You are a junior associate at B300 Financial Advisors. A new client, Manuel Rodriguez, has just inherited $500,000 which he has decided to invest in a single company. Your team leader, Senior Investment Broker Alison Page, has asked you to review the annual report/10-K of the corporation that you recommended in your letter to Mr. Rodriguez. Ms. Page would like you to provide her with a briefing memo that includes a description of the company (you may paraphrase or use quotes from the 10-K with proper attribution), as well as the company's total assets, liabilities and equity for the last two years (from the Balance Sheet in the 10-K). Provide a brief recommendation on the appropriateness of the company for Mr. Rodriguez's conservative investment using B300s block format structure for memos outlined on EW, p. 199.
All of the research you need for this assignment is contained in two pages of your company's 10-K, which can be located on the SEC.gov website. Here is the path to the 10-K and the Financial Statements:
- SEC.gov
- FILINGS
- Company Filing Search
- Under "Company and Person Lookup" insert your company's name
- Under "Filing Type" insert "10-K"
- Check date for most recent year a 10-K was filed and select the "Interactive Data" option
- The yellow box on the left provides access to the sections of the report
- Select "10-K" to locate a brief description of the business under Item 1
- Select "Financial Statements" to get to the Balance Sheet
Your company is likely to list balance sheets in several forms. Choose one - and clearly identify which one you used (i.e. consolidated balance sheet) to obtain the total assets, liabilities and equity for your memo. Either form will provide the two years of data requested. Be sure to describe the dollar amounts accurately (most financial statement data is presented thousands).
Use headings to present your information in a clear, easy-to-follow manner. Remember to recommend - or not recommend - the company in both your introduction and conclusion.
To: Chen Lanier Vice President for Community Relations- Sandy Freeman 57 Junior Associate From: Date: September 20, 2020- Subject: Capital Budgeting Recommendation for Anthem Business Technologies: Net Present Value Methode This memo is in response to your question regarding B300 Financial Advisors' recommendation that Anthem Business Technologies use the net present value method for capital budgeting. It will explain the net present value (NPV) method and the payback period method, and why we recommended the NPV method for Anthem's growing business. Net Present Value Methode The net present value method discounts the value of all future cash flows to the present value. This is important because a dollar today is worth more than a dollar tomorrow, which is known as the Time Value of Money (TVM) principle. Since money can be invested and earn interest, it is advantageous to have cash today rather than receiving the same amount in the future. The net present value method converts future cash flows into today's dollar value so that we can accurately compare a project's actual return to the company. Current and projected interest rates are key factors in determining NPV and whether or not to initiate a project Payback Methode The payback method measures the amount of time it takes for a project to earn back the investment outflow. The payback method does not take into consideration profitability or TVM. For example, a project that costs $100 and earns $50 per year will take two years to pay back. Recommendation: Net Present Value Methode Anthem has been growing and is considering several expansion projects, including constructing new offices in Saratoga and Hudson, New York. The net present value method will enable Anthem to more accurately determine what capital projects will be more profitable for the company. Since the payback method does not take profits or the time value of money into consideration, it will not be clear if the company should initiate a project based solely on this method. The net present value method will allow for better cost comparisons between projects and give Anthem a more accurate picture of potential profitability. Feel free to contact me with questions or concerns at 555.555.5555. To: Chen Lanier Vice President for Community Relations- Sandy Freeman 57 Junior Associate From: Date: September 20, 2020- Subject: Capital Budgeting Recommendation for Anthem Business Technologies: Net Present Value Methode This memo is in response to your question regarding B300 Financial Advisors' recommendation that Anthem Business Technologies use the net present value method for capital budgeting. It will explain the net present value (NPV) method and the payback period method, and why we recommended the NPV method for Anthem's growing business. Net Present Value Methode The net present value method discounts the value of all future cash flows to the present value. This is important because a dollar today is worth more than a dollar tomorrow, which is known as the Time Value of Money (TVM) principle. Since money can be invested and earn interest, it is advantageous to have cash today rather than receiving the same amount in the future. The net present value method converts future cash flows into today's dollar value so that we can accurately compare a project's actual return to the company. Current and projected interest rates are key factors in determining NPV and whether or not to initiate a project Payback Methode The payback method measures the amount of time it takes for a project to earn back the investment outflow. The payback method does not take into consideration profitability or TVM. For example, a project that costs $100 and earns $50 per year will take two years to pay back. Recommendation: Net Present Value Methode Anthem has been growing and is considering several expansion projects, including constructing new offices in Saratoga and Hudson, New York. The net present value method will enable Anthem to more accurately determine what capital projects will be more profitable for the company. Since the payback method does not take profits or the time value of money into consideration, it will not be clear if the company should initiate a project based solely on this method. The net present value method will allow for better cost comparisons between projects and give Anthem a more accurate picture of potential profitability. Feel free to contact me with questions or concerns at 555.555.5555
