Tasks:

1. Prepare pro-forma financial statements to learn the fundamentals of financial forecasting, financial ratio analysis, and debt covenant analysis.
2. Apply the discounted cash flow (DCF) approach to value both an equipment investment and the acquisition of an entire company.
3. Review financial policy and financial execution, including target leverage and debt capacity, costs of financial distress, and various approaches to raising capital.
4. Understand the interactions between corporate investment and financing decisions.

Assignment Questions

1. Should Marshall continue to pursue a high-growth strategy? How can she finance it? What is the potential effect of growth on Burton’s stock price?
2. Should Marshall purchase the thermowell machines? In calculating the weighted-average cost of capital, use 5.8% as the equity risk premium.
3. Should Marshall accept the offer of the private investor and issue new equity? How does the deal affect Burton’s existing shareholders? 4. What is the effect of the issuance on Burton’s balance sheets?
4. Should Marshall acquire Electro-Engineering, Inc. (EE)? What is the most important consideration? Even if the NPV of the acquisition is zero, should she still proceed?
5. Does the acquisition allow EE to gain enough funding to invest in the purchase of thermowell machines?