CASE REPORT: STAR RIVER ELECTRONICS LTD. ASSIGNMENT INSTRUCTIONS
In July 2015, a new CEO joins this small manufacturer of CD-ROMs and DVDs to discover that the firm is in the midst of a financial crisis that was induced by rapid growth. The CEO asks an analyst for help with five tasks:
• Review the historical performance of the firm.
• Forecast financing requirements for the next two years.
• Exercise the forecasting model to identify key driver assumptions.
• Estimate Star River’s weighted-average cost of capital.
• Analyze a proposed investment in a packaging machine.
The analyst must offer insights and recommendations based on the work.
This is a “Directly answer a set of questions” case report. For this case study, answer each of the following questions (as per the guidelines in “Learning with Cases and Writing Case Reports”).
1. What is Star River’s weighted-average cost of capital (WACC)? What methods did you use to estimate WACC?
2. What are the key assumptions that especially influence WACC?
3. What are the free cash flows of the packaging-machine investment?
4. Should Koh approve the investment?
Note: Your assignment will be checked for originality via the Turnitin plagiarism tool.
You can access a student spreadsheet file that you might find helpful for this case on the textbook website found on the Case Report: Star River Electronics Ltd. Assignment page under Case Report Resource.
This directory contains Excel spreadsheet files with the primary exhibits for this case. Some of the Excel tables exercisable models which will allow you to test ideas with minimum setup time.