Ramirez Guzman-Week 6-Summative Assessment Capital Structures Financial Plan
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CAPITAL STRUCTURES FINANCIAL PLAN 1
Summative Assessment: Capital Structures Financial Plan
Marisela Ramirez Guzman
FIN/571: Corporate Finance
University of Phoenix
Professor: David Tucker
November 11
th
, 2023
CAPITAL STRUCTURES FINANCIAL PLAN 2
Capital Structures Financial Plan
General Electric, Co. General Electric Company, also known as GE, is an organization that is considered a strong franchise that is leading positions in growth in critical sectors by investing in innovation to solve customer needs at a global level. Also, GE concentrates on developing close customer relationships, growing installed bases, and essential services to continue developing sustainable financial performance, revenue increase, margin expansion and earnings growth.
Even though GE has been a leader in the industry, the organization has been forced to develop a new strategic and operational plan that is based on its financial progress. The organization has been focusing on restructuring its priorities by dividing the company into three public organizations that concentrate on aviation, healthcare and energy. (Vesoulis, 2021).
Over the years, GE has changed its way of operation due to the lack of popularity in its original products and services, leading the company to cut its personnel because of the decrease in sales. GE’s lack of investment in America’s domestic labor force is different because of the volume of state and federal taxpayer grants, tax credits, and subsidies the company received at the same time of disinvesting in the U.S. economy. The organization has drawn roughly $1.6 billion in federal money since 2000, in addition to $687 million in state and local award since 1992, with more than $ 2.2 billion. At the same time, three out of every four GE jobs in the U.S. disappeared. (Vesoulis, 2021).
In 2022, the organization announced the opportunity of sustainable profitable growth for near-term improvements in business, especially because of a recovery in aviation, allowing one of the 3 sectors to become stronger. The idea of dividing the company into 3 different
CAPITAL STRUCTURES FINANCIAL PLAN 3
organizations was to reduce debt and strengthen operating performance through lean and decentralization to achieve a long-term financial goal. (Keller & Marcer, 2022).
Because the organization is working towards its financial goal stability, to continue growing, it is necessary that the organization continues to innovate while adapting to the new era. Unfortunately, due to the lack of profit, it is necessary to obtain funding to achieve profitability. By doing this, the organization will be able to generate more jobs because of a possible increase in demand for its services, as well as achieving its long-term financial stability.
Because GE is continuously innovating and creating, the best type of funding for GE electric would be Venture capital because it would help the organization to develop the ideas by using basic research that can be convert into products and services that can transform the General
Electric world by building a high growth from its current stage.
Venture Capital can generate billions of dollars for investors and its institutions; Also, it can develop new jobs. This type of funding can help GE to increase its revenue and generate more jobs. Venture Capital partners provide strategic and operational guidance by connecting the
organization with investors and customers. This type of funding won’t only allow the organization to develop its ideas but also, it is considering a great way to a rapid growth to become a global success organization and obtain its financial stability. (NVCA, 2023).
Venture Capital also has some risks such as not getting the investment back and not being
able to pay back the investment. Investment does not guarantee a company’s success even though it continues to look for the best opportunities to minimize risks. This type of investment offers a great opportunity for growth but also it could cause a potential loss of capital. (Rahman, 2023).
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CAPITAL STRUCTURES FINANCIAL PLAN 4
Venture Capital loans can vary on APR and, also, can be based on equity investments. This type of funding allows business to take equity positions in young companies such as the new development in GE aviation, healthcare and energy concentration.
Even though Venture Capital loans are a great way to recover and obtain financial stability, GE can also obtain Government grants that are industry-specific and can help the organization to pay debt while working towards financial goals.
Industry-specific grants are developed for specific specialized industry which can be applied for GE’s three different small areas of specialization which are aviation, healthcare, and energy. Industry-specific grants are not open to all businesses and have specific guidelines of eligibility. (Ludwig & Wingo, 2023).
Some of the advantages of Industry-specific grants include the fact that this money does not need to be repaid and can offer a large amount of money, depending on the company’s idea or investment purposes; Also, the description and information about the subsidies conditions and deadlines is available to everyone and can be found on government sources. This type of grant serves the organization as a way of promoting business because the organization gains credibility
not only from other organizations and investors but, also, from potential leads or clients. (Diana, 2023).
Even though Industry-specific grants can be a great help for the organization to continue growing while economically recovering, it also has a few disadvantages including the fact that the research and paperwork can be time consuming. When applying for the grant, the proposal must be good and creative to be noticed. Another disadvantage includes high competition for one
grant. Because of its high demand, it is important to be prepared for difficulties. Lastly, the
CAPITAL STRUCTURES FINANCIAL PLAN 5
restrictions of the grant can limit the organization to stay with the original business plan that was presented during the application process. (Diana, 2023).
The table below shows a comparison of Venture Capital and Industry-specific grants. Combining both, the organization can achieve stability while recovering from its losses.
FUNDING
APR
EQUITY
ANNUAL
RATE OF
RETURN
NOTES
Venture Capital
Industry-
Specific Grants
Up to 25%
None
High rates of return and opportunity of obtaining on equity.
None
30 to 50% None
This type of investment can help GE to get back on track with innovation and implementation by having an expert develop a business plan to be successful. The APR rates are high due to the opportunity of taking a risk in new concepts but with an opportunity of high rates of return.
This type of investment can help GE to balance out the organization’s debt to recover faster from its losses. The grant
does not need to be repay and it is
completely free money source.
CAPITAL STRUCTURES FINANCIAL PLAN 6
General Electric’s profit in 2021 was 20.3B, which was an increase of 13.02% from 2020. In 2022, its gross profit was 21.02B, with a 3.55% increase from 2021. On June 30, 2023, its gross profit was 22.311B, which was an increase of 28.22% year-over-year. (Macrotrends, 2023).
Because of its current performance and market demand, GE is raising the low end of a fully adjusted EPS and free cash flow ranges. The organization is expecting to have an adjusted EPS of $1.70 to $2.00, and a free cash flow of $3.6 to $4.2 billion, up to from adjusted EPS of $1.60 to $2.00 and free cash flow of $3.4 billion to $4.2 billion previously projected. (GE, 2023).
In 2022, GE Aerospace had orders equivalent to $7,206 while in 2023, has generated $8,213 orders with a year on year 14%. In 2022, the revenue was 5,603 while in 2023 has been 6,981 with a year on year 25%. The segment Profit (loss) in 2022 was 908 while in 2023 is 1,326
with a year on year 46%. The Segment Profit (loss) Margin in 2022 was 16.2% while currently is
19.0% with a year on year 280 bps. (GE, 2023).
In 2022, GE Renewable Energy had orders equivalent to $2,792 while in 2023, has generated $5,352 orders with a year on year 14%. In 2022, the revenue was 2,871 while in 2023 has been 2,837 with a year on year (1) %. The segment Profit (loss) in 2022 was (434) while in 2023 is (414) with a year on year 5%. The Segment Profit (loss) Margin in 2022 was (15.1%) while currently is (14.6%) with a year on year 50 bps. (GE, 2023).
General Electric is looking for ways to recover from its losses and be able to generate revenue again by dividing the organization into three different areas. Thanks to this, Venture Capital will be the best option to continue developing new ideas and increase their opportunity of
sales to start reducing debt in a short-time period. Also, obtaining Industry- specific grants, the organization will be able to obtain a financial health that can sustain the growth, adapt into new
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CAPITAL STRUCTURES FINANCIAL PLAN 7
challenges, and generate profit sooner than expected. By having a clear business plan that contains alternative solutions in case of an economic emergency, the organization can benefit from this by knowing how to act, adapt and expect in both scenarios’ good financial conditions, and financial losses. General Electric has been considered a leader in the industry and will continue to develop high-quality services and products using innovation. The importance of adaptation and becoming a resourceful organization, can lead GE to a healthy future.
CAPITAL STRUCTURES FINANCIAL PLAN 8
References
Diana. (2023). Pros and Cons of Business Grants. Retrieved from: https://www.startupboot.nl/business-grants-pros-and-cons/
GE, Company. (2022). GE 2022 Company Overview. Retrieved from: https://www.ge.com/sites/default/files/ge-company-overview.pdf
GE, Company. (2023). GE Announces First Quarter 2023 Results. Retrieved from: https://www.ge.com/sites/default/files/ge_webcast_pressrelease_04252023.pdf
Hansen, S. (2022). The Rise and Fall of General Electric (GE). Retrieved from: https://www.investopedia.com/insights/rise-and-fall-ge/
Keller, T; Mercer, W. (2022). Growth And Momentum: GE Enters 2022 With Strength From Strategic, Operational And Financial Progress. Retrieved from: https://www.ge.com/news/reports/growth-and-momentum-ge-enters-2022-with-strength-
from-strategic-operational-and-financial
Ludwig, S; Wingo, L. (2023). A Practical Guide to Funding Your Small Business with Business Loans and Beyond. Retrieved from: https://www.uschamber.com/co/run/business-
financing/small-business-funding-guide
Macrotrends. (2023). General Electric Gross Profit 2010-2013 | GE. Retrieved from: https://www.macrotrends.net/stocks/charts/GE/general-electric/gross-
profit#:~:text=General%20Electric%20gross%20profit%20for%20the%20twelve
%20months%20ending%20June,a%2013.02%25%20increase%20from%202020.
NVCA. (2023). What is Venture Capita? Retrieved from: https://nvca.org/about-us/what-is-vc/
Rahman, M. (2023). The risks and Benefits of venture Capital. Retrieved from: https://nvca.org/about-us/what-is-vc/
CAPITAL STRUCTURES FINANCIAL PLAN 9
Vesoulis, A. (2021). U.S. Taxpayers Bankrolled General Electric. Then It Moved Its Workforce Overseas. Retrieved from: https://time.com/6114004/general-electric-workforce-public-
subsidies/
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70%
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70%
60%
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Td
Ts
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Debt ratio
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Fast answer Thank you!
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54,805,555.00
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6,550,034.00
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Microsoft
66,703,403.00 75,230,820.00
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Which company would you recommend first for investment? -
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Benefit or (cost)
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50% debt
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$15
$25
75% debt
$35
Agency cost
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-$4
-$4
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-$2
-$8
-$19
The firm can maximize firm value by choosing (25%, 50%, 75% or 0%) debt capital structure.
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Publisher:Cengage Learning
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- Review this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio rdrd rsrs WACC 30% 70% 7.00% 10.50% 8.61% 40% 60% 7.20% 10.80% 8.21% 50% 50% 7.70% 11.40% 8.01% 60% 40% 8.90% 12.20% 8.08% 70% 30% 10.30% 13.50% 8.38% Which capital structure shown in the preceding table is Transworld Consortium Corp.’s optimal capital structure? Debt ratio = 70%; equity ratio = 30% Debt ratio = 60%; equity ratio = 40% Debt ratio = 40%; equity ratio = 60% Debt ratio = 30%; equity ratio = 70% Debt ratio = 50%; equity ratio = 50% Consider this case: Globo-Chem Co. has a capital structure that consists of 30% debt and 70% equity. The firm’s current beta is 1.25, but management wants to understand Globo-Chem Co.’s market risk without the effect of leverage. If…arrow_forwardUnderstanding the optimal capital structure Review this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio rdrd rsrs WACC 30% 70% 7.00% 10.50% 8.61% 40% 60% 7.20% 10.80% 8.21% 50% 50% 7.70% 11.40% 8.01% 60% 40% 8.90% 12.20% 8.08% 70% 30% 10.30% 13.50% 8.38% Which capital structure shown in the preceding table is Transworld Consortium Corp.’s optimal capital structure? Debt ratio = 70%; equity ratio = 30% Debt ratio = 60%; equity ratio = 40% Debt ratio = 40%; equity ratio = 60% Debt ratio = 30%; equity ratio = 70% Debt ratio = 50%; equity ratio = 50% Consider this case: Globo-Chem Co. has a capital structure that consists of 30% debt and 70% equity. The firm’s current beta is 1.25, but management wants to understand Globo-Chem Co.’s market risk…arrow_forwardUnderstanding the optimal capital structure Review this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio rdrd rsrs WACC 30% 70% 7.00% 10.50% 8.61% 40% 60% 7.20% 10.80% 8.21% 50% 50% 7.70% 11.40% 8.01% 60% 40% 8.90% 12.20% 8.08% 70% 30% 10.30% 13.50% 8.38% Which capital structure shown in the preceding table is Transworld Consortium Corp.’s optimal capital structure? Debt ratio = 70%; equity ratio = 30% Debt ratio = 40%; equity ratio = 60% Debt ratio = 30%; equity ratio = 70% Debt ratio = 50%; equity ratio = 50% Debt ratio = 60%; equity ratio = 40% Consider this case: Globex Corp. is an all-equity firm, and it has a beta of 1. It is considering changing its capital structure to 60% equity and 40% debt. The firm’s cost of debt will be 8%, and…arrow_forward
- a. Based on the information in the picture, calculate, using market values, Globex PLC weighted average cost of capital. Please show workings b. Criticallly discuss any two assumptions underpinning the post tax version of Modigliani & Miller model of the relationship between WACC and gearingarrow_forwardReview this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered following financial information to help with the analysis. Debt Ratio 30% 40% 50% 60% 70% Equity Ratio 70% 60% 50% 40% 30% WACC 9.71% 9.55% 10.02% 7.55% 11.30% 10.78% 8.24% 12.80% 11.45% rd Is 6.02% 9.40% 6.75% 9.750% 7.15% 10.60% Which capital structure shown in the preceding table is Transworld Consortium Corp.'s optimal capital structure? Debt ratio= 30%; equity ratio = 70% Debt ratio = Debt ratio = 70%; equity ratio = 30% Debt ratio= 50%; equity ratio = 50% 60%; equity ratio = 40% Debt ratio = 40%; equity ratio = 60%arrow_forwardPlease help solve and show work. eview this situation: Universal Exports Inc. is trying to identify its optimal capital structure. Universal Exports Inc. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio rdrd rsrs WACC 30% 70% 6.02% 9.40% 9.71% 40% 60% 6.75% 9.750% 9.55% 50% 50% 7.15% 10.60% 10.02% 60% 40% 7.55% 11.30% 10.78% 70% 30% 8.24% 12.80% 11.45% Which capital structure shown in the preceding table is Universal Exports Inc.’s optimal capital structure? Debt ratio = 70%; equity ratio = 30% Debt ratio = 30%; equity ratio = 70% Debt ratio = 50%; equity ratio = 50% Debt ratio = 60%; equity ratio = 40% Debt ratio = 40%; equity ratio = 60% Consider this case: Globex Corp. currently has a capital structure consisting of 35% debt and 65% equity. However, Globex Corp.’s CFO has suggested that the firm increase its debt ratio to 50%. The current risk-free rate is…arrow_forward
- 9. Determining the optimal capital structure Aa Aa Understanding the optimal capital structure Review this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio rd rs WACC 30% 70% 6.02% 9.40% 9.71% 40% 60% 6.75% 9.750% 9.55% 50% 50% 7.15% 10.60% 10.02% 60% 40% 7.55% 11.30% 10.78% 70% 30% 8.24% 12.80% 11.45% Which capital structure shown in the preceding table is Transworld Consortium Corp.'s optimal capital structure? Debt ratio = 70%; equity ratio = 30% Debt ratio = 40%; equity ratio = 60% Debt ratio 60%; equity ratio = 40% Debt ratio = 50%; equity ratio = 50% Debt ratio = 30%; equity ratio = 70% Consider this case: Globex Corp. currently has a capital structure consisting of 40% debt and 60% equity. However, Globex Corp.'s CFO has suggested that the firm increase its debt ratio to 50%. The current risk-free rate is 3.5%,…arrow_forwardPlease solve this financial accounting question without use Ai and chatgptarrow_forwardEXERCISE 6: SOURCES OF EQUITY FINANCING Match the following with the following equity investors: shareholders, risk capital investors, and government institutions. • Venture capitalist Common shareholders Export Development Canada • Angel investors • Preferred shareholders • Business Development Bank of Canadaarrow_forward
- Understanding the optimal capital structure Review this situation: Universal Exports Inc. is trying to identify its optimal capital structure. Universal Exports Inc. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio rdrd rsrs WACC 30% 70% 7.00% 10.50% 8.61% 40% 60% 7.20% 10.80% 8.21% 50% 50% 7.70% 11.40% 8.01% 60% 40% 8.90% 12.20% 8.08% 70% 30% 10.30% 13.50% 8.38% Which capital structure shown in the preceding table is Universal Exports Inc.’s optimal capital structure? Debt ratio = 50%; equity ratio = 50% Debt ratio = 30%; equity ratio = 70% Debt ratio = 60%; equity ratio = 40% Debt ratio = 70%; equity ratio = 30% Debt ratio = 40%; equity ratio = 60%arrow_forward4. Determining the optimal capital structure Understanding the optimal capital structure Review this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio 70% 60% 50% 40% 30% 30% 40% 50% 60% 70% Id Is WACC 7.00% 10.50% 8.61% 7.20% 10.80% 8.21% 7.70% 11.40% 8.01% 8.90% 12.20% 8.08% 10.30% 13.50% 8.38% Which capital structure shown in the preceding table is Transworld Consortium Corp.'s optimal capital structure? Debt ratio = 60% ; equity ratio = 40% Debt ratio = 30%; equity ratio = 70% O Debt ratio = 40%; equity ratio = 60% O Debt ratio = 70% ; equity ratio = 30% O Debt ratio = 50% ; equity ratio = 50%arrow_forwardReview this situation: Universal Exports Inc. is trying to identify its optimal capital structure. Universal Exports Inc. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio rdrd rsrs WACC 30% 70% 7.00% 10.50% 8.61% 40% 60% 7.20% 10.80% 8.21% 50% 50% 7.70% 11.40% 8.01% 60% 40% 8.90% 12.20% 8.08% 70% 30% 10.30% 13.50% 8.38% Consider this case: Globex Corp. currently has a capital structure consisting of 35% debt and 65% equity. However, Globex Corp.’s CFO has suggested that the firm increase its debt ratio to 50%. The current risk-free rate is 3%, the market risk premium is 7%, and Globex Corp.’s beta is 1.10. If the firm’s tax rate is 25%, what will be the beta of an all-equity firm if its operations were exactly the same? Now consider the case of another company: US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before-tax cost of debt is 6%,…arrow_forward
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