Genesis Capital Plan

Genesis Capital Plan Report

Introduction

Companies invest in different project for the purpose of profit. The allocation of the capital in most effective project is the main concern of the company's management. For this purpose, different projects are considered and each projects are evaluated on the basis of criteria defined by the company' management for accomplishing future benefits and goals. Being a Genesis' accountant, the most appropriate and profitable project will be advice to the Genesis management through cost and benefits evaluation of long-term investments in operating assets.

Discussion

WACC Calculation

As there are no interest rate available for debt and equity, we will make an assumption that Short-term Note Payable interest rate would be 4.5% while on Long-term Note Payable interest rate is 5%, Mortgage Payable interest rate is 7.3%, and Common Stock Equity return rate is 4.5% and Operating Equity4.12% (Reilly, Frank K. & Brown, Keith, 2003).

Genesis WACC

Item

Amount ($000)

%

Interest

Weighted

Total

Rate

Rate

Accounts Payable

300,000

7.50%

4.5%

0.34%

Short-term Note Payable

100,000

2.50%

4.5%

0.11%

Total Current Liabilities 400,000

Long-term Note Payable

400,000

10.00%

5%

0.50%

Mortgage Payable

1,200,000

30.00%

7.3%

2.19%

Total Liabilities

1,600,000

Common Stock Equity

1,500,000

37.50%

4.5%

1.69%

Operating Equity

500,000

12.50%

4.1%

0.52%

Total Liabilities and Equity

4,000,000

WACC

5.34%

The WACC of the project is 5.34%. This show, how much money i.e. interest company has to bear/pay for each dollar they have financed. Therefore, 5.34% Genesis has to pay for each dollar financed.

Planned Capital Expenditure

An expenditure that is funded by the company itself for the purpose future benefits that the company will be earning. Operating expenditure results in profits that are received in a year. Expenditure on fixed assets is capital expenses, nevertheless, the entire fixed assets are not termed as capital expenditures. For a new machine disbursement of $ 2000 that has a useful life of 10 years. This would be listed as a capital expenditure balance sheet of the company in the assets part. In-house inspection disbursement of $1800 will produce profits for a longer period. This is termed as capital expense but this is not presented as assets in the balance sheet (Garrison R., Noreen E., Brewer P., 2009).

Companies implement capital expenditure for various reasons. The major ones are for expanding, replacing and renewing fixed assets for other tangible advantages for a longer period.

In order to increase the level of the operation in the company, company commonly use expansion techniques for which certain expense is incur that is termed as capital expenditure as it will produce benefit. This is also done through h the fixed assets acquisitions. Company who is growing with higher rate needs to acquire new assets for the purpose of producing innovative product and services.

Replacement is also essential as the company has completely ended and has no value left for further use. Hence, the machine or equipment should be replaced in order to increase the efficiency of the company operations. Replacing a machine will produce more efficient product than it was producing before (Heisinger K., 2010).

Renewal is also a replacement substitute. This comprises of repair, reconstruction and existing fixed asset ...