'The CFO of Flash Memory, Inc. Essay\r'

'The CFO of bourgeon remembering, Inc. prep ars the comp each’s localizeing and pecuniary backing plans for the next three years. ignite retrospection is a small firm that specializes in the design and manufacture of solid sound bring out drives (SSDs) and memory modules for the computer and electronics industries. The comp all invests aggressively in research and development of immature harvest-homes to stay ahead of the competition. Increased work expectant requirements force the CFO to film alternatives for supererogatory support. In addition, he must also consider an investment prospect in a mod overlap retrace that has the possible to be super profit up to(p). Students must prep are financial forecasts, suppose the weighted average follow of capital (WACC), estimate cash flows, and evaluate financing alternatives. This character reference is especially recommended as a final exam case for a standard MBA-level course in merged pay. Subjects I nclude: Capital Budgeting, Cash Flows, fiscal Forecasting, Long Term Financing, Net mystify Value (NPV), and Weighted Average equal of Capital (WACC)\r\nFor the specious Memory Inc. case you will turn in both a write-up of your synopsis and a spreadsheet that contains any financials or calculations you performed. The formal write-up should contain an overview of how you tackled limited issues demonstrateed in the case, how you set up the spreadsheet to present you analysis, and a discussion of any assumptions you are making. To guide you through the case, below are a set of questions you will pack to address. Structure your written analysis and spreadsheet solutions almost these questions. 1.Assuming the company does not invest in the impertinently product nervous strain spend a penny forecasted income relations and balance sheets at year-end 2010, 2011, and 2012. base on these forecasts, estimate fleet’s inevitable external financing. Assume any external fina ncing takes the form of redundant notes payable from its commercial verify. Can Flash fund the continued growth and graceful the borrowing requirements established by the bank?\r\nIf not what are some potential alternatives? 2.Evaluate whether Flash Memory should invest in the new product line discussed on page 4 of the case. a.Any decision to invest in the new product line will require an estimate of the give the sack rate (i.e., WACC). When estimating a WACC you should be go by on the inputs you used to calculate the cost of equity, cost of debt, and the relative weights of equity and debt. For this analysis use the target debt-to-equity ratio that is want by the board of directors. 3.Estimate the pro-forma financial contentions (i.e., income statement and balance sheet) for the years 2010, 2011, and 2012 assuming that Flash takes the new investment project and pay the project with debt. What issues might arise if Flash only uses debt financing? If debt financing turns out to have problems what are Flash’s alternatives?\r\nAs gross revenue of Flash Memory Inc. (Flash) increases rapidly in the first a couple of(prenominal) months of 2010, additional working capital is required to ensure smooth operations and honor their current growth rate. However, Flash soon has almost reached its notes payable limit of 70% accounts receivables with its current commercial bank and thus, engage to look for various alternative financing means to bear the required get of funds it needs to finance its forecasted sales for year 2010 onwards. This report is written to provide an insight to Flash’s financial position for the following 3 years (2010 till 2012) through the use of pro-forma income statement and balance sheet. For Flash to be able to keep up with the sales projections, additional financing of $4.04million and $2.61million are required in 2010 and 2011.\r\nIn addition, Flash is also considering investment funds in a major new product line a nd a valuation analysis is done to determine whether the new product line should be invested or not. According to the various sales and expenses projection, a valuation analysis has shown that the new product line will be set at a favorable NPV of near $2.8 Million using Flash’s weighted cost of capital as the discount rate. As such, in the core that the new product line is invested, additional financing will be required to initiate and maintain this product line in 2010, which amounts to S7.48 Million. Lastly, this report also provides an evaluation on various alternative financing methods that Flash can consider to halt the additional funds needed to finance its forecasted sales of its existing and new product lines. These methods are: (1) Finance with Internal Financing, (2) perfectly Term Debt, (3) Long Term Debt and (4) blondness issuance. The recommended form of financing that Flash should render is to finance its operations according to the Pecking order of b attle Theory,\r\n'