The Genesis Energy
operations management team, nearing completion of its agreement with Sensible
Essentials, was asked by senior management to present a capital plan for the
operating expansion. The capital plan was not to be a wish list but an analysis
of the necessary expenditures to successfully establish a fully equipped
operating facility overseas.
In addition, senior
management requested meaningful financial and operating metrics to ensure that
the performance objectives for the facility were being met. The operations
management team was given five days to accomplish the following:
1.
Calculate the firm’s
WACC.
2.
Prepare and analyze each
planned capital expenditure.
3.
Evaluate, rank, and
recommend the capital expenditures according to beneficial value to the
organization, using the evaluation tools NPV, payback, and IRR. Evaluation,
ranking, and recommendations should be by category of expenditures. For
example, facility, equipment 1, 2, and 3, and inspection.
4.
Using the selected
choices in part three, calculate the full cost of establishing a fully equipped
facility. This would include the facility, equipment 1, 2, and 3, and
inspection. In addition, calculate the payback, NPV, and IRR for the completed
facility.
5.
Construct and recommend
between three and five metrics to measure the performance of the organization.
At least one metric should be dividend decision-making driven.
6.
Prepare an executive
summary along with a separate document showing the calculations.
Part I
Following the example of
the operations management team, do the following:
1.
Download the Capital Budgeting spreadsheet, and
compute the WACC for Genesis Energy.
2.
Using the information
provided in the spreadsheet, analyze Genesis Energy’s project options. Then,
calculate the periodic and cumulative net cash flows for each potential project
and its associated options. Please note that there are five projects (facility,
equipment pieces 1, 2, and 3, and internal inspection), and that each project
offers multiple-configuration options (facility size, equipment type, etc.).
3.
Evaluate, rank, and
recommend a specific option for each capital project according to beneficial
value to the organization, using the evaluation tools NPV, payback, and IRR.
4.
Construct and recommend
between three and five metrics to measure the performance of the new operating
strategy. At least one metric should reflect dividend policy as it relates to
rewarding shareholders.
5.
Prepare an executive
summary describing your recommendations for each project and the overall cost,
net cash flows, and expected returns of the operating configuration that you
recommend. Be sure to justify your recommendations in terms of the investment
criteria applied in Step 3 above. Be sure to report the full cost of the
facility as it is configured per your recommendations. Present and justify your
operating strategy performance metrics.
Your complete report
should include all of your calculations as appendices (5 pages, or 1 page for
each project).
Part II—Executive
Summary Presentation
Because of limited
resources in an era of plentiful opportunities, companies must carefully select
investments. You analyzed Genesis Energy’s expansion plans and explained your
findings in M5: Assignment 1.
This assignment is based
on those findings. In this assignment, you will create a PowerPoint
presentation that will include the following information:
·
An executive summary of
your findings from M5: Assignment 1. Be sure to adhere to the
following:
o
The presentation should
be approximately 6–8 minutes (or 10–12 slides).
o
A statement of the
problem or topic is included.
o
A concise analysis of
the findings is included.
o
Specific details from M5:
Assignment 1 to highlight or support the summary are incorporated.
Develop a 10–12-slide
presentation in PowerPoint format. Apply APA standards to citation of sources.
Use the following file naming convention: LastnameFirstInitial_M5_A2.ppt.
