Assignment #3
Project Parameters:
You have been selected as the consultant to develop a business plan for Durango Manufacturing Company, which is a start-up, medium-sized public manufacturing company. The CEO has a background in manufacturing and is well versed in supply chain management. However, the CEO has limited experience in financial management and creating value for the various stakeholder groups. Your business plan must include a five (5) year strategy to increase revenues by 10% and a recommendation for creating an organizational structure to comply with SOX mandates for strong corporate governance over the internal controls. Your business plan must also include prescriptions for creating an ethical environment. Your recommendation must be approved by the Board of Directors before the company can begin its operations.
Based on your knowledge of accounting and financial, prepare a ten to twelve (10-12) page report in which you:
1. As the consultant, create an argument that you will present to the CEO that suggests accounting and financial management knowledge and skills will be essential to the company’s success and stability over the next five (5) years. Provide support for your argument.
2. Suggest to the CEO how the company’s stakeholders (investors, lenders, and employees) will use financial statement information and ratio calculations to make key determinations related to the financial condition and operational efficiency of the company. Provide support for your rationale.
3. Given the strategy to increase revenue during the five (5) year plan period, which will need to be achieved through expansion and capital expenditures, determine which capital budgeting ratio is appropriate for Durango to evaluate its proposals for capital expenditures, such as NPV, IRR, etc. Defend your position.
4. In order for the company to improve its operational efficiency, recommend which production departments should use process, job order, and activity-based costing—all three (3) of which must be implemented within Durango. Defend your choice for each department.
5. The CEO would like to consider outsourcing his manufacturing operations if labor can be supplied cheaper overseas than in the U.S. Create an argument either for or against outsourcing the manufacturing operation to a foreign country. Your argument should include key points that support your position. The key points should address economic and business management aspects related to outsourcing.
6. Predict the economic and business environment over the next five (5) years, indicating at least two (2) ways it may impact Durango Manufacturing Company’s ability to achieve the desired 10% growth in revenue. Provide support for your prediction.
7. Formulate a strategy to improve the opportunities for Durango to reach its revenue goals (i.e., increase revenue by 10% within five [5] years).
8. Assess the potential for fraud within Durango based on the lack of IT controls, and determine at least two (2) ways Durango will structure its internal IT controls to ensure that such controls are effective in detecting fraudulent transactions.
9. Use at least six (6) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources.
Your assignment must follow these formatting requirements:
· Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
· Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length
ADDITIONAL INSTUCTIONS:
Remember the goal is to maximize net earnings rather than revenues.
Most companies employ the IRR, NPV, ARR and some version of the payback methods to determine if a long
term project should be accepted or rejected. What concerns should tax rates have? If Durango
is considering capital projects in multiple tax jurisdictions, how would this influence the decision?
What if unforeseen problems or opportunities arise, what options may Durango have? When should
they consider abandoning the project? Under what conditions could Durango scale back the investment,
or to expand the project?
Regarding the question on outsourcing, what costs should be considered in this decision? i.e. total costs.
Should opportunity costs be even considered in this decision? What if Durango is operating at full
capacity, should this fact be a factor in this decision? What if Durango is operating at less than full
capacity?
Question #2: for any ratio selected, how would a stakeholder analyze this ratio and or
other ratios to evaluate the financial condition of Durango? I would not want to read any formulas
as part of this answer. Should the stakeholders be wary of the results of ratio analysis?
Perhaps I have not read our text very carefully. Would SOX and a Code of Ethics influence
the organizational structure of Durango? Do not include any ratio formulas nor discuss any specific ratio in this answer. Discuss how ratios might be used in the decision process by both direct stakeholders (investors, lenders and employees) and indirect stakeholder (suppliers).
Question #3: Do not define the calculations of IRR and NPV. Durango will only use two methods to
evaluate the acceptability or rejection of capital projects. Some possible projects do not rely on
whether another project is accepted or rejected. These project decisions are considered independent
of one another. Other capital projects are considered mutually exclusive. This means that if one project
is accepted, another project being considered must be rejected.
Will the use of both the IRR and NPV methods lead to the same accept or reject decisions?
Question #8: In addition, briefly discuss how Durango could create an organization structure
to increase oversight over internal controls by complying with SOX.
Remember, number each answer. Do not write an essay. The 12 page limit is probably not
sufficient. I will accept a 14-15 page paper. The initial requirements of a 10-12 page paper
are completely acceptable.
Before submitting this last assignment, be certain that the SafeAssign percentage is less
that 20%. Do not prepare a Business Plan, just answer the questions.
