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    Step 4-Project Executive Summary

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    Vin John
    1) The document evaluates the viability of McCormick & Company's new plant and equipment investment by analyzing the project's internal rate of return, net present value, and costs. 2) The analysis finds that the investment has a positive net present value of $99 million and an internal rate of return of 93%, higher than the company's weighted average cost of capital of 9.24%, indicating the project will be profitable. 3) It is recommended that McCormick & Company pursue more debt financing for the project since its after-tax cost of debt is lower than both the cost of equity and the company's weighted average cost of capital, making debt a cheaper financing option.

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    Step 4-Project Executive Summary

    Uploaded by

    Vin John
    12 views3 pages
    1) The document evaluates the viability of McCormick & Company's new plant and equipment investment by analyzing the project's internal rate of return, net present value, and costs. 2) The analysis finds that the investment has a positive net present value of $99 million and an internal rate of return of 93%, higher than the company's weighted average cost of capital of 9.24%, indicating the project will be profitable. 3) It is recommended that McCormick & Company pursue more debt financing for the project since its after-tax cost of debt is lower than both the cost of equity and the company's weighted average cost of capital, making debt a cheaper financing option.

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    Step 4-Project Executive summary.docx

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    1) The document evaluates the viability of McCormick & Company's new plant and equipment investment by analyzing the project's internal rate of return, net present value, and costs. 2) The analysis finds that the investment has a positive net present value of $99 million and an internal rate of return of 93%, higher than the company's weighted average cost of capital of 9.24%, indicating the project will be profitable. 3) It is recommended that McCormick & Company pursue more debt financing for the project since its after-tax cost of debt is lower than both the cost of equity and the company's weighted average cost of capital, making debt a cheaper financing option.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    12 views3 pages

    Step 4-Project Executive Summary

    Uploaded by

    Vin John
    1) The document evaluates the viability of McCormick & Company's new plant and equipment investment by analyzing the project's internal rate of return, net present value, and costs. 2) The analysis finds that the investment has a positive net present value of $99 million and an internal rate of return of 93%, higher than the company's weighted average cost of capital of 9.24%, indicating the project will be profitable. 3) It is recommended that McCormick & Company pursue more debt financing for the project since its after-tax cost of debt is lower than both the cost of equity and the company's weighted average cost of capital, making debt a cheaper financing option.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Running head: PROJECT SUMMARY 1

    Project Executive Summary

    Name

    Institution
    PROJECT SUMMARY 2

    Executive summary

    McCormick & Company, Inc. is global leader in flavor products. The company strength lies in

    its diverse and balanced portfolio. Strategically the company is positioned to meet the increasing

    customer demand for flavor products globally. Through the close analysis of the company

    investment activities, the report seeks to:

    1. Evaluate the new plant and equipment viability.

    2. Analyse the company cost of capital.

    3. Evaluate the investment IRR and the NPV.

    Methods

    To evaluate the viability and profitability of the the new plant and equipment, the internal

    project rate of return, net present and the weighted average cost(WACC) was computed. The

    computations were done by using the company after-tax cash flows and cost of the capital.

    Results and the conclusions

    McCormick & Company has an imbalanced capitalization structure with the company having a

    higher level of debt as compared to the equity. in fact, the company equity capital stand at

    $14,237,510,000 as compared to the debt capital which stand $ 3,237,150,000. The capitalization

    structure show that the company is composed of 81% equity and 19% debt. The structure gives

    the company a lower leverage, which a positive bargaining power to raise more finances for

    funding the project. However, the higher outstanding share-capital means that the company

    distributes most of its profit as dividend hence leading to shrink capital reserve.

    The investment project(plant and equipment) has a higher positive NPV of $ 99 million

    stipulating that the project is viable and is worth consideration. Also, the project has a relatively
    PROJECT SUMMARY 3

    higher internal rate of return of 93% compared to the weighted average cost of capital of 9.24%.

    The higher IRR stipulate that the project will generate more earnings to the company.

    Lastly, the company can either be financed using the equity and debt finances. The

    McCormick & Company has a WACC of 9.24% which is used as the basis of comparison. The

    after-tax cost of debt stands at 4.8% while the cost of equity is 12.2%. By comparing the two

    sources of finance, the company should go for more debt financing since it is relatively cheaper

    than equity finance and falls below the expected WACC.

    Recommendations

    1. McCormick & Company should strive to source for more debt capital to finance the

    investment in new plant and purchase of the equipment.

    2. The company should reduce the volume of its equity to minimise on the amount of the

    profit that is annually distributed to the shareholders in the form of dividends, and it can

    be done through the process of share repurchase scheme.

    3. The investment should be accepted since it will generate a positive stream of income for

    the company.

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