Group Term Project

Capital budgeting & Long-Term Investment Decisions

Assumption

The company you have chosen has hired you as a financial consultant.

Assignment

Based on your analysis of the firm's financial statements and any relevant
supplementary information you can obtain about the firm and its operating
environment, identify areas in which the company is performing well
(strengths) and advise management of any problem areas (weaknesses).

Outline

The following outline is provided for guidance, but the analysis should be
adjusted, as appropriate, to conform to the individual characteristics of the
firm.

Suggested Outline for the Project

I. Introduction (brief)
• Objective of paper
• Executive Summary
• Company's Vision, Mission, and Corporate Strategy Mechanism

II. Firm, Industry, and Environment (brief)

• PEST analysis
• Discussion of competitive environment

III. Evaluation of Financial Health (detailed)

• Overview
• Capital structure
• Dividend policy
• MVA & EVA analysis
• Investment potential
 IV. Make a proposal for new plant setup / expansion in existing one.
• Investment budget = Rs.100,000,000
• Location = other than existing will be a preferred choice
• Forecasted financial statements must be prepared for the next
five years.
• Forecasting should be based on Scenario Analysis.
• All financial analysis should be prepared in excel including
NPV and IRR analysis.
• Break-Even analysis should also be performed
• The evaluation of WACC should follow logically from the
accurate identification of the capital components constituting the
WACC.
• The decision need not be positive, i.e.: the project may be
rejected
• Risk in the form of probability must be assigned to more than
one choice by using Decision Tree Approach.

V. Suggestions for Corporate Capital Budgeting Strategy

Student responses should make the connection between capital budgeting

decisions and their dependence on the willingness to take risk in the hopes of
realizing desired returns. The best responses will develop financial strategies
that are consistent with prudent allocation of funds to meet the challenges of
maintaining profitability and increasing shareholder wealth.