Fairfield Office Supplies Inc has a regional chain of office supply stores in the Midwest Fairfield is trying to compete with the large nationwide office supply companies It is January of 2023 and Fairfield needs to make some capital budgeting decisions this year They need to decide whether to replace their computerized inventory system or upgrade the old one, whether to purchase two stores from a sole proprietor or not, whether to keep, abandon or modernize one of the stores, which new copiers to purchases and a few other small projects The company is under some pressure and has a strict capital budget of $10 million, so they need to be careful as to which projects they choose Book Value Balance Sheet for 12 31 22 (all values in millions) Assets Liabilities and Net Worth Cash and short term securities $1 5 Bonds, coupon 9 5 , paid $15 0 Annually (maturity 20 years, Current yield to maturity 9 0 ) Accounts Receivable 3 0 Preferred stock (par value $4 5 4 5 Per share) Inventories 6 0 Common Stock (par value $ 5) 1 50 Plant and equipment 35 Additional paid in stockholders 6 00 Capital Retained Earnings 18 5 Total $45 5 Total $45 5 Years 2022 2021 2020 2019 2018 Net Income (in millions) 5 11 4 80 4 40 4 10 3 90 Other Projects There are a few other projects Fairfield is looking at Purchase parcels of land to put future stores on $4 8 million that is expected to be worth $12 6 million in 10 years Purchase of New business line Cost $3 1 million, Net after tax cash flow for the next 5 years 1 2 million and the Business is expected to net $1 2 million when sold after 5 years Purchase of a supplier Cost $2 9 million, Net after tax cash flow for the next 6 years $ 6 million, this includes the benefits of the lower cost of goods, and the business is expected to net $3 9 million when sold after 6 years Decision time Which projects would you suggest Fairfield act upon if no capital rationing and what is the optimal capital budget AND taking into consideration the $10 million capital rationing which projects would suggest Fairfield act upon

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Fairfield Office Supplies Inc. has a regional chain of office supply stores in the Midwest. Fairfield is trying to compete with the large nationwide office

Fairfield Office Supplies Inc. has a regional chain of office supply stores in the Midwest. Fairfield is trying to compete with the large nationwide office supply companies. It is January of 2023 and Fairfield needs to make some capital budgeting decisions this year. They need to decide whether to replace their computerized inventory system or upgrade the old one, whether to purchase two stores from a sole proprietor or not, whether to keep, abandon or modernize one of the stores, which new copiers to purchases and a few other small projects. The company is under some pressure and has a strict capital budget of $10 million, so they need to be careful as to which projects they choose.

Book Value Balance Sheet for 12/31/22 (all values in millions)

Assets	Liabilities and Net Worth
Cash and short-term securities $1.5	Bonds, coupon =9.5%, paid $15.0 Annually (maturity = 20 years, Current yield to maturity = 9.0%)
Accounts Receivable 3.0	Preferred stock (par value $4.5 4.5 Per share)
Inventories 6.0	Common Stock (par value $.5) 1.50
Plant and equipment 35	Additional paid in stockholders 6.00 Capital
	Retained Earnings 18.5
Total $45.5	Total $45.5

Years

2022

2021

2020

2019

2018

Net Income

(in millions)

5.11

4.80

4.40

4.10

3.90

Other Projects

There are a few other projects Fairfield is looking at:

Purchase parcels of land to put future stores on: $4.8 million that is expected to be worth $12.6 million in 10 years.

Purchase of New business line: Cost= $3.1 million, Net after tax cash flow for the next 5 years = 1.2 million and the Business is expected to net $1.2 million when sold after 5 years.

Purchase of a supplier: Cost $2.9 million, Net after-tax cash flow for the next 6 years = $.6 million, this includes the benefits of the lower cost of goods, and the business is expected to net $3.9 million when sold after 6 years.

Decision time.

Which projects would you suggest Fairfield act upon if no capital rationing and what is the optimal capital budget AND taking into consideration the $10 million capital rationing which projects would suggest Fairfield act upon?