yen?