Macmillan and Grunski Consulting - Discounted Cash Flow Analysis

Case #92

Macmillan and Grunski Consulting - Discounted Cash Flow Analysis

Summary of Case

The case starts off with introducing Sandra Macmillan, a bachelor's degree holder in Economics who worked for Peace Corps. She was offered a job in a regional brokerage firm in Seattle and became very familiar to the work environment and operations of the firm. She also decided to get her MBA from a prestigious university to help her take her job to the next level. After a few years, Sandra decided to open her own financial firm along with Betsy Grunski, who also was a financial analyst of the firm.

Together they started the Macmillan and Grunski Consulting firm which provided financial planning services to the upper middle-professionals. The business continued to flourish under the supervision of Sandra and Betsy who had been working overtime to handle the enormous workload. Both of them realized that they needed one more person to help them with their financial work and decided to hire a finance major. Even though it would take a few months to get hold of a qualified person, they decided to give the responsibility to Mary Somkin, the firm's top secretary, who was trained to handle some of the financial analysis duties. Since this business had no room for error, Sandra decided to give a short project to Mary on Discounted Cash Flow (DCF) analysis.

The project was for one of Sandra's clients who were planning on investing $18,000 and accumulating enough money in six years to pay for their daughter's college. Many things were needed to be considered such as the evaluation of only fixed interest securities, interest levels and timing of the investment. Many other alternatives were laid down before Sandra by the clients; only $3,000 would be invested at the end of each of the following five years, special revenues over the next few years or maybe even borrowing funds at 10.2 percent annual rate of interest with annual payments made over four years.

Therefore, a complete analysis is needed to evaluate Mary's work. Various comparisons are also needed for the clients and their alternatives.

...