MODULE THREE

Working Capital, Liquidity Analysis, Internal Finance, Forecasting, and Multinational Financial Management: This module covers basic capital budgeting including: time value implication on cash flows and risk assessment; capital structure and leverage including: business risk, financial risk, financial leverage, business bankruptcy, and optimal capital structure with debt and equity finances; distribution to shareholders and its implication on business finance; working capital management as main source of business liquidity; financial planning and forecasting and strategic planning; and multinational financial management.

SECTION 1 CASE STUDY: [60 points]

Read Richard Ivey School of Business Case Study [Harvard Business School Publisher]. The case focuses on determining the value of a business enterprise for acquisition purpose. The president of Vancouver-based CFM Attachments Ltd. is putting together a management buyout of his company. The president, who has had experience creating and selling a company in a related industry, is trying to determine how to value a potential purchase of CFM from the company's founder. As CFM is a privately-owned company, the president is trying to place a value on the company based on historical financials, a group of comparative firms, and a profit and cash flow forecast by the management team. Read the case carefully and demonstrate your accounting and financial management skills by answering the questions in section one of this module. Your competency will be measured by your ability to answer questions clearly, provide detailed calculations and justify your opinion and/or recommendation by referring to evidences (calculations or information) you used as a basis to reach to your conclusion. [FYI: you may use, when possible, the Internet search and the ESC electronic Library to support your answer. Refer to benchmark and industry average when possible].

1. (10 points) Assess the purchase opportunity in regards to direct and indirect international competition in terms of multinational finance opportunities.

2. (10 points) What are the key risks and rewards considering this opportunity and the forecasted profit and growth in its international market?

3. (5 points) Does the change in exchange rate affect the business valuation process? Does it affect the purchase value?

4. (5 points) Does median capital structure differ among large industrialized countries? Provide example with clarification of why there is difference, if any.

5. ( 5 points) Explain interest rate parity and purchasing power parity applying on the case above.

6. (10 points) Using the financial statements provided in the case to build a forecasted income statement for year 2004. Indicate what criteria you used to establish such forecast.

7. (10 points) Despite the strengthening of the Canadian dollar in recent years, CFM has continued to increase its sales. Rationalize this strategic plan explaining why they decided to continue increasing the sales? Would it be a different trend considering the current exchange value of the Canadian dollar?

8. (5 points) Considering the prime interest rate prime, and one-year Treasury Bills and 30-year Government of Canada benchmark bond.. do you see there is liquidity opportunity for financing the purchase? Explain.