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Basic Capital Budgeting for IBM in 2001: Standard & Poor rating

Problems Ch. 10-4 & 10-6 are attached with powerpoint assistance.

Also, the problems below can be answered with financial condition section of the management discussion found in IBM's 2001 Annual Report. The attached financial condition starts with first page paragraph statement "During 2001, the company continued to demonstrate strong financial performance, enabling it to make appropriate investments to support future growth and increase shareholder value." The section ends on the last page and first table. PPT presentation is only an aid. solutions must be in Word or Excel.

1. In addition to current operating performance, firms must never lose site of organizational goals and the need to maintain distinctive competencies. For that reason, firms must always be looking toward the future and ensuring success down the road. With that in mind, what investments did IBM make in 2001 to fund future growth and increase shareholder value?

2. How does Standard & Poor's rate IBM's senior long-term debt, preferred stock, and commercial paper?

3. Briefly describe IBM's investment in new software research, development, and engineering. Did IBM amortize more or less capitalized software costs during 2001, compared to 2000? Why was there a difference?

4. To analyze the sources of specific risk, IBM uses sensitivity analysis to determines the impact of different market risk exposures on the fair value of the company's assets. What kind of financial instruments are included in this sensitivity analysis?

5. Explain IBM's process of sensitivity analysis.

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Please find the full solution attached. For the questions on IBM, I had to access the full annual reports.

1) In addition to current operating performance, firms must never lose site of organizational goals and the need to maintain distinctive competencies. For that reason, firms must always be looking toward the future and ensuring success down the road. With that in mind, what investments did IBM make in 2001 to fund future growth and increase shareholder value?

During 2001, the company continued to demonstrate strong financial performance, enabling it to make appropriate investments to support future growth and increase shareholder value. The company spent $5,844 million for research, development and engineering, including software development that was capitalized on the Consolidated Statement of Financial Position, $4,483 million for plant and other property, including machines used in strategic outsourcing contracts; $1,177 million for machines on operating leases with customers; and $5,293 million for the repurchase of the company 's common shares. In addition, the company paid cash totaling approximately S916 million of the aggregate $1,082 million purchase price of the company's two acquisitions in 2001.
IBM investments and sundry assets have increased by $2,655 million from 2000.
In 2001.
Moreover, approximately ...

Solution Summary

Using the published annual reports from IBM, the solution fully responds to the questions together with Excel analysis.

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