As the Director of Corporate Planning, you always apply the concept of Corporate Value Added in your

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Question:

As the Director of Corporate Planning, you always apply the concept of Corporate Value Added in your review of new proposals for the company. You have been asked to evaluate 3 strategic proposals for your firm. The first proposal is to increase your revenue growth from 5.5% to 6% while holding everything else at current levels. Proposal 2 is a cost control program that increases operating profitability, OP, from the current level of 8.0 percent to 9.50 percent holding all else equal. Proposal 3 is an initiative to improve asset utilization and thus reduce the capital intensity, CR, from 0.90 to 0.85 while holding all else the same. Your task is to use the information given below to evaluate all three proposals and determine the value added for the company.

Based on your analysis, which of the proposals appears to have the most significant impact on value relative to your current situation? You must complete the table as part of your recommendation and explanation. Be clear regarding the impact of each value driver in terms of value creation or destruction. Note: You must make a recommendation relative to the current situation your firm faces. A choice of “no change” is a possibility.

	Original Position	Proposal 1	Proposal 2	Proposal 3
Sales (Current)	$1,000
Growth: g	5.50%
Profitability: (NOPAT/sales)	8.00%
Capital Requirement: CR= (Capital /Sales)	.90
WACC	10%
MVA
Expected Return on Invested Capital (EROIC)