Guillermo Furniture

INSTRUCTIONS

In approaching this assignment, the student is to develop, analyze, compare two separate alternatives presented in the case verbiage and make a recommendation that one alternative be followed.
The two alternatives are to 1) invest in Hi-Tech Manufacturing or 2) broker/ wholesale furniture for other companies
We will not be using the protective coating as a stand-alone alternative…you can integrate this business opportunity into the scenarios or ignore for opportunity for this analysis.
Using the revenue and cost figures and projection assumptions given, you are to calculate a FIVE-YEAR projection for the the following items for each of the two alternatives
Balance Sheet
Income Statement
Cash Flow
CAPM (re)
WACC (re & rd)
Discounted Cash Flows
NPV

Given the above you are to compare / contrast the risks of each alternative and based on the above quantitative data, and the risk discussion, provide your assessment of each alternative and a recommendation that one alternative be followed.

Note-
please realize that the assumptions in the two scenarios are just that
“assumptions”.  They are given to create an example of the decision making process used
in conjuction with capital budgeting tools.

As with most companies you may walk in as a consultant, the data presented may not be clearly or logically presented, or correlate perfectly.  Do the best you can with data presented.

As a note…assume that the past analyst created the spreadsheet on the following two tabs that entered the past data and started the forecast.
You have to verify that this data is correct…and complete the forecast

SCENARIO ONE – Increase in Technology.
1) Y2009 projections are the same as the June Budget x 12
2) Current Assets and Liabilities are constant percent of sales
3) Capital Expenditures – – Year (1) 4,000,000 equipment, $500,000 buildings
4) Year (1) and  beyond – – Depreciation at 10 year for equipment/ 30 year for buildings
5) Year (2) and beyond – –  Revenues projected at 10% increase in units per year.
6) Year 2 and beyond-  Price per unit increases at standard inflation of 3% each year
7) Year (2) and beyond – –  Variable costs increase at standard inflation rate of 3% per year
8) Year (2) and beyond- –  Fixed costs increase at a standard inflation rate of 3% per year.

SCENARIO TWO – Broker

1) Y2009 projections are the same as the June Budget x 12
2) Current Assets and Liabilities are constant percent of sales
3) Capital Expenditures – -Year (1) 1,000,000 new stores/ store upgrade
4) Year (1) and  beyond – – Depreciation at 10 year for equipment/ 30 year for buildings
5) Year (2) and beyond – – Revenues projected at 10% increase in units per year.
6) Year 2 and beyond-  Price per unit increases at standard inflation of 3% each year
7) Year (2) and beyond – –  Variable costs increase at standard inflation rate of 3% per year
8) Year (2) and beyond —  Fixed costs increase at a standard inflation rate of 3% per year.