Prepare a written proposal (750 to 1000 words long, which will be 3 to 4 pages with a typical font and spacing) with recommendations to CVS Health Corp.on how it should finance capital acquisitions and expansions. Use the information you have gathered in your previous report( See attached)Include any risks the company needs to consider when making its decision including exchange rate risks with any country to which production may be outsourced. Be persuasive in your presentation.

Cummings-James 1 CVS Health Corp. Johnathon Cummings-James Thomas Edison State College FIN 331 Laurie Klosk-Gazzle January 14, 2016 Cummings-James 2 CVS Health is an American health care and retailer company. The Company is founded in 1963. The company is continuously developing innovative healthcare solutions, they are the largest retailer of prescriptions and are the 2 nd pharmacy benefits manager. The Company is primarily known for its 68,000 pharmacies located across the United States. They also offer a mail order pharmacy services. It is ranked 35th position in the Fortune Global 500 list. The Company is operating in the following segments: CVS/ pharmacy CVS/ caremark CVS/ speciality CVS/minuteclinic Business subsidiaries of CVS Health are as follows: CVS pharmacy Caremark RX Minute Clinic Omnicare Arbor drugs In 1963, the first CVS Store was founded in Lowell, Massachusetts by Stantley Goldstein and Ralph Hoagland. Four years later, in 1967, the company begin including pharmacy operations. By 1985, the company had reached $1 billion in annual sales. In 1997, the company made its largest acquisition in retail pharmacy history with Revaco. In 2001, CVS launched their consumer loyalty service, the CVS Card. In 2005, minute Cummings-James 3 clinic begin opening clinics inside CVS locations. In 2015, CVS Health announced that it would acquire all Target brand pharmacies and rebrand them as CVS Pharmacies. This deal was valued at approximately $1.9 billion and helps further expand CVS' brand presence. CVS grows its company primarily through acquisitions of existing healthcare companies, this method of expansion generally requires liquid cash to cover to the cost of the business, the reformatting to CVS Standards and so forth. It is apparent that CVS has expanded very rapidly in a short amount of time. SWOT (Strengths, weaknesses, opportunities and threats) Strengths Has a strong presence in the retail health and beauty industry with a wide product offering Has worldwide distribution Very Secure Financially o Weaknesses Company has been called to task for some of its business practices In-house brands lack consumer notoriety o Opportunities Slowing entering into homecare products Increasing their domestic presence Enter global markets through acquisition. o Threats Consumers lack knowledge of pharmaceutical availability Cummings-James 4 Significant amount of competition both domestically and internationally in retail pharmacy. The Federal Reserve has the principal belief that leaving interest rates low will have consequences, but they also realize that economic recovery has been very slow and therefore interest rates cannot be increased to quickly. Since 2009, the unemployment rate has fallen to 5.6% as of December 2014. (Reuters, 2015) Wage growth and inflation still remain as areas of opportunities. Monetary policy refers to the means Federal Reserve being able to directly control both money supply and credit available in the economy. This means of control has allowed the Federal Reserve to greatly influence how the economy functions. The primary objectives of monetary policy manipulation are: decrease the unemployment rate, control long-term interest and stabilize prices. By effectively controlling monetary policy, the Federal Reserve can control and stabilize consumer prices and help foster long term economic growth and maximum employment possible. The Federal Reserve has three tools used for the control of monetary policy. These three tools independent of each other help the Federal Reserve maintain control: the Federal Reserve requirement, the discount rate and the open market operations. Open market operations represent the exchange of government securities. In the open market operations, the Federal Reserve has no control over which institution it will do business with. The discount rate is simply the short-term rate that the Federal Reserve sets for depository institutions on their loans. While this rate has a tendency to fluctuate long term, it has no immediate baring on CVS. Most of their operations are selffunded and many corporations use commercial paper and liquid assets in order to cover their cost. The Federal Reserve requirements are based upon the deposits the banks Cummings-James 5 take in and the required amount of reserves they must have on hand or on deposit at any branch of the Federal Reserve Bank. This is a day to day activity that banks and other depository institutions must abide by. They can face penalties should they not adhere to this rule. CVS Health Corp's current weighted average cost of capital is 9.57% and their return on investment is 10.65%. (CVS Health Corp, 2016) It means company is earning revenue which outweighs its returns. Their revenue growth is 8.72% A company that forecast to keep generation positive excess returns will often see this value increase. The Federal Reserve has plans to hike interest rates in order to help reach its target inflation rate of 2% and maximize employment. (The Economist Explains, 2015) CVS Health will have to fund most of their projects through internal cash flow, bonds and commercial paper instead of borrowing funds from the bank. WoE WoD E/(E+D) = 103600.59/(103600.59+13178.50) = 0.8872 D/(E+D) = 13178.50/(103600.59+13178.50) = 0.1128 Cost of equity under =(CAPM) CoE Risk free rate or return+ beta of asset x (Expected rate of the market-risk free CoD Average Tax Rate for Two Years Weighted Average Cost of Capital rate of return) = 2.18%+1.10% x 7.50% = 10.43% = 615/13178.50 = 4.6667% 39.195% = 0.8872 x 10.43%+ 0.1128 x 4.6667% x Cost of a ten year loan (1-39.195%) = 9.57% = 200 m x 4.6667% = 93.33 m CoE Cummings-James 6 Moody Rated CVS Health of Baa1 senior unsecured rating following the press release of the target pharmacy acquisition. (Moody's affirms CVS Health's Baa1 senior unsecured rating, 2015) They based this rating upon the forecasted outlook of the company. Morningstar list CVS Health currently at a BBB+ Credit rating with a debt to asset ratio of 29.47% There short term debt credit rating is A-2. (Quicktake, 2016) With a medium credit rating such as this, it should be easily for CVS to obtain funding for their various projects. With a weighted cost of capital rate of 9.57%, CVS has alternative sources of funding. With an earnings per share rate of 1.07. CVS Investors generally obtain a good return on their investment. This ROI shows that the company is very profitable. Money Market Instruments are usually a risk-free investment and are issued in $1 million or more. Maturity Range can be anywhere from one day to one year. Most often it is usually 3 months. With most of them having second markets, they can be sold before maturity. These money market instruments prove to be very useful in terms of exchanging because they are profitable. There is no exact location for the money market but because it is a telephone market it can be done all over the world. With annual revenue exceeding $100 billion, it is important for CVS to continue to fund their operations through their cash flows rather than seeking outside sources to borrow money from. Essentially CVS Health has maintained a great financial position with multiple streams of revenue, an average credit rating, and overall good profitability. In order for it to continue to grow they will have to increase their global presence and further expand their retail operations. With the recent Target acquisition, we can expect an overall increase in growth revenue and an increase in profitability for CVS. Cummings-James 7 Works Cited CVS Health Corp. (2016, Janurary 14). Retrieved from Yahoo FInance: https://finance.yahoo.com/q/is?s=CVS Moody's affirms CVS Health's Baa1 senior unsecured rating. (2015, 15 June). Retrieved from Moody's Investor Service: https://www.moodys.com/research/Moodysaffirms-CVS-Healths-Baa1-senior-unsecured-rating--PR_327892 Quicktake. (2016, 01 14). Retrieved from Morningstar: http://quicktake.morningstar.com/stocknet/bonds.aspx?symbol=cvs Reuters. (2015, November 16). Unemployment Rate falls 5%. Retrieved from Newsweek.com: http://www.newsweek.com/us-unemployment-rate-falls-five- percent-391353 The Economist Explains. (2015, August 31). Retrieved from The Economist: http://www.economist.com/blogs/economist-explains/2015/08/economistexplains-21