Case 2a – Organizational form
Select an organizational form that is appropriate for the project. Discuss briefly the rationale for that organizational form, including the effect the form selected has on the value of the project.
Case 2b – Capital structure
1. Select a capital structure for the project.
Indicate the recommended funding mix of debt and equity for funding the initial investment in the project and explain why the recommended capital structure is appropriate. With respect to debt selected, indicate the principal amount, the type of debt (interest only or amortized) and the debt’s maturity, and explain why each is appropriate for the project you are analyzing.
2. Determine the net present value of the leveraged project.
Determine the value of the project funded using the recommended capital structure. Calculate the NPV using at least two leveraged firm valuation methods (select from the weighted average cost of capital, adjusted present value, and flow to equity methods). If you recommend amortized debt, assume for purposes of the valuation calculation under this section that the debt is instead interest only.
Deliverables for this case are:
(1) a computer file with the spreadsheet containing the analysis.
(2) a written document that (a) identifies the organizational for recommended for the projects and explains the rationale for selecting that organizational form, (b) indicates the capital structure recommended for the project and explains why that capital structure is appropriate for the project, (c) specifies the type of debt and maturity and explains the rationale for selecting that type of debt and maturity indicated, and (d) indicates the value of the firm with the recommended capital structure.
The written discussion could be a revision of the write-up from the first case or submitted as a separate document dealing only with the information from this case. (You will at some point prepare a single written document for the entire case.)
The written submission specifically for this case is limited to three pages. You may include as many additional pages of exhibits and attachments as you like. Exhibits and attachments may contain text discussion or table and charts. Each attachment or exhibit must be referenced in the main text.
All information in both the spreadsheet and written discussion must be well-organized, accessible, and reviewed to eliminate errors. Tables or charts included in exhibits or appendices must be clearly labeled so as to be easily understood.