Malibu boats memo
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Malibu Boats Inc.
Memorandum
Date: 03 November 2020
To: Mr. Wayne R. Wilson, CFO
CC: Mr. Jim Forjan
From: Anthony Soricelli, Vice-President of Finance
Subject: Capital Budgeting Project Opportunity
After extensive research and analyses, I have discovered an opportunity for Malibu Boats Inc. to expand into the golf cart industry. The golf cart market generates $1.2 BN yearly in revenue (Gambardella), and with aggressive measures, I believe Malibu Boats Inc. could penetrate, expand, and grow within this market. With a moderate level of market share (43.1%), I believe that we could capture at least .025% of
the market share within the first year from a single product launch. I base this off comparing boating and
golfing to each other. In my opinion these two outdoor recreational activities bring in the same crowd. Both required specific skills, a decent amount of money to participate in, and along with most boating and golf activities are connected with being part of clubs. In my own experience I’ve seen many golf clubs and boating clubs attached to one another because the audience is typically attracted to both activities. For example, the Laucala Island of Fiji has a resort where it offers golf and water activities all on the same island. According to a CNN article, it stated, “Total cost for three nights (a minimum stay is three nights), including unlimited 18-hole rounds of golf, from $14,400.” (Dwyer). This goes to show that these two outdoor recreation activities require a hefty bank account to be a part of these activities.
With the being said, I believe Malibu Boats Inc. set up a fantastic board of directors that are well versatile and bring along of experience and knowledge into the business. Out of the 9 board of director
members: I will be assessing Michael K. Hooks (chairman of the board and director), Jack D. Springer (chief executive officer and director) and Mr. James R. Buch (director). Michael K. Hooks brings an extensive experience in investment banking, strategic alternatives, and private equity managing. Along with serving on several boards of successful companies like: Virgin America, Logan’s Roadhouse, Switchcraft, and Pfeiffer Vacuum Technology. Next, is Jack D. Springer who brings more of a boating manufacturing industry experience to the table for Malibu Boats. He does have experience in armor, law
enforcement, defense and plastics manufacturing that brings versatility to the company. Lastly, James R.
Buch, who brings experience of other sectors of outdoor activity products along with technology ties. I believe he is a great fit for them because he brings more of a leadership and advisory experience for manufacturing of consumer products. Just these three board members along bring a wide range of experience and hits on several key factors of running a manufacturing consumer product company.
As the Vice-President of Finance, I believe that this project will align well with the mission and goals of the currently elected Board of Directors and will particularly be attractive to the Innovation & Technology Committee. I understand there are high expectations from the board to deliver greatness and continue the sustainable growth that can be attributed to the current directors. While this is simply one product, it exposes Malibu Boats to a new market with new competitors that don’t have the tradition and culture that is a source of pride within Malibu’s organization. The intentions are to build upon the 13.26% return on assets, the 26.84% return on equity, and the 19.59% return on invested capital, that factors into the profitability boasted in the annual report. Success of the current directors is evident with the Malibu Boats Inc. organization, since there is no credit/bond rating I believe they would
get an A rating at least backed by the stellar current ratio of (477.35M Assets/ 215.82M Liabilities) 0.452%. However, I believe with the amount of equity offered by the new product, Malibu Boats Inc. could capitalize on this given opportunity and continue sustainable growth while minimizing the cost of their large share of liabilities.
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Aa Aa
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A
B
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D
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Project A
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Year 5
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12,000.00
12,000.00
12,000.00
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Problem 4:
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Criteria
Project 1
Project 2
Project 3
Project 4
Project 5
Sponsor Support
Strategic Alliance
Urgency
Fills a market gap
Sales
Competition
Weighted Project Scores
0.00
0
0
0
0
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- This year, 2022 ABM Company selected your team to manage their allotted budget amounting to 10 million pesos for investment diversification portfolio. Your team was assigned to handle the said account. What would you choose? OTHER INVESTMENT ASSETS or ALTERNATIVES TO FIXED INCOME AND EQUITIESarrow_forwardSimple Investment Allocation Case: This year, 2022 ABM Company selected your team to manage their allotted budget amounting to 10 million pesos for investment diversification portfolio. Your team was assigned to handle the said account. Question: How would you allocate funds?arrow_forwardBrunko Hospitality Investment Associates have been approached to evaluate a set of capital budgeting projects. The expected net cash flows along with the initial outlays are represented in the data table below: Year Project 1 Project 2 0 -$250,000 -$250,000 1 $0 $120,000 2 $0 $120,000 3 $0 $120,000 4 $0 $120,000 5 $900,000 $120,000 This firm would like to evaluate the set of capital budgeting projects based on the NPV and IRR. If the minimum required rate of return is 13.00% for both of the projects, which project seems like a better investment to undertake?arrow_forward
- You are the investment manager of an appliance company. The industry is currently in the expansion face and the CEO would like to capture as much of the market share as possible. You asked your analysts to submit project proposals as summarized below. Project Discount Rate Investment Annual Cash Flow Project Life (Years) 10 3M 1M 5 12 4M 1M 8 8 5M 2M 4 8 3M 1.5M 3 12 3M 1M 6 Which projects should the manager choose? If you were given unlimited capital, which projects should be implemented? ABCDEarrow_forwardConsider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume that the discount rate for Nagano Golf is 17 percent Project A: Nagano NP-30. Professional clubs that will take an initial investment of $995,000 at time 0. Next five years (years 1-5) of sales will generate a consistent cash flow of $452,000 per year. Introduction of new product at year 6 will terminate further cash flows from this project. Project B. Nagano NX-20. High-end amateur clubs that will take an initial Investment of $730,000 at time 0. Cash flow at year 1 is $300,000. In each subsequent year, cash flow will grow at 10 percent per year. Introduction of new product at year 6 will terminate further cash flows from this project. Year SAWNTO 1 2 3 4 5 NP-30 -$995,000 452,000 452,000 452,000 452,000 452,000 NX-20 -$730,000 300,000 330,000 363,000 399, 300 439, 230 Complete the following table: (Do not round intermediate calculations. Round the "PI" answers to 3 decimal places and…arrow_forwardRuba Nasser SAOG is planning to invest in project as part of the organization's growth strategy to enhance the financial sustainability of the organization. The organization has two options available. Option 1– Project A – Increase the capacity in Division A Option 2 – Project B – Increase the capacity in Division B. Both projects are mutually exclusive. The available capital investment for the Project is RO 250,000. Due to the limited funds the organization needs to decide on a suitable investment project which will be part of the sustainable growth strategy. Below are the details for both Projects Project A - Increase in machine capacity in Division A Cost of Investment – RO 250,000 Useful Life – 4 Years Year Operating Profit Before Depreciation (RO) 55,000 65,000 80,000 80,000 1 2 3 4 The project has a scrap value of OMR 75,000. Project B – Increase in Machine Capacity in Division B Cost of Investment – RO 250,000 Operating Profit Before Depreciation (RO) 75,000 75,000 78,000 82.000…arrow_forward
- Pecos Corporation is considering several investment proposals, as shown below: Investment required Present value of future net Investment Proposal OD, B, C, A O B, D, C, A OB, D, A, C O A, C, B, D A B $ 80,000 $ 100,000 C $ 60,000 D $ 75,000 cash flows $ 96,000 $ 150,000 $ 84,000 $ 120,000 If the project profitability index is used, the ranking of the projects from most to least profitable would be:arrow_forward1. X company provides specialty manufacturing services to defence contractors located in the Seattle, WA area. The initial outlay is $4 million and, management estimates that the firm might generate cash flows for years one through frve equal to $800,000, $750,000, $1,000,000, $1,900,000; and $2,000,000. Saber uses a 20% discount rate for projects of this type. Is this a good investment opportunity?arrow_forwardYou were approached with the task of assessing three supposedly value-enhancing investment opportunities your company is considering. The cash flows for each are listed below. Assume that all three projects are equally risky and have a discount rate of 6.00% per year. Time Project A Project B Project C 01234 -$250 -$1,200 -$1,800 $50 $300 $750 $50 $500 $350 $50 $600 $750 $50 $1,000 $450 Infinity $50 Calculate the payback period for project "B". Note: Report your answer in years rounded to two decimal places. If it is impossible to compute the answer, report 0.00 as your response.arrow_forward
- Question: You are a financial analyst for the Hitler Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each project is 12 percent. The projects’ expected net cash flows are as follows: Expected Net Cash Flows Year Project X Project Y 0 ($10,000) ($10,000) 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000 3,500 Required: Calculate each project’s payback period, discounted payback period, net present value (NPV), profitability index and internal rate of return (IRR). Which project or projects should be accepted if they are independent? Which project should be accepted if they are mutually exclusive?arrow_forward2. Project 2: investing $11 million to develop add-ons to existing products a. these add-ons to existing products are expected to generate $1.5 million positive cash flow every year thereafter on both new and existing products b. Calculate NPV. c. What is payback, PI, and IRR? What decisions should be made? d. If Skyhawk's management decided that they only need to collect their initial investment within 8 years on this project, should they invest? The rate of return = 8.28%arrow_forwardYou are a financial analyst for the Hittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12% for both projects. The projects’ expected net cash flows are as follows: Expected Net cash flows Year Project X Project Y 0 -10000 -10000 1 6350 3600 2 2988 3700 3 3145 3500 4 945 3500 Calculate each project’s payback period, net present value (NPV), internal rate of return (IRR), and profitability index (PI)arrow_forward
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