Microsoft Word - Document13 Task 5 This task has the CFO asking your team to look at how the market value of BEB is compared to the industry. You need to come up with a justification for the capital...

Need to complete task #5 & 6, with excel worksheet & graph, and recommendations in separate document. 1 page for task #5 and 1 page for task #6 (explanation and recommendation). Thanks.


Microsoft Word - Document13 Task 5 This task has the CFO asking your team to look at how the market value of BEB is compared to the industry. You need to come up with a justification for the capital investments being made. Your team discusses this and has determined EVA (Economic Value Added), as well as MVA (Market Value Added) concepts, need to be established for the corporation. Use the following table as a guide: *12% here is a plug number. This will be different from the number you calculated in Task 3. Compute the P/E ratio and market capitalization for the Industry Average, Competitor 1, and BEB. Compute the MVA and EVA for all 3. Compare and contrast the ratios; what do the ratios convey to the investing public? How would you present these internally and externally? Make recommendations to management from your analysis. Concept Check: Market value added focuses on the market price and relation to invested capital while economic value is based on operational profitability compared to invested capital. These measures help us evaluate our organization internally and externally to help identify gaps and opportunities. Helpful Hint: Ratios, by themselves, tell us very little; it is only when they are placed in the context of the market, industry, or competition that they truly can be powerful. Task 6 Leasing: You are to use your critical thinking skills, collaboration techniques, creative problem-solving tools, and communication skills in the following scenario: Your company (BEB) is considering leasing solid oxide fuel cells that produce electricity on-site. You and your team need to perform analysis to support the decision-making process. The lease lasts for 12 years. The lease calls for 13 payments of $15,000 per year with the first payment occurring immediately. The fuel cells would cost $90,350 to buy and would be straight-line depreciated to zero salvage over 12 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 7.5%. The corporate tax rate is 36%. 1. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in years 1-12? 2. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 0? 3. What is the NPV of the lease relative to the purchase? 4. What would the after-tax cash flow in year 12 be if the asset had a residual value of $5,000 (ignoring any possible risk differences)? 5. What is your recommendation? Concept Check: Understanding which cash flows are relevant is key to determining the best financing methods or project acceptance. It helps to detail all your assumptions within the model since questions may arise years after the initial construction of the model. Helpful Hint: Creating a timeline with corresponding cash flows is usually helpful. You should also do the NPV calculations showing your formula so if anyone wishes to change the variables they will know how to proceed.