WMBA 6070 Week 8 Final Plan and Reflection Example

The Term's Recommendation in Final Form and What Changed in How I Commit Other People's Money: Six Decisions for a Crane Company Revisited, From the Payment Schedule to the Unspent $1.54 Million

Student Name

Walden University

WMBA 6070: Managerial Finance

Instructor Name

Month Day, Year

The Term's Recommendation in Final Form and What Changed in How I Commit Other People's Money: Six Decisions for a Crane Company Revisited, From the Payment Schedule to the Unspent $1.54 Million

The Final Recommendation

For Brightwater, the fictional crane firm behind every assignment this term, the work adds up to one integrated recommendation for the owners.

Table 1

The Term's Decisions in Final Form

Composite figures from the Week 1 to Week 7 analyses.

Two revisions were made after feedback. The Week 3 brief now states the secured price as about 98.8 rather than a rounded 98.5, and the Week 7 report now explains that the $1.54 million left unspent will reduce the bank line rather than sit idle, which lowers interest expense by about $108,000 a year at 7 percent.

Reflection: Committing Money That Belongs to Others

I began the course thinking of finance as a set of calculations. I now think of it as a discipline for spending money that belongs to someone else, the owners, the lenders and, in a family firm, the next generation. Each of the term's decisions taught me something specific about that responsibility.

The discount rate is a claim about where the money comes from

In Week 1 I first discounted the payment schedules at the firm's 7 percent borrowing rate without thinking about taxes. Only later did I see that the after-tax rate, about 5.5 percent, nearly tied the cash and four-payment options. The decision did not change, but my confidence in it should have been lower than my first draft suggested. I now state the rate I use and why, and I test the answer at the rate someone else might reasonably choose.

The purpose of money sets its risk

In Week 2 the stock fund's higher expected return was tempting. What settled the question was the date the money was needed. I would now ask, before any investment discussion, when the money must be available and what happens if it is not. Markowitz (1952) taught that return cannot be judged without risk; the course taught me that risk cannot be judged without purpose.

The least certain number deserves the most attention

In Week 4 the cost of equity rested on a 3-point premium for size and illiquidity that I chose by judgment. That single number moved the hurdle rate by more than any market input. I now flag such numbers in every analysis and show what happens when they change, rather than burying them in a table.

A positive net present value can still be a bet on one variable

In Week 5 the crane looked comfortably profitable until the sensitivity run showed it broke even at about 1,250 billable hours. The recommendation stood, but I added the condition that customers commit to 600 hours before delivery. I would now treat any project whose value depends heavily on one variable as a project that needs a protection, not just a forecast.

Earnings per unit is not the owners' only interest

In Week 6 the debt-heavy package looked better on the measure owners watch most, earnings per unit. Graham and Harvey (2001) found that financial flexibility weighs heavily in real financing decisions, and the coverage figures showed why: the borrowing-heavy option bought eight cents a unit at the price of a likely covenant violation if business slowed. I would now present any financing choice with its worst-year coverage beside its normal-year earnings.

Leaving money unspent can be the right use of it

In Week 7 it would have been easy to fill the budget by funding the wind venture instead of the crane. The combination with the most value left $1.54 million unspent. Myers (1984) described how managers' preferences shape financing choices; in capital budgeting I saw a similar pull toward spending the whole budget because it was available. Resisting that pull is part of being trusted with the budget.

What I Will Do With This

At work, I review equipment purchase requests for a regional contractor. Three habits will change. I will ask what each request's money would otherwise be doing, and discount accordingly. I will ask for the one variable that would make the purchase a mistake and how the request protects against it. And I will stop treating an unspent budget as a failure to plan.

What I Would Tell the Next Finance Manager

If another manager took over Brightwater's finances next year, I would leave three notes. First, the firm's cost of capital rests heavily on a judgment premium for size and illiquidity, and that number should be revisited whenever the firm's debt or ownership changes, as it will after the Toledo acquisition. Second, the crane's value depends on billable hours, so the first-season utilization report is the most important number to read in the year ahead. Third, the wind venture was held, not rejected, and it deserves a fresh look next autumn with a signed customer agreement in hand. Writing these notes down is part of what I learned: decisions about other people's money should leave a record that someone else can pick up.

A Closing Note on the Firm's Owners

Brightwater's owners are two families whose savings are tied up in the business. Every recommendation this term spent or risked their money, and the reflection above is, in the end, about respecting that. The most useful thing a finance manager can give owners in that position is not a confident forecast but an honest account of what is known, what is assumed and what would change the answer.

References

Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7

Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77-91. https://doi.org/10.1111/j.1540-6261.1952.tb01525.x

Myers, S. C. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 574-592. https://doi.org/10.1111/j.1540-6261.1984.tb03646.x