MGMG 694 Consulting Practice CFO Simulation Quarter 6 Quarter 9

Company Name: Escape the Ordinary

Team Members Chiraroj Angsumalee Thana Wattanasak ID 5349265 ID - 5349211

Cost of Capital Estimate Escape The Ordinarys objective is to maximize shareholders wealth, or else the firm value while minimize the company cost of capital. We try to maintain liquidity and balance the appropriate proportion between debt and equity throughout all period.
Quarter 1 Total Liabilities Total Equity Total 5,707,500 11,340,468 17,047,968 Quarter 2 17,700,042 11,838,038 29,538,080 Quarter 3 15,134,164 12,476,115 27,610,279 Quarter 4 16,198,831 12,468,415 28,667,246 Quarter 5 15,213,498 12,829,879 28,043,377 Quarter 6 20,445,662 15,982,158 36,427,820 Quarter 7 27,700,124 14,642,654 42,342,778 Quarter 8 26,224,813 14,914,471 41,139,284

Debt Equity D/E Ratio

33% 67% 0.50

60% 40% 1.50

55% 45% 1.21

57% 43% 1.30

54% 46% 1.19

56% 44% 1.28

65% 35% 1.89

64% 36% 1.76

Stock Price Share Outstanding Total C/S Mkt Total C/S BV Cap Gain WACC

39.75 1,000,000 39,750,000 8,000,000 31,750,000 2.71%

44.06 1,000,000 44,060,000 8,000,000 36,060,000 3.19%

55.73 1,000,000 55,730,000 8,000,000 47,730,000 4.51%

37.44 1,000,000 37,440,000 8,000,000 29,440,000 4.21%

37.06 1,000,000 37,060,000 8,000,000 29,060,000 4.24%

17.33 1,100,000 19,063,000 11,271,387 7,791,613 3.62%

5.76 1,100,000 6,336,000 11,271,387 -4,935,387 3.27%

10.65 1,100,000 11,715,000 11,271,387 443,613 3.72%

**Table : capital Structure

Capital structure of Escape to The Ordinary was change every year from quarter 1 quarter 8, we cant control balance for liabilities and equity. Due to total liabilities and equity increase every year, but proportion between debt and equity not appropriate. Debt increase every year but equity still stable and it a big problem. We need to pay back to lender, and now only principle paid back. We have a lot of debt and we not have cash to pay back because we need to maintain the production capacity at 100,000 units due to depreciation, so the firm acquired the extra fund to support. We issue bond in quarter 3,4 and quarter 7 to maintain liquidity in company, but effect in a lot of interest to pay back. So our strategy since quarter 8 are try to pay back to lender to decrease D/E ratio ( D/E ratio was 33/67 in quarter 1 and 64/36 in quarter 8) Pay a lot of interest in loan effect to weight average cost of capital increase year by year from 3.27% to 3.72% in quarter 7. We will try to decrease WACC and D/E ratio in the

future until the capital structure will close to companys policy, and we believe the firm will have strong financial position to cope with interest in the future.
Loans 2 Years 3 Years Bond (10 Years) Stocks Preferred Common Tender Price **Table : Loan Strategy 100,000 $37 2,500,000 999,999 10,600,000 2,100,000 6,000,000 10,000,000

Stock price increase dramatically in quarter 1 to quarter 3 and drop a lot in quarter 4 to quarter 8 due to our financial crisis. Stock price drop effect with market value. Market value drop from 37.4 M dollars to 11.7 M dollars in quarter 7. This factor will shift down the confidence of investor in the market. We need to increase price and market value immediately. Next quarter our priority are decrease cost by project and decrease debt by paid back the lender.
Quarter 1 Accumulated Wealth Share Price ROI ROE EPS **Table : Performance $39.75 $39.65 20.90% 31.42% $0.89 Quarter 2 $44.06 $43.96 6.74% 16.81% $0.50 Quarter 3 $55.73 $55.52 10.69% 23.66% $0.74 Quarter 4 $37.44 $37.03 2.68% 6.17% $0.19 Quarter 5 $37.06 $36.54 6.58% 14.39% $0.46 Quarter 6 $17.33 $16.70 -0.10% -0.23% $-0.01 Quarter 7 $5.76 $5.00 -11.61% -33.59% $-1.12 Quarter 8 $10.65 $9.87 2.64% 7.29% $0.25

Accumulated Wealth
60 40 20 0 Accumula ted Wealth

40.00% 20.00% ROI 0.00% Quarter1 Quarter2 Quarter3 Quarter4 Quarter5 Quarter6 Quarter7 Quarter8 20.00% 40.00% ROE EPS

Escape the ordinarys performance show in this table. Stock price increase in quarter 8 and we believe that the firm will have better financial situation in the near future.

Investment Analysis of Project A and B For our strategys target, we have been seeking the project which would yield profit to the company. The project that is suitable to invest, should has positive NPV and also IRR > WACC in quarterly.
Project A Q2 Q3 Q4 Q5 Q6 NPV -429159.5184 -354134.3158 -284692.3973 -216435.5338 -140666.0514 IRR N/A -32.25% -19.15% -10.30% -3.74% Project B NPV -324509.0114 -259413.8837 -204864.9059 -151706.2174 -89260.29702 IRR N/A -29.13% -17.09% -8.79% -2.27% WACC 3.19% 4.51% 4.21% 4.24% 3.62% B The Invested Project Q7 -77125.17405 0.15% -37053.78628 1.55% 3.27% B Q8 -15954.16251 3.10% 14464.41028 4.49% 3.72% B Q9 35906.92447 5.05% 85650.54431 7.46% 3.61% B

In the beginning, we calculate the Cash flow and find out the NPV in each Quarter by using each WACC. We made mistake in decision to invest in Q6 and Q7, which the NPV are negative and IRR < WACC. Positively, after that, positive NPV project was strictly held as guidance for investment throughout the period. For example, during Q8 and Q9 the company decided to invest in only B project, which has the suitable IRR and WACC. In terms of project A, that has been loss since Q2, started to get back profit in Q9. The company made mistake, did not decide to invest the both project (A and B) I Q9. Capital Structure Policy and Target The company major objective is to maximize shareholders wealth, including the firm value while minimize the cost of capital (WACC), which represent the opportunity or discount rate used to evaluate the company average risk investments. And these goals are supported with an optional structure of debt to equity (D/E) capital.
Total Liability Total Equity Total L&E Debt Equity D/E WACC Q2 17,700,042 11,838,038 29,538,081 59.92% 40.08% 1.50 3.19% Q3 15,134,164 12,476,115 27,610,282 54.81% 45.19% 1.21 4.51% Q4 16,198,831 12,468,415 28,667,247 56.51% 43.49% 1.30 4.21% Q5 15,213,498 12,829,879 28,043,375 54.25% 45.75% 1.19 4.24% Q6 20,445,662 15,982,158 36,427,820 56.13% 43.87% 1.29 3.62% Q7 27,700,124 14,642,654 42,342,777 65.42% 34.58% 1.89 3.27% Q8 26,224,813 14,914,471 41,139,283 63.75% 36.25% 1.76 3.72% Q9 24,762,177 15,323,985 40,086,162 61.77% 38.23% 1.62 3.61%

Financing Types

Q2 -

Q3 999,999 10,600,000 -

Q4 0 2,100,000 -

Q5 0 0 -

Q6 6000000 0 100000

Q7 0 10000000 -

Q8 0 0 -

Q9 0 0 -

Loans
2 yrs loan 3 yrs loan 10 yrs bond

Stocks
Preferred Common

There was a significant change in capital structure of the firm in Q2. Regarding mistake in calculation to purchase new Plant and Machine, the firm got a big debt, which is amount of 12 M dollars short term penalty loan. D/E ratio has rapidly increase from 0.5 to 1.5 within only a quarter. This is cause of the firm must to acquire huge financing amount in Q3 in order to clear the short term penalty loan. Resulting from the mistake, the company cannot generate high net income and liquidity less in cash on hand. So, the firm needed to acquire more financing to increase production capacity by purchasing new machine and equipment and D/E ratio is slightly climb up in Q4 and Q6. In addition, negatively, the firm made mistake in purchasing new plant and machine again in Q6. From, this regard, the firm net income cannot cover all expense, led company to meet a new short term penalty loan again. And D/E is climbing up again from Q5. Even though, we try to issue new 100,000 common shares of stock, the firm still has higher D/E in Q7, because we need to pay huge amount of money for all loan s interest. Positively, in Q8, we start to recover gain from operation by increasing in product sale and short term investment. So, we can decrease firm leverage, get higher net income without add any financing loan, and also decrease in D/E ratio. And we can continuously keep higher net income and reduce leverage. This is a good sign for the company to reduce debt as much as possible and generate higher income. We try to increase liquidity of the firm in the future and balance future expenditure and project investment until the capital structure will close to the companys policy, and we believe that the firm will have strong financial position to cope with interest in the future.