Cases in Corporate Financial Strategies Written Analysis 2 Hathaway Brown, the C
Cases in Corporate Financial Strategies
Written Analysis 2
Hathaway Brown, the CFO of Flash Memory, needs your help. You’ve recently joined the CFO’s staff as a Senior Financial Analyst (with a clear promotion path to the position of Director of Financial Analysis) following completion of your finance studies at Portland State University. The CFO must ensure that the company has comprehensive, well-grounded financing and investment plans in place covering the next three years.
The results of your work will form the basis of presentations to the CEO and the Board of Directors (who are charged with approving the plans). The CFO has asked you to prepare a summary paper, not to exceed four pages (relevant exhibits may be added), that addresses the following:
1. Assuming the company does not invest in the new product line, prepare forecasted income statements and balance sheets at year-end 2010, 2011, and 2012. Based on these forecasts, estimate Flash’s required external financing: in this case all required external financing takes the form of additional notes payable from its bank (either the commercial loan division or the factoring department), for the same period (2010, 2011, 2012).
2. What course of action do you recommend regarding the proposed investment in the new product line? Should the company accept or reject this investment opportunity? Why?
3. How does your recommendation from question 2 above impact your estimate of the company’s forecasted income statements and balance sheets, and required external financing in 2010, 2011, and 2012? How do these forecasted income statements and balance sheets differ if the company relies solely on additional notes payable from its commercial bank (from either the commercial loan division or the factoring department), compared to a sale of new equity?
4. What financing alternative would you advise CFO Hathaway Brown recommend to the board of directors to meet the financing needs you estimated in questions 1 through 3 above? What are the costs and benefits of each alternative?
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