Neoled345
Johnson and Johnson …
Johnson and Johnson
https://docs.google.com/spreadsheets/d/1yMPeXFWP8tScuMyubUkfeSP-esPZu0Uw/edit?usp=sharing&ouid=108273133646861706168&rtpof=true&sd=true
Competencies
In this project, you will demonstrate your mastery of the following competencies:
Analyze financial and investment decisions that add value to the organization
Analyze financing options to maximize investor value
Scenario
You chose a business during your Module Two journal assignment. Imagine you are an analyst for that business. Your business’s board of directors wants updates on the business’s financial health. Your supervisor has asked you to write the report that includes the following:
The business’s current financial health
The available financial options for improving the business
Your recommendations about which options will support the business’s financial health
Your supervisor will present your report to the business’s board of directors. The board members have different levels of knowledge about finance. You must write the report so it is easy for all board members to understand.
Directions
Create report for your supervisor to share with the board of directors during their presentation. Use the business you chose from the Project Two Business Options List. Use Mergent Online to find the most recent quarterly financial statements for your company. Use these statements to support your analysis during the project. Use the Project Two Financial Assumptions document for descriptions of the three financial options you will evaluate. Use the Project Two Financial Analysis Report template to complete the project.
Note: All documents and resources that are needed to complete the assignment are linked in the What to Submit and Supporting Materials sections.
Specifically, you must address the following rubric criteria:
Financial Analysis: For this section, you will start with calculating the financial formulas listed in Part A. Use the most recent quarterly financial statements from your chosen business and the Project Two Financial Formulas worksheet.
Financial Calculations: Accurately calculate financial formulas to figure out the business’s current financial health. You must calculate the following:
Working capital
Current ratio
Debt ratio
Earnings per share
Price/earnings ratio
Total asset turnover ratio
Financial leverage
Net profit margin
Return on assets
Return on equity
Working Capital Management: Explain the impact of working capital management on the business’s operations. Provide examples to support your claims.
Financing: Explain how a business finances its operations and expansion.
Short-Term Financing: Explain how potential short-term financing sources could help the business raise funds for improving its financial health. Base your response on the business’s current financial information.
Bond Investment: Discuss the risks and benefits of the business investing in a corporate bond. Include the necessary ethical factors, appropriate calculations, and examples to support your analysis. Use the Project Two Financial Assumptions document and the Bonds section of the Net Present Value (NPV) worksheet in the Project Two Financial Formulas workbook.
Capital Equipment: Discuss the risks and benefits of the business investing in capital equipment. Include the necessary ethical factors, appropriate calculations, and examples to support your analysis. Use the Project Two Financial Assumptions document and the Equipment section of the Net Present Value (NPV) worksheet in the Project Two Financial Formulas workbook.
Building: Discuss the risks and benefits of the business investing in a building. Include the necessary ethical factors, appropriate calculations, and examples to support your analysis. Use the Project Two Financial Assumptions document and the Building section of the NPV worksheet in the Project Two Financial Formulas workbook.
Financial Evaluation: In this section of the report, you will determine which of the three available investments are good financing options and describe the business’s likely future financial performance.
Bond Investment: Determine if the bond investment is a good financing option for the business’s financial health. Use your financial analysis and other financial information to your support claims.
Capital Equipment: Determine if the capital equipment investment is a good financing option for the business’s financial health. Use your financial analysis and other financial information to support your claims.
Building: Determine if the building investment is a good financing option for the business’s financial health. Use your financial analysis and other financial information to support your claims.
Future Financial Considerations: Describe the business’s likely future financial performance. Base your description on the business’s current financial well-being and risk levels. Use financial information to support your claims.
When a business needs to invest, it’s important to look at financial options. This is true for simple purchases, such as a new piece of equipment. And it is true for complex purchases, such as a new business. Business leaders must estimate cash flows from an investment and use the net present value (NPV) method to figure out if the investment is worthwhile.
Financial Option 1: Purchase a $10 Million Building
Rationale for investment: The business is considering environmental, social, and corporate governance (ESG) factors as part of its investment in a new building for its headquarters. The building itself will be a Leadership in Energy and Environmental Design (LEED)-certified building. However, the new site currently has a large, inactive gas station that sold both gasoline and diesel fuel. The new site also has a large repair facility that was used for deliveries and tractor-trailer trucks for more than 50 years. Some restoration was performed on the site, but the previous owner ran out of funds before they could bring the site up to LEED standards. Four large fuel tanks remain on the site, and they will also need to be addressed per LEED standards. Assumptions to consider:
$10 million cash purchase
Building generates additional net profits after tax of $1.25 million per year
20 year expected useful life of building
Salvage value: $1.5 million
Discount rate is 10%
Financial Option 2: Lease of $25 Million in Equipment
Rationale for investment: The business’s current equipment is efficient, but it uses a lot of electricity. The production line also creates significant waste material, including waste plastics. The business is looking into leasing newer, more environmentally friendly equipment that will still allow it to be at least as efficient in production as it is now.
Assumptions to consider:
Annual cash flows generated with equipment: $4 million
Discount rate is 12%
15-year useful life
No salvage value
Financial Option 3: $30 Million Investment in Bonds
Rationale for investment: The business is offering these bonds for sale contracts with another business in China to assemble computer parts. The Chinese business has used child labor in the past, but it claims it has stopped this practice. However, the U.S. business selling these bonds has not investigated to verify whether these claims are true. 2
Assumptions to consider:
10-year bond
8% coupon
Priced at a discount: $95
Discount rate is 9%
