East Coast Yachts Case
1. ( Q1 , page 12 )
What are the three types of financial management decision? For each type of decision, give an example of a business transaction that would be relevant.
What long-term investments to make?
Capital Budgeting: Evaluating the size, time and risk of future cash flows as well as the process of planning and managing a firm’s long-term investments. The goal is to achieve a hugher value of cash flow generated by assets than the cost of it. The example would be a new restaurant (e.g. Tri-Con Global Restaurants, Inc.) which makes an investment when it opens a new Pizza Hut restaurant.
Where will we get the money for those investments from?
Capital Structure: Specific mixture of long-term debt and equity the firm uses to finance its operations; also how and when to raise the money. The financial manager has two concerns: Firstly, he needs to decide the amount of money the firm should borrow and secondly, what the least expensive sources of funds are for the firm.
The ‘gearing-ratio’ calculates the mixture of long-term debt and equity. “Gearing ratio” = long-term debt / (long-term debt + equity) As an example you could make use of the “Barneys New York” who made an agreement with its lenders and sponsors to reduce the Company’s debt and improve its capital structure. assures the Company a significant financial flexibility to prioritize its investment in its operations and grow the business.
How will we manage everyday financial activities?
Working Capital: Refers to firms short-term assets, such as inventory and liabilities. Some important questions that have to be answered are:
- How much cash and inventory should be kept on hand?
- Should we sell on credit?
- Will be any short-term financing obtained? For example, the ENK PLC (a Philippines-focused nickel miner) sold a stake in Toledo Mining Corp. PLC for cash and also signed a conditional deal to sell its interest in Berong Nickel Corporation. Selling these non-core assets
What are the three types of financial management decision? For each type of decision, give an example of a business transaction that would be relevant.
What long-term investments to make?
Capital Budgeting: Evaluating the size, time and risk of future cash flows as well as the process of planning and managing a firm’s long-term investments. The goal is to achieve a hugher value of cash flow generated by assets than the cost of it. The example would be a new restaurant (e.g. Tri-Con Global Restaurants, Inc.) which makes an investment when it opens a new Pizza Hut restaurant.
Where will we get the money for those investments from?
Capital Structure: Specific mixture of long-term debt and equity the firm uses to finance its operations; also how and when to raise the money. The financial manager has two concerns: Firstly, he needs to decide the amount of money the firm should borrow and secondly, what the least expensive sources of funds are for the firm.
The ‘gearing-ratio’ calculates the mixture of long-term debt and equity. “Gearing ratio” = long-term debt / (long-term debt + equity) As an example you could make use of the “Barneys New York” who made an agreement with its lenders and sponsors to reduce the Company’s debt and improve its capital structure. assures the Company a significant financial flexibility to prioritize its investment in its operations and grow the business.
How will we manage everyday financial activities?
Working Capital: Refers to firms short-term assets, such as inventory and liabilities. Some important questions that have to be answered are:
- How much cash and inventory should be kept on hand?
- Should we sell on credit?
- Will be any short-term financing obtained? For example, the ENK PLC (a Philippines-focused nickel miner) sold a stake in Toledo Mining Corp. PLC for cash and also signed a conditional deal to sell its interest in Berong Nickel Corporation. Selling these non-core assets