Angus Cartwright Capital Investment Analysis

1
Angus CartwrightCapital Investment Analysis

• Professor Doug Cerf
• Donald Bren Graduate School of Environmental
  Science and Management
• Corporate Environmental Management (ESM 281)
• Spring 2009

2
DeRights investment considerations

• Goal of each of the cousins John and Judy DeRight
  
• minimum leveraged return on investment of 12
  after tax
• Leveraged return on investment is investors
  required rate of return when part of the
  investment is financed
• Cost of financing is considered in the return
  calculation

3
Disclaimers

• This is an excellent case except the
• Name, Angus
• I assume it has nothing to do with beef
• The chemical company owned by Judy

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Analysis summary

• Understand transaction and related cash flows
• See the spreadsheet posted on the course site
  with basic NPV and IRR tools
• Financial Project Evaluation Basics
• Net Present Value of cash inflows and outflows
• Internal rate of return
• The rate at which the present value of the
  inflows equals the present value of the outflows
• Profitability index
• Net present value divided by original investment
• This method of analysis is main stream, however
  variants are acceptable

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Applicability to Bren students

• Capital Budgeting (NPV and IRR) is THE MOST
  COMMON TOOL for financial analysis of projects
• The analysis in Cartwright is similar to
  decisions regarding environmental capital
  investments
• Acid Rain-should a company invest in pollution
  control equipment or purchase the necessary
  permits to pollute
• Burn and buy versus Scrub and Sell
• Assume that instead of real estate properties you
  were evaluating investments in a wind farm or a
  solar installation.

6
Recommendation

• Which potential investment, if any, would you
  suggest for each of the investors? Why?
• Next week