Capital Budgeting

Cost of Capital, Risk/Return, and Capital Budgeting Start Here

Scenario
Your team’s work with Largo Global Inc. (LGI) is nearly complete. In your consulting role, you have recommended steps for improving the company’s financial health. You have offered advice on a revenue target, recommended steps for optimizing operations, and suggested investments that will improve LGI’s competitive position. In your final project, you will continue working on capital budgeting with a focus on the best way for LGI to finance the investments you recommend.

Your Project 5 business report will focus on ensuring LGI’s capital structure is sound and that the company is on a financially sustainable path. You will recommend a plan for financing investments that does not expose LGI to unnecessary risk. By the end of this project, the company’s financial statements should demonstrate that it has returned to a competitive position.

Competencies
Your work will be evaluated using the competencies listed below.

· 3.1: Identify numerical or mathematical information that is relevant in a problem or situation.

· 3.2: Employ mathematical or statistical operations and data analysis techniques to arrive at a correct or optimal solution.

· 3.3: Analyze mathematical or statistical information, or the results of quantitative inquiry and manipulation of data.

· 10.4: Make strategic managerial decisions for obtaining capital required for achieving organizational goals.

Step 2: Review and Practice
Using the Project 5 Review and Practice Guide, review the options for financing investments available to LGI. Then, apply what you have learned by completing the exercises and problems referenced in the Project 5 Review and Practice Guide.

You must review the guide and do the practice exercises and problems so that you

· are prepared to have informed discussions with your team about capital structure and appropriate leverage,

· understand risk and return,

· can make recommendations for financing LGI’s investments, and

· can complete your mission, turning around LGI.

Complete this review and practice by the end of Week 9.

Review and Practice
You must complete the review and practice content to participate in the discussion in Step 3.

Project 5 Review and Practice Guide

Step 3: Participate in the Required Project 5 Discussion
Business professionals sit around table in discussion.

You have finished reviewing the material and performing the exercises, but you have some questions. Participate in the Project 5 class discussion. Respond to the two questions below by posting in the discussion; then, respond to two of your classmates’ discussion posts by the end of the week.

Discussion
Answer the following questions:

1. Discuss the concepts that were most challenging for you in the readings and review material. How did the practice exercises help clarify these?

2. What did you learn that will help you determine the most appropriate way to finance the investments you previously recommended for LGI?

Before you participate in the discussion activity, see MBA discussion guidelines.

Course Resource

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MBA Discussion Guidelines

Throughout the MBA program, you will be asked to participate in discussions. Assigned discussions, both individual and group work, are part of the process of developing your project deliverables.

In general, address your discussion posts to your classmates, rather than the instructor. Do not attach files; use only the discussion textbox. Your posts do not need the structure or format of formal business memos or reports. These discussions should be an informal exchange of ideas with your peers. You should, of course, still adhere to the norms of standard written English.

To receive the maximum benefit, you should participate in accordance with the guidelines provided below.

· timeliness

· initial posting(s) submitted by 11:59 PM ET on Saturday

· response(s) to other discussion postings submitted by 11:59 PM ET on Tuesday

· proper citation

· cite sources any time you quote or paraphrase an idea or evidence from another work

· use APA citation style (example below)

· meaningful engagement

· posts contribute to substantive scholarly discussion

· student demonstrates professionalism in interaction with peers

· posts critically discuss topics presented in the current week and, when appropriate, in previous weeks

· posts are grounded in the theories and concepts presented in the course

Example:

Based on the UMGC library’s guidance on APA citations , including guidance on how to cite content from the UMGC online classroom, please use the following format for classroom resources with no author or no date:

Title of resource. (n.d.). Document posted in University of Maryland Global Campus Course Name Course Number online classroom, archived at: hyperlink

SWOT analysis. (n.d.). Document posted in University of Maryland Global Campus MBA 610 2182 online classroom, archived at: https://lti.umgc.edu/contentadaptor/page/topic?keyword=SWOT%20Analysis

Step 4: Complete the Analysis Calculation for Project 5
Your team has provided you with an Excel workbook containing LGI’s financials. You will use the Project 5 Excel workbook to perform advanced capital budgeting techniques to assess the viability of the investment you made in the previous project.

Complete the analysis calculation for the project:

· Download the Project 5 Excel Workbook, click the Instructions tab, and read the instructions.

· Calculate cost of debt and equity as well as weighted average cost of capital (WACC).

· Apply the capital asset pricing model (CAPM).

· Develop a capital budget.

If you would like instructor feedback on this step, submit your Excel file to the Assignments folder as a milestone by the end of Week 9. This is optional. If you choose to submit the milestone, you will receive instructor feedback you may use to make corrections before submitting your final Project 5. To distinguish the milestone submission from the file you will submit in Step 5, label your file as follows: P5_milestone_lastname_Calculation_date

· You should use the comments your instructor made about your optional milestone submission to revise your calculations as needed. Next, proceed to Step 5, where you will answer questions about your analysis, make recommendations for LGI, and compile and submit your final report.