Instructions
Answer the five questions below. They focus entirely on the financing, risk/return, Cost of Capital and Budget Forecasting of Largo Global Inc. (LGI) based on the investing activities that took place in project 4. Base your analysis on the data provided and calculated in the Excel workbook. Provide support for your reasoning from the readings in Project 5, Step 1, and the discussion in Project 5, Step 3. Be sure to cite your sources. Use course materials & 2 outside sources, no course heroes’ materials, or other student work.
Provide a detailed response below each question. Use 12-point font and double spacing. Maintain the existing margins in this document. Your final Word document, including the questions, should not exceed 5 pages. Include a title page in addition to the five pages. Any tables and graphs you choose to include are also excluded from the five-page limit. Name your document as follows: P5_Final_lastname_Report_date.
You must address all five questions and make full use of the information on all tabs of project 5 as well as data in other Excel workbooks (e.g. from project 1: ratio, common-size, and cash flow analysis).
You are strongly encouraged to exceed the requirements by refining your analysis. Consider other tools and techniques that were discussed in the required and recommended reading for Project 5. This means adding an in-depth explanation of what happened in that year for which data was provided to make precise recommendations to LGI.
LGI, like all companies, needs robust earnings before interest, taxes, depreciation, and amortization (EBITDA). In other words, earnings must be sufficient to cover LGI’s investing activities, debt service, and taxes—with a healthy profit left for reinvestment and distributions to stockholders
Your Project 3 business report will focus on strengthening EBITDA. To do this, you will analyze LGI’s cost structure and determine how to increase productivity. These tasks are prerequisites for identifying a future investment (Project 4) and how to finance it (Project 5).
References
Parrino, R., Kidwell, D. S., & Bates, T. W. (2012). Fundamentals of Corporate Finance (2nd ed.) Wiley. https://learning.oreilly.com/library/view/fundamentals-of-corporate/9780470876442/16_chapter05.html
Chapter 7: Risk and Return Section 7.1 to 7.7 https://learning.oreilly.com/library/view/fundamentals-of-corporate/9780470876442/18_chapter07.html#ch7-sec001
Chapter 10: The Fundamentals of Capital Budgeting Sections 10.1 to 10.6 https://learning.oreilly.com/library/view/fundamentals-of-corporate/9780470876442/21_chapter10.html?ar
Chapter 13: The Cost of Capital Sections 13.1 to 13.4 https://learning.oreilly.com/library/view/fundamentals-of-corporate/9780470876442/24_chapter13.html#ch13-sec001
Recommended Reading
Clayman, M. R., Fridson, M. S., & Troughton, G. H. (2012). Corporate Finance: A Practical Approach (2nd. ed.). Wiley.
Project 5 (Title Page)
Maria R
Course and section number
Faculty name
Submission date
Questions
1. How would you assess the evolution of the capital structure of LGI? Reflecting on your work in Project 1, would you consider the risk exposure under control? If not, what are your recommendations?
[insert your answer here]
2. What kind of information do you find valuable in CAPM to guide you in assessing the risk of LGI compared to other firms and the market in general?
3. Identify and differentiate the stakeholders of LGI and explain how each one should perceive and weigh the risk and/or return of the firm.
[insert your answer here]
4. Would you consider the investment made in Project 4 optimally financed considering the proportion of debt that is bearable by LGI? How did the current WACC in Project 5 depart from the state of the firm in Project 1?
[insert your answer here]
5. If you had to advise a potential investor interested in having a minority stake in LGI, what kind of information would you provide to help the investor make a decision? Would you be bullish or have reservations? Support your answer with facts and data from all MBA 620 projects as well as your budget projections.
[insert your answer here]
