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Spreadsheet for product 9B09N010.

B/E Aerospace, Inc., (BEAV) the market leader for cabin interior products for commercial aircraft and business jets, and a leading aftermath distributor of aerospace fasteners, was reviewing its financial strategy. BEAV was a heavily leveraged company in the cyclical aircraft products industry. Its business had been threatened by the terrorist act of September 11, 2001, the epidemic of SARS in 2003 and the war in Iraq in 2004. These events discouraged Americans from flying, bankrupting airlines and reducing their investments in aircraft. The company sold 18.4 million shares of common stock, raising $156 million to pay down some of its high-cost debt, reduce interest expense and achieve a more balanced capital structure. Still, after restructuring, debt on a pro-forma basis would constitute 79 per cent of its long-term capital. The chief financial officer was considering a more appropriate debt target and how the company might achieve it. Further, he was contemplating a $50 million reduction in debt from available cash. Students are to recommend a target capital structure and steps to achieve it. Data are available to apply theoretical and practical approaches to making recommendations in advanced undergraduate and graduate courses.

A sales representative for Monster Computer Corporation was working with the head of data processing of a major account to develop a financial justification for the company to purchase $9 million of computer and storage hardware and other peripherals, which would replace an existing data processing installation. The potential customer had estimated the savings to be achieved by the new equipment. Working with this estimate and financial information about the client company, the sales representative must undertake a rigorous capital budgeting analysis to help the potential customer sell the project to the financial people in the company. The case provides students with an opportunity to analyze a simple capital expenditure. They are required to develop a discount rate, based upon costs of funds, and to utilize that discount rate to value the cash flows expected. Information is provided about the likelihood of receiving the expected cash flows, so that expected NPV and IRR values may be determined. There is ample room for discussion about the costs of debt and equity to use the weights to be applied. Additionally, the affect of expected inflation must be factored into the analysis.