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Risks Inherent in the Acquisition and Expenditure Cycle

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Explain some risks inherent in the acquisition and expenditure cycle.

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The acquisition and expenditure cycle includes the activities and transactions related to the acquisition of goods and services and the expenses related to payment for the goods and services. Once management authorizes the acquisition and payment of any good or service, it creates certain ...

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This solution discusses the risks that are inherent in the acquisition and expenditure cycle.

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Financial Case Study

For the following assignment, I am tasked to analyze the company, Genworth Fin
ancial. I would like some assistance with understanding key elements of the assignment so that I can successfully write this lengthy paper. I have provided the website of the company which includes key financial data.

http://investor.genworth.com/phoenix.zhtml?c=175970&p=irol-reportsAnnual

Please be as detailed as possible.

Here is the assignment:

Using the publicly traded company (Genworth Financial) identified and approved during Week One, submit one report with three 1,050-1,400-word sections regarding that company's long-term financing policies and capital structure (section 1), risk management policies (section 2), and an acquisition analysis for that same company (section 3). Please note the last requirement of the acquisition analysis and its association with the risk portion of the report.

Section 1: Report on the company's long-term financing policy & capital structure.

a. Identify the firm's most recent long-term financing decision (e.g., debt, IPO, seasoned equity offering, secondary offering). Analyze the economic, business, and competitive background in which the financing occurred, and identify cost and risk trade-offs.

b. Identify your firm's book value, market value, and levered value according to the M&M model. For a 20 percent increase in assets, perform a quantitative analysis and recommend the optimal capital structure mix for your company. Your analysis should include an estimation of that company's cost of capital, price per share, and market value of the firm.

c. Discuss what changes you think would occur to your finance policy and capital structure if your firm was forced to consider re-organization and bankruptcy strategies.

d. Assume that your firm will be investing in the global market. What international investment and financing opportunities would you consider - and why? Also, discuss foreign exchange risk and give an example that analyzes how foreign exchange rates could cause a loss to the firm.

Section 2: Use the following list of risk management tools and describe the circumstances under which they would be applied to the risk categories of corporate (including risk associated with acquisition analysis and capital budgeting), economic, foreign currency, political, and other relevant global business risks.

e. Black-Scholes options pricing model

f. Simulation analysis

g. Hedging

h. Feel free to add other tools that you find that are relevant to your chosen company.

Section 3: This will be a report to the board of directors that identifies a synergistic acquisition candidate for your company.

i. This report should clearly identify the following:

1) Your proposed acquisition terms

2) Price

3) Financing

4) Potential negotiation strategies

j. Supporting financial data should include the following:

1) Price/earnings ratios

2) Book value

3) Current market value

4) Liquidation

5) Diluted price per share

6) Capital Budgeting tools learned from FIN 544 (NPV, IRR, Profitablility index, payback - optional: Discounted Payback and Modified Internal Rate of Return)

k. Discuss the general risks inherent in an acquisition strategy.

l. Discuss the specific risks that should be included in the quantitative analysis. For example, what risk factors should be included in the discount rate (sometimes known as the hurdle rate, or required rate of return).

Note: Use MS Excel® spreadsheets as support showing your computations where applicable.

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