Financial Analysis for Focus Drilling Expansion Plans

1.       Can Focus Drilling meet the cash payment requirements of the expansion given the variable interest rates given above? Use today as a focal date.Show your calculations.

2.       What, if any, is the accumulated value of the difference between the allocated cash available and the total cash payments required for the expansion?

3.       Can Focus Drilling meet the cash payment requirement by investing with the fixed five-year interest rate given above? Show your calculations.

4.       What, if any, is the accumulated value of the difference between the allocated cash available and the total cash payments required for the expansion?

5.       Which investment strategy should the company select and why?

6.       Since the Treasurer’s investment plan has a guaranteed rate for five years, suppose the company decided to delay the expansion for twelve months to take advantage of this fact. The payment plan to fund the expansion would retain the same payment schedule. However, the final payment in the last year would increase by 10%, due to projected increase in construction costs. What is the equivalent value, twelve months from now, of the cash available to fund the expansion? Show your calculations.

7.       Twelve months from now, what is the total of the value of the required cash payments? Show your calculations.

8.       Twelve months from now, what is the difference between the value of the funds available from (6), and the total present value of the required payments determined in (7)?Show your calculations.

9.       What is the accumulated value of this difference at the end of the expansion period?Show your calculations.
10.   In your opinion, should the proposed expansion be delayed or not? Explain your choice, giving advantages and risk