Wk 5 Assessment Prep: Business Case Research
Your company, Apple, Inc. wants to acquire more funding for a project and will need a business case to do so. This business case will be featured in your financial plan that you will create next week. To get yourself prepared for developing the financial plan, create an outline of your business case in which you do the following:
- Determine why funding is needed for the company. As the business manager, it is up to you to choose the project. HINT: Keep the project refined. If you choose something such as; increased revenues or increased working capital, you will still need to explain how you propose to accomplish this task. So, choose something “you can put your arms around”. For example; a new product, a new app, a new store, a new warehouse, upgrading the customer service experience, etc. Choose a project that is tangible. You will see why this is important below.
- Determine the total amount of funding required. HINT: You need to state a specific amount.
- Determine how the total amount of funding in #2 will be spent. HINT: No discussion is required for this portion. Instead, simply include a table that lists the categories, amounts and a total. The total here must match the total amount of funding in #2 above.
- Determine your funding options. Discuss self-funding, borrowing, and equity. Evaluate the requirements and risks of each funding source. Options must be relevant to Apple, Inc. HINT: For self-funding, think in terms of cash assets, profitability and cash flow. For debt, think in terms of loans and bonds. For equity, think in terms of selling shares of stock.
- Decide which source or sources are the best fit for your company based on the requirements of each. Justify your decision. If you choose a combination of one or more options (ie self-funding, debt and/or equity), you must provide the breakdown of the total amount of funding required between each option. HINT: If your firm is able to 100% self-fund and you are able to justify this with numerical data from the financial statements on Yahoo! Finance, then this is the way to go as this will simplify #6 below.
- Estimate the cost of capital or (WACC) for your firm based upon your prior decisions. You have a couple of options below. Read through these carefully.
- If you are able to justify 100% self-funding, then no calculation is required. You are able to simply do a web search for “Apple WACC” and use the figure from that site (ie Finbox, GuruFocus, ValueInvesting, etc). Your discussion would be as follows: (1) define WACC (2) state AND cite your figure (3) include a sentence that since you are 100% self-funding, this amount is already included within the WACC figure as part of the total equity variable (4) discuss what this WACC figure implies for your firm (ie minimum discount rate)
- If you raise additional capital via debt or equity or some combination including either, then you will need to recalculate your WACC using an online WACC calculator. You will need to source variables for total equity, total debt, cost of equity, cost of debt, and tax rate. Total equity and total debt variables may be found on Yahoo!Finance. Make sure your variable is updated to include the funds you are raising. Cost of equity, cost of debt and tax rate may be found on sites such as FinBox, GuruFocus or ValueInvesting. Plug in the variables into your calculator for an updated WACC figure. For the discussion: (1) define WACC (2) state AND cite BOTH your overall figure AND your variables (3) discuss what this figure implies for your firm (ie minimum discount rate).