St. Clement‘s School Case Study

Author: Alexander Jack

Institution: Financeassignmentshelp.com

Executive Summary

 

The main perspective of this case study is to read the case of St. Clement’s School, and then answer some of the major questions pertaining to the same aspect. The assignment has used four different capital budgeting tool for the analysis. From the implication of the budgeting tool, it is clearly found that the position of the company would be locating on a higher node, and based on the same analysis, it is recommended to the company to pursue with their idea of expansion, as it will bring both, financial and strategic effectiveness towards the company.

Contents
Introduction ………………………………………………………………………………………………………………..     4
Analysis & Discussion………………………………………………………………………………………………..     4
Explanation of the Problem…………………………………………………………………………………………     4
Analysis of Situation……………………………………………………………………………………………………     5
Identification and Evaluation of Alternatives…………………………………………………………………     9
Recommended Course of Action…………………………………………………………………………………    10
References………………………………………………………………………………………………………………….    11

Introduction

Attaining the financial objectives and meeting with the strategic objectives are some of the major elements that should have been accommodated by the organizations in their long run. This particular action has a strong connection with the long run efficiency and productivity of a company. In this fast changing world, organizations which are highly efficient and secure in terms of competing with other organizations are the one that can effectively sustain their position in the market. Expansion and development are some of the important things that deem highly efficient and favorable for the sake of an organization. In this current moving market of corporations, the companies which have higher probability of expanding their network particularly in the international markets are the one that can strengthen their position in the market, comparing to the companies which are not in the same favor (Dunner, Mock & Young 2004).

The main perspective of this case study is to read the case of St. Clement’s School, and then answer some of the major questions pertaining to the same aspect. The assignment is apparently divided into three main sections which are introduction, analysis & discussion and conclusion, as it analysis the productivity of the analysis in the long run. All the relevant sections and headings will be discussed and completed in the second section of the report which is Analysis & Discussion.

Analysis & Discussion

Explanation of the Problem

From the entire case study, it is found that the St. Clement’s School is a company which is operating in the field of Education Sciences, and it is known as one of the most important institute located in the selected region. According to the case, the problem which the school has been facing is squeezing of their market share. Due to increasing competition, the profit margin of the school is squeezing day by day, which is creating lots of issues and problems for the company (Dean 1964).

The school is in the favor of using different techniques and factors through which they can easily opt out from this particular situation. The management of the company has decided to expand their operations in the international market. The idea of expanding the school in the international market could be extremely essential and vital for the company. However, it is essential to dig out the main information for the company that deems important for their core efficiency and productivity. There are numerous issues and problems that specifically attains with the physical expansion of the companies. One of the major problems which is very common in the context of expansion is low or no capital, which is very important for the expansion. Secondly, dearth of commitment is the second most crucial issue that associated with the expansion of the companies in a specific market. In order to attain economic significance in the market, it is more than essential for the companies to manage their well-being in the market. The same criteria is used in the context of St. Clement’s School as well (Frost &Stein 1998).

St. Clement’s School is having the problem of dearth of knowledge about the new market, and the financial potential which they can generate from their expansion. Physical action is required by the company for their productivity. Moreover, they are not even have an idea about the commitment from the shareholders and the employees of the company by attaining this particular objective. The employees who are the lifeblood of the company has to give complete security about the expansion matters, and should include their decisions as well. It is recommended to St. Clement’s School to use the Management Bi Objective (MBO) measure for the company through which they can easily communicate to each other. Proper and high level of communication among the employees and the management is more than necessary, and the same is likely to attain in this particular example as well. The company has to use a Participate approach within the company, through which the can enhance the participation of their employees in the productive of the company to take timely and effective decisions at the end of the day. The main rationale behind recommending this particular strategy is clear, as it will help the researcher to increase the level of communication among the company’s officials and maintain their attentiveness in the market.

Analysis of Situation

This particular part of the assignment is the most important and efficient one from the viewpoint of the company. This particular part will include different financial metrics and techniques though which the St. Clement’s School can reach on the decision of maximise the income potential of the company in a professional manner. Some of the major tools that will be used in this particular context are Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index and Payback Period. Each of the selected measurement tools have their own effectiveness in the market.

Net Present Value (NPV)

The first measurement tool that found interactive in the field of Capital Budgeting or Investment Appraisal is known as Net Present Value (NPV). It is known as one of the most important tools that specifically use for the purpose of analysing the feasibility of an option as far as expansion is concerned. Theoretically, it is a measure that uses to get an idea about the present value of the investment that may requires time to fully encapsulate within the company (Graham & Harvey 2002). The selection criteria of this particular tool is very clear, as if the NPV is higher than the underlying initial outlay, then the option should have been selected, otherwise rejected. Most of the companies that use the factor of investment appraisal likely to use this particular tool in particular. The computed NPV of the result is as follows

From the aforementioned chart, it is clearly found that the initial outlay is $ 1 Million, with the Required Rate of Return (RRR) of 6%. After the computation, it is found that the NPV of the project is 7,758,217 $, which is in the positive node, and very high as well. Based on the same analysis, it is clearly found that the computed NPV is higher than the initial cost of the project, which is an efficient sign from the standpoint of the company, especially in the long run. In short, it can be said that the company could easily attain the financial perspective which they are likely to achieve the same for their sheer effectiveness and productivity. Moreover, this particular analysis is moving towards the acceptance of this offer.

Internal Rate of Return (IRR)

The 2ndmeasurement tool that found interactive in the field of Capital Budgeting or Investment Appraisal is known as Internal Rate of Return (IRR). It is known as one of the most important tools that specifically use for the purpose of analysing the feasibility of an option as far as expansion is concerned (Myers 1974). Theoretically, it is a measure that uses to get an idea about the specific value of point wherein the NPV of the company becomes Zero, and its applicability is found more efficiently in the European based organizations, but it doesn’t give a through idea such as financial numbers to their shareholders and analysts. The selection criteria of this particular tool is very clear, as if the IRR is higher than the discounting factor, then the option should have been selected, otherwise rejected. Most of the companies that use the factor of investment appraisal likely to use this particular tool in particular. The computed IRR of the result is as follows

From the aforementioned chart, it is clearly found that the initial outlay is $ 1 Million, with the Required Rate of Return (RRR) of 6%. After the computation, it is found that the IRR of the project is 174%, which is in the positive node, and very high as well comparing to the RRR. Based on the same analysis, it is clearly found that the computed IRR is higher than the initial cost of the project, which is an efficient sign from the standpoint of the company, especially in the long run. In short, it can be said that the company could easily attain the financial perspective which they are likely to achieve the same for their sheer effectiveness and productivity. Moreover, this particular analysis is moving towards the acceptance of this offer.

Profitability Index (PI)

The 3rdmeasurement tool that found interactive in the field of Capital Budgeting or Investment Appraisal is known as Profitability Index (PI). It is known as one of the most important tools that specifically use for the purpose of analysing the feasibility of an option as far as expansion is concerned (Ryan & Ryan 2002). Theoretically, it is a measure that uses to get an idea about the specific value of point wherein the NPV of the company would be higher, and the PI is showing a value of 1, as it discusses about the financial aspect and output but it doesn’t give a through idea such as financial numbers to their shareholders and analysts. The selection criteria of this particular tool is very clear, as if the PI is higher than 1, then the option should have been selected, otherwise rejected. Most of the companies that use the factor of investment appraisal likely to use this particular tool in particular. The computed PI of the result is as follows

From the aforementioned chart, it is clearly found that the initial outlay is $ 1 Million, with the Required Rate of Return (RRR) of 6%. After the computation, it is found that the PI of the project is 9.76%, which is in the positive node, and very high as well comparing to the value of 1. Based on the same analysis, it is clearly found that the computed PI is higher than the initial cost of the project, which is an efficient sign from the standpoint of the company, especially in the long run. In short, it can be said that the company could easily attain the financial perspective which they are likely to achieve the same for their sheer effectiveness and productivity. Moreover, this particular analysis is moving towards the acceptance of this offer.

Payback Period (PP)

The 4THmeasurement tool that found interactive in the field of Capital Budgeting or Investment Appraisal is known as Payback Period (PP). It is known as one of the most important tools that specifically use for the purpose of analysing the feasibility of an option as far as expansion is concerned. Theoretically, it is a measure that uses to get an idea about the specific time, in which the company can pay off their dues is known as PP. The selection criteria of this particular tool is very clear, as if the PP is lower than the required time period, then the option should have been selected, otherwise rejected(Ryan & Ryan 2002). Most of the companies that use the factor of investment appraisal likely to use this particular tool in particular. The computed PI of the result is as follows

From the aforementioned chart, it is clearly found that the initial outlay is $ 1 Million, with the Required Rate of Return (RRR) of 6%. After the computation, it is found that the PP of the project is 4.56 years, which is in the positive node, and very high as well comparing to the value of 1. Based on the same analysis, it is clearly found that the computed PP is higher than the initial cost of the project, which is an efficient sign from the standpoint of the company, especially in the long run. In short, it can be said that the company could easily attain the financial perspective which they are likely to achieve the same for their sheer effectiveness and productivity. Moreover, this particular analysis is moving towards the acceptance of this offer.

Identification and Evaluation of Alternatives

This particular analysis is based on four different tools that could be used in the factor of the companies, and the same case is applicable with St. Clement’s school. There are four different tools and alternatives which have been selected for the same aspect. The first is NPV, which is showing a positive and powerful value of the company in terms of increasing their financial aspect. This particular factor is essential from their standpoint. The second most important tool that assess in this particular analysis is IRR, which is yet another major tool uses for the same perspective and system. From the perspective and analysis, it is found that the IRR of the project is higher than the actual imposed value, which is again a positive sign for the company. The PI and PP are also some important and effective measures that have been used as an alternative for the company. The PI and PP also deems fully in the favour of Clement’s School, which is indeed a very efficient and positive sign from the viewpoint of a company. In short, it can be said that all of the tools which have been analysed in this particular aspect will be a growing effectiveness and availability for the company through which they can sustain their positioning in the market.

Recommended Course of Action

From this entire discussion, it is clearly found that the position of the company is highly efficient and important for them to maximize their potential in the market. There are four different tools which have been selected for the same purpose. It is found that all the tools which have been selected for the purpose of Investment appraisal are essential for the company through which they can sustain their position in the market. It is recommended to the company to use the option of expanding the network in a new market, as analyses and identified in the research conducting by the management of St. Clement’s School.

References

Durnev, A., Morck, R., & Yeung, B. (2004). Value‐enhancing capital budgeting and firm‐specific stock return variation. The Journal of Finance59(1), 65-105.

Dean, J. (1964). Capital budgeting: top-management policy on plant, equipment, and product development. Columbia University Press.

Froot, K. A., & Stein, J. C. (1998). Risk management, capital budgeting, and capital structure policy for financial institutions: an integrated approach. Journal of Financial Economics47(1), 55-82.

Graham, J., & Harvey, C. (2002). How do CFOs make capital budgeting and capital structure decisions?. Journal of applied corporate finance15(1), 8-23.

Myers, S. C. (1974). Interactions of corporate financing and investment decisions—implications for capital budgeting. The Journal of finance29(1), 1-25.

Ryan, P. A., & Ryan, G. P. (2002). Capital budgeting practices of the Fortune 1000: how have things changed?. Journal of business and Management8(4), 355.

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