Case Study Investment Proposals | My Assignment Tutor

UManitobauniversityofmanitoba.desire2learn.comCanada Hardware Case StudyInvestment ProposalsTony Stark, CEO of CHI, wants you toevaluate two investment proposalsthat the company is considering: An investment in manufacturingand distribution that involves theexpansion of a facility andpurchase of additional deliverytrucks; andThe development of restaurantsinto several of its existing stores.Mr. Stark reminds you that onlyrelevant costs and revenues shouldbe considered. “Relevant costs haveto be occurring in the future.”explained Mr. Stark. “And have todiffer from the status quo. Forexample, if we choose to expand ourfacilities, it is only the incrementalrevenue and costs related to theexpansion that should be considered.We also need to take into account theopportunity cost associated with thealternatives. For example, for therestaurant conversion, we need tofactor in the lost sales”,1More details on each investmentproposal are included below. Mr. Starkwants you to recommend if CHIshould invest in one, both, or none ofthe investment proposals.Required ReturnMr. Stark wants you to use theweighted average bond yield for yourrequired return. The total marketvalue of debt CHI is expected to havegoing into this investment is $3.5B,which includes the additional $1.5B tobe taken on that is not included in thecurrent financial statements. Thecurrent outstanding debt has aninterest rate of 5%, while the newdebt’s interest rate is now averted to26 in


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