MJD Manufacturing: Capital Budgeting Decisions during a Pandemic
(5 pages of text)
Case (Pub Mat)
In April of 2020, an Ivey Business School HBA graduate, and chief executive officer of automobile parts manufacturer MJD Manufacturing (MJD), recognized the potential opportunity to invest in new machinery and retool some of MJD’s operations to produce COVID-19-related supplies. Specifically, she was considering whether or not MJD should produce personal protective equipment. Aside from analyzing the financial viability of the potential investments, she had to consider three factors: First, how long the COVID-19 pandemic might last, as the timeline of the pandemic underpinned the potential investment decision; second, how an investment would be financed; and third, the qualitative aspect of the decision. Specifically, she had to consider how she could help her community at a time when many businesses were shrinking and furloughing employees.
This case is suitable for undergraduate- and graduate-level courses on investment or capital budgeting. The case assumes a prior understanding of long-term investment decisions and capital budgeting and should not be used as an introductory case to these topics. After working through the case and assignment questions, students will be able to
- evaluate an investment opportunity from a qualitative standpoint;
- forecast net operating cash inflows on a potential investment while incorporating taxes;
- analyze a potential long-term investment opportunity by properly calculating the net present value and internal rate of return, performing sensitivity analysis, and analyzing the effect that an investment has on relevant financial ratios; and
- determine the optimal way to finance an investment (considering and comparing the effects of debt and equity).
Canada, Small, 2020
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