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Finance 450 at EMU with Dr. Moeller

Friendly Cards
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Friendly Cards, Inc.

Substantive Issues

The company is a relatively small, fast-growing, profitable, and highly-levered manufacturer facing a juncture of several critical decisions. Friendly must decide on the purchase of a new piece of capital equipment; whether to acquire another company; and, whether to issue common stock to raise funding and reduce financial pressure. The interaction between corporate investment and financing decisions.

Pedagogical Objectives

To gain practice in the standard tools of financial analysis, including pro forma projections and financial ratios, funds requirements, and debt covenants. To review the valuation of both a piece of equipment and an entire company; practice the derivation of weighted average cost of capital and estimate free cash flows. To review financial policy and financial execution, including issues of target capital structure, financial flexibility, costs of financial distress, and various approaches for issuing equity.

Suggested Questions

As Ms. McConville, prepare recommendations for Ms. Beaumont, to include:

1. Should Friendly Cards purchase the envelope machine? If so, how?

2. Should Friendly Cards acquire Creative Designs?

3. Should Friendly Cards accept the offer of the West Coast investors and issue new equity?