Assignment: Project Guidelines
Overview
The final project for this course is the creation of an external capital funding proposal.
Most businesses face a landscape of uncertainty and a never-ending stream of risks and opportunities. Managers must continually project the likely financial impact of decisions, make recommendations, act on those decisions, determine how to pay for them, and evaluate the costs and effectiveness of what has been done. Many decisions are short-term, routine, and operational. Others are longer-term investment decisions that require substantial new resources, such as developing new services, expanding into new geographic markets, or undertaking business combinations or spin-offs. Each requires managers to forecast, plan, and make decisions based on a thorough understanding of both internal and external factors that can affect a company's financial success.
For the summative assessment in this course, you will bring your finance and economics knowledge to bear by preparing an external capital funding proposal for a major international investment at a publicly traded corporation. In order to secure the support of potential financial backers, your proposal will need to lay out what the proposed investment opportunity is, how it fits within the company's broader mission and goals, its financial impact, and the amount being requested and why (including alternative funding mechanisms considered). In addition, it will also need to include information on the organization's context, risk factors, and microeconomic assumptions that could affect the success of the investment.
The project is divided into three milestones prior to the final submission, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. These milestones will be submitted in Modules Four, Six, and Seven. The final submission will occur in Module Nine.
In this assignment, you will demonstrate your mastery of the following course outcomes:
• Assess the global microeconomic environment for determining the driving factors that affect business financial decisions
• Develop financial models that project the impact of different business scenarios on financial performance and business planning
• Assess decision alternatives by using time value of money (TVM) and other appropriate financial metrics
• Evaluate the potential impact of internal and external qualitative factors on business activities for supporting strategic financial decisions
• Weigh internal and external funding alternatives for carrying out investment decisions
• Construct persuasive, evidence-based arguments that incorporate legal and ethical behavior and sound financial analysis for soliciting external business funding
Prompt
Imagine you are a manager working at a publicly traded company. (You will select a company from the list below.) You have been tasked with preparing an investment proposal for a large bank loan to finance a major expansion into another country. Your funding request will include both narrative text and financial models designed to clearly explain and justify the investment proposal, how it will be financed, and its likely impact on the company. As support, you will show the proposal's most likely financial implications and the consolidated financial projection with and without the project. You should also consider risks-including global microeconomic factors outside the company that may affect the investment's success in the targeted country-and describe alternative financial scenarios should sales exceed or underperform your assumptions.
Your funding request should be well organized, clear, concise, and free of distracting errors. Because business executives seldom have perfect or complete information, you should base your proposal on data from authoritative sources when possible and make reasonable assumptions where information is not available. As in real life, however, you must clearly specify your assumptions.
To begin, choose one of the following publicly traded companies. Once you have chosen your company, you will determine the investment opportunity for which you are seeking funding as well as the country into which your company will be expanding:
1. Keurig Green Mountain- https://www.keuriggreenmountain.com/
2. L.S. Starrett Company- https://www.starrett.com/home
3. Nordstrom, Inc.- https://shop.nordstrom.com/c/about-us?origin=footer
Specifically, the following critical elements must be addressed:
I. Executive Summary: Briefly summarize the key points of your proposal, giving the loan committee the most essential information while convincing them to read further. Remember this is the first, and sometimes the only, section a selection committee will read in an initial screening.
II. Investment Project: Use this section to describe the investment for which you are seeking funding, its costs, and time frame. Specifically, you should:
A. Describe the investment project. Be sure to provide sufficient detail to give the loan committee a firm sense of the parameters of the activity, the need for it, and what financial metrics are relevant for determining success. In other words, what do you propose to do, where, what marketplace need will it fill, and how will you measure success?
B. Specify the resources the project will require and where these resources will come from. In addition to noting the amount of the loan you are requesting, you should also consider human resources, facilities, government approvals, intellectual property, access to natural resources, and other resources that might be required to carry out the project.
C. Time frame. When will the project start, what is the anticipated economic life of the proposed expansion, and how will you decide if, when, or how to exit? Justify your choices with appropriate financial metrics.
III. Justification: In this section, you should analyze the impact of the investment proposal on your business. In particular, you should cover:
A. Why is now a good time for this investment given the global context? Justify your response, citing specific external factors such as trade regulations, foreign currency considerations, or trends in foreign direct investment that might affect business financial decisions.
B. Strategic fit. Use this section to discuss why the investment proposal makes sense for your company strategically. Specifically:
1. How does the investment align with the company's organizational and financial priorities? Support your argument with evidence from company reports and financial statement analysis designed to persuade the lender that the investment is a good strategic fit for your company.
2. How does the project fit within the global microeconomic environment? Support your response with evidence. For example, would the expansion tap unmet demand for the company's key products or services or fill a new niche? How do you know?
3. How does the project build on the organization's core competencies and comparative advantage? For example, does the company have a strategic advantage in regards to intellectual property, regional expertise, suppliers, or organizational structure?
C. Financial impact. This section should discuss the project's most likely financial implications and the consolidated financial projection with and without the project. Be sure to:
1. Project the incremental, annual, and cumulative cash benefits and outflows associated with the proposed expansion for the next seven to 10 years, using a spreadsheet or other relevant presentation vehicle to support your narrative. Be sure to justify your assumptions and methodology based on sound microeconomic and financial principles. For example, what assumptions have you made about demand, price, volume, capital purchase costs, incremental hiring, and so on?
2. Develop a consolidated financial projection of revenue, pretax income, and cash flow for the overall business, over that same number of years, both with and without the proposed investment. Use a spreadsheet or other relevant presentation vehicle to support your narrative, being sure to describe any relevant assumptions.
IV. Risks: Use this section to discuss any risks that might affect the success of the project and how you have planned for those contingencies. In particular:
A. Internal. What are the company's most significant internal risks and opportunities related to the project? How might they affect your financial estimates and how will you address them? Support your response with specific examples.
B. External. How will you address significant qualitative risks outside the company that might affect project success? Give specific examples. For example, how might culture or politics in the target country affect the proposed investment's financial success? Natural disasters? How have you planned for these risks?
C. Microeconomic. Assess the microeconomic factors that might affect decisions about the proposed investment. Support your response with specific examples. For example, how competitive is the market you will be entering? How elastic is the price for your product or service?
D. Alternate financial scenarios. Use this section to discuss the sensitivity of your financial projections to different scenarios. Be sure to address:
1. How would your projected financial performance change if sales fall 20% short of or are 20% higher than your base assumption? What does your analysis of these two scenarios imply for the proposed investment? Justify your response.
2. What do the net present value, internal rate of return, and payback values from your base scenario and the sales variation scenarios above imply for the proposed investment? Be sure to explain how the time value of money affects your calculations and analysis.
V. Financing: In this section, compare the proposed loan to alternative financing methods. Specifically:
A. Weigh the pros and cons of raising money using internal financing mechanisms versus seeking funding through global capital markets via loans, commercial paper, bonds, or equity financing. Which might be viable alternatives should the loan not be approved? Support your answer with appropriate research and evidence.
B. Assess the viability of a business combination as a mechanism for expanding into the new market. Is this a reasonable option for the company? Why or why not? Support your answer with appropriate research and evidence.
VI. Track Record: Use this section to persuade the lender that you are credit-worthy. You must:
A. Convincingly argue that your organization is on solid financial footing, and thus at a low risk for default, supporting your argument recent with appropriate financial statements, ratios, and other indicators of financial performance and health.
B. Convincingly argue for your organization's trustworthiness, providing credible evidence of legal and ethical financial behavior. For example, this might include recent audit results; credit history; absence of significant lawsuits, recalls, or regulatory judgments; or other evidence designed to show that the company holds itself to the highest legal and ethical standards.
VII. Questions and Answers: End your proposal by constructing a persuasive, evidence-based question-and-answer section that addresses additional financial questions you think the loan committee might ask, including legal and ethical concerns and why the loan would be attractive to the bank.
Milestones
Milestone One: Investment Project and Justification (Parts A and B)
In Module Four, you will submit a draft of Section II (Investment Project) and Section III (Justification), Parts A and B only, of the final project. Submit 8-10 pages of narrative, building on the narrative you began in the Module Three executive memo short paper. Include references to past financial results, growth rates, and other financial ratios as exhibited in the spreadsheet you created in Module Two, and end with appropriate reference citations.
Milestone Two: Risks
In Module Six, you will submit a draft of Section IV (Risks) of the final project. Analyze internal and external risks and discuss how they might affect your financial estimates and how you might plan for such risks. You will assess the microeconomic factors that affect decisions about the proposed investment, and you will analyze alternative financial scenarios.
Milestone Three: Justification (Part C), Financing, and Track Record
In Module Seven you will submit a draft of Section III Part C (Justification), Section V (Financing), and Section VI (Track Record) of the final project. You will discuss the project's most likely financial implications and the consolidated financial projection with and without the project; compare the proposed loan to alternative financing methods by weighing the pros and cons of raising money internally versus seeking funding through global capital markets; and assess the viability of a business combination as a mechanism for expanding into the new market. You will also use this section to persuade the lender that your company is credit- worthy by presenting appropriate financial information and by providing evidence of your company's legal and ethical behavior. This milestone is graded with the Milestone Three Rubric.
Final Submission: External Capital Funding Proposal
In Module Nine, you will write Section I (Executive Summary) and Section VII (Questions and Answers) of your final project and submit your final external capital funding proposal. It should be a complete, polished artifact containing all of the critical elements of the final project. It should reflect the incorporation of feedback gained throughout the course.