Project 4: Finance for Managers

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As a senior analyst at Maryland Creative Solutions (MCS), you have continued to prove your value
after helping Choice Hotels make strategic decisions by analyzing their financial reports. Frank
Marinara and Elisa Izuki, continually happy with your work, have decided to transfer you to the
finance team. You’re excited to continue working for MCS and you strongly believe you are capable
of someday making senior partner.

DIALOGUE WITH FRANK MARINARA

You meet with Frank so he can orient you to the upcoming task. “The finance operations have a
slightly different focus than the accounting operations,” he says. “The financial analysis part of our
business is more involved with analyzing financing and investment decisions, making corporate
asset valuations, evaluating corporate financial performance, and providing corporate valuations.
You will be working to complete a project for our Maryland-based client McCormick & Company.”

Given your position as a senior analyst, you are anticipating that Frank will have several separate
requests. Frank explains that McCormick & Company is considering expanding their operations by
building another factory to increase the production volumes of their spice products. The client has
asked MCS to help them determine if this financial investment is worthwhile.

Frank continues by delineating your responsibilities for the project: “To get started, we will need to
look at the variables involved in this purchase and the questions McCormick & Company has
provided. Ultimately, MCS will help them determine their corporate valuation, responsibly raise
capital, and make the right financing and investing decisions. This information will help you
determine which financing and investing options would provide McCormick & Company with the best
potential outcomes for sustainability and growth.

“You will also need to participate in a meeting with the other finance analysts to discuss risk and
returns,” Frank says. This discussion will help the client decide if they should invest in the new
factory.

“The client also mentioned they would like MCS to provide them with guidance on retirement plan
options and other employee benefits,” Frank elaborates. “Finally, I will need you to complete the
project by preparing an executive summary that highlights your recommendations.”
Step 1: Analyze Financing and Investing
Activities
INBOX (1 NEW EMAIL)
From: Frank Marinara, Director of Finance

To: You and Finance Team

I hope you are ready to move forward with the project at hand. I want to give you the background on
the McCormick & Company case and instructions for this project.

McCormick & Company approached MCS because they would like to increase the production of
their spice products and are considering the construction of a new factory in Largo, Maryland. The
new factory would allow the company to increase its overall production capacity. As McCormick
decides whether to build the factory, they are asking our finance team to evaluate options to finance
this construction. McCormick has provided MCS with the purchase price, expected cash flow, and
two new product lines projects they expect to run in the newly built factory.

To understand which financing option would be best for the client, you must first understand time
value of money, present value, future value, and loan amortization. These topics will help you make
recommendations about the relative benefits and drawbacks of each option.

Working in the attached Excel Workbook, complete the Financing and Investing worksheet. The
Financing and Investing worksheet contains information about present value, revenue, expenses,
and cash flows, as well as questions that will help Frank guide the client in selecting the best
financing option.

When you have completed the Financing and Investing worksheet, submit it to the submission folder
located in the final step of this project. Then, proceed to Step 3, where you will examine the factors
affecting McCormick’s corporate valuation.

Looking forward to seeing your work,

Frank

ATTACHMENTS

McCormick & Company Workbook.xlsx

Step 2: Determine Corporate Valuation
McCormick & Company is also interested in gaining further insight on the corporate valuation of the
company, as they need to know how much capital they’ll need to raise to construct the factory. To understand
valuation, you must review dividends, options, warrants, derivatives, discount rate, and yield.

DIALOGUE WITH FRANK MARINARA

Frank tasks you with recommending a method for raising sufficient capital. “McCormick & Company has
been paying dividends to its shareholders for several years now,” he says. “The company has given us
some data and would like us to recommend ways they can further leverage their financing activities. The
company is interested in potentially issuing more stock or purchasing bonds to raise additional capital
for the construction of the new factory. I will need you to answer a few questions about the company’s
stock prices and minimum acceptable rate of return. Your answers will help me make a
recommendation to McCormick.”

Working with the same Project 4 Excel Workbook you worked with in Step 1, complete the Valuation of
Performance worksheet. This worksheet contains information on McCormick’s dividends, stocks, and risk
premiums, as well as questions that will guide the client’s decisions.

When you have completed the Valuation of Performance worksheet, submit the Project 4 Excel Workbook to
the folder located in the final step of this project. Next, proceed to Step 3, in which you will advise the client
on selecting a retirement plan for its employees.

Step 3: Evaluate Annuities

As McCormick & Company reviews its capital in preparation for constructing the factory, it has asked MCS to
help with the process of selecting the best retirement options for their employees. To help McCormick make
the best decision based on our recommendations, you will need to understand several concepts:

 annuities
 stocks
 bonds
 standard deviation
 internal rate of return
  risk-free rate of return
 treasury bill rate

You will also apply what you learned about present value and future value.

Working with the same Project 4 Excel Workbook you will use in Steps 1 and 2, complete the Annuities
worksheet. The worksheet poses questions about the retirement annuities, US treasury bond rates for the
employees’ portfolios managed by a retirement fund company, and annuities for employee's personal
investments. This information will clarify the best choice of retirement plan for McCormick employees.

When you have answered the questions provided, submit the Project 4 Excel Workbook to the submission
folder in the final step of this project. Then continue to Step 4, where you will discuss risk and returns with
your colleagues.

Step 4: Discuss Risk and Returns

DIALOGUE WITH FRANK MARINARA
As McCormick decides whether they will invest in an additional factory to keep up with demand, the company
remains uncertain if the investment will yield worthwhile returns. “That is where they need us to provide them
with a risk and return evaluation,” Frank says. “Risk is the financial liability a company takes in a given
investment in consideration of a potential return on the investment.”

MEET AND DISCUSS

Frank has asked you to meet with your colleagues and discuss how risk and returns will influence
McCormick’s investment decision. Complete the following tasks:

 Discuss whether McCormick & Company should invest in building a new factory in Largo,
Maryland. Give credit to any sources you use to support your statements.
 Discuss how understanding risk and returns will impact this decision. Give credit to any sources
you use to support your statements.
 Later in the week, after you are back in your office, you have a follow-up discussion with your
MCS colleagues in an effort to summarize the key lessons from your discussion on risk and
returns at the meeting. Respond to your colleagues' original discussion posts and give credit to
any sources you use to support your statements.

submit one original posting of at least 250 words in the Risk and Returns . Consult the MBA discussion
guidelines for assistance.
When you have finished Step 4, proceed to Step 5, where you will review your recent findings in a report to
management.

Step 5: Submit Executive Summary

At the conclusion of your project, Frank requests an executive summary based on your analysis and
recommendations in the previous steps. He is planning on using this executive summary to provide the
client, McCormick & Company, with guidance on the potential construction of an additional factory. This
executive summary should include facts and figures to support your recommendations. The report
should highlight your analysis and recommendations based on the work you completed in the Project 4
Excel Workbook. Be creative and use charts, graphs, or any other tools you feel would be useful to
convey your analysis and recommendations. Post your executive summary to management in the
submission folder located in the final step of this project.