The following questions refer to elements of many of the chapters we have covered. As noted, this is part tw of a two part assignment. This builds off the findings and conclusions from HW14.

You are allowed, even encouraged to work together to master the material. However, each student must submit work that is independently created.

The assignment is to evaluate the Stryker corporation. From HW14, you have an assessment of the financials health, key metrics, and projections going forward.

Stryker makes medical equipment. It purchases certain key medical devices which it then recombines with other equipment to create medical equipment Styker sells to Hospitals and physicians.

Stryker is considering insourcing the production of a key input. Insourcing is the opposite of outsourcing. Insourcing is the process of building the ability to manufacture an input, that you are currently purchasing elsewhere. (e.g. Starbucks buys coffee beans from farmers. Insourcing to Starbucks would mean actually buying farms and manufacturing the beans themselves. This would mean their COGS would go down, as they no longer buy beans, but they have to spend money up-front to buy the coffee farms)

Stryker is considering insourcing one such product. Specifically, something called a PCB board. (that is not relevant to the assignment, I just want to name the product so I can reference it). Currently, Stryker buys PCB boards from suppliers and assembles them into Stryker products which it sells.

The idea on the table is: that Stryker is considering building its own PCB plant. It would no longer buy PCB boards.

What are the *financial* aspects to think through in making this discussion? Ie, what impacts on the Pro-forma would such a plan have?

Suppose this approach reduces COGS in half. How much should Stryker be willing to pay to build the plant?

How would you recommend Stryker finance this approach?

Using DCF techniques, what is the NPV and/or IRR of this project? How does that IRR compare to other financial metrics for this company?

What impact would future uncertainty in sales have on your decision?

Why do you suppose Stryker would consider such a move? More broadly, what types of companies are likely to look for outsourcing, vs. insourcing initiatives?

You may notice, that many of these questions are open-ended. That is by design. I want to see your thinking on the problem. I also want to see a very specific numeric answer. Good luck!

Income Statement	2011	2012	2013	2014		Proforma Income Statement	2015	2016	2017
Net Sales	2,290	2,602	3,012	3,465		Net Sales	312	359	413
Cost of Coods Sold	$ 1,031	$ 1,171	$ 1,355	$ 1,559		Cost of Coods Sold	1,793	2,062	2,371
Gross Profit	$ 1,260	$ 1,431	$ 1,657	$ 1,906		Gross Profit	2,192	2,520	2,898
Expenses						Expenses
GSA	$ 962	$ 1,093	$ 1,265	$ 1,455		GSA	1,674	1,925	2,213
Net Interest Expense	$ 77	$ 73	$ 69	$ 61		Net Interest Expense	70	80	92
Earnings Before Tax	$ 221	$ 265	$ 323	$ 390		Earnings Before Tax	448	515	593
Tax	$ 99	$ 119	$ 145	$ 175		Tax	$ 202	$ 232	$ 267
Earnings After Tax	$ 121	$ 146	$ 178	$ 214		Earnings After Tax	$ 246	$ 283	$ 326
Balance Sheet						Proforma Balance Sheet
Current Assets						Current Assets
Cash and securities	$ 671	$ 551	$ 644	$ 412		Cash and securities	$ 474	$ 545	$ 627
Accounts Receivable	$ 1,343	$ 1,544	$ 1,776	$ 2,043		Accounts Receivable	$ 2,349	$ 2,701	$ 3,106
Inventories	$ 119	$ 137	$ 157	$ 181		Inventories	$ 208	$ 239	$ 275
Prepaid Expenses	$ 14	$ 12	$ 15	$ 18		Prepaid Expenses	$ 21	$ 24	$ 27
Total Current Assets	$ 2,147	$ 2,244	$ 2,592	$ 2,654		Total Current Assets	$ 3,052	$ 3,509	$ 4,036
Net Fixed Assets	$ 128	$ 124	$ 295	$ 287		Net Fixed Assets	$ 330	$ 380	$ 436
Total Assets	$ 2,275	$ 2,368	$ 2,887	$ 2,941		Total Assets	$ 3,382	$ 3,889	$ 4,472
Current Liabilities						Current Liabilities
Bank Loan	$ 50	$ 50	$ 50	$ 50		Bank Loan	$ 58	$ 66	$ 76
Accounts Payable	$ 1,007	$ 1,158	$ 1,332	$ 1,532		Accounts Payable	$ 1,761	$ 2,025	$ 2,329
Current portion long term debt	$ 60	$ 50	$ 50	$ 100		Current portion long term debt	$ 115	$ 132	$ 152
Accrued wages	$ 5	$ 7	$ 10	$ 18		Accrued wages	$ 21	$ 24	$ 27
Total current liabiities	$ 1,122	$ 1,265	$ 1,442	$ 1,700		Total current liabiities	$ 1,954	$ 2,248	$ 2,585
Long Term Debt	$ 960	$ 910	$ 860	$ 760		Long Term Debt	$ 874	$ 1,005	$ 1,156
Common Stock	$ 150	$ 150	$ 150	$ 150		Common Stock	$ 173	$ 198	$ 228
Retained Earnings	$ 2,300	$ 2,446	$ 2,624	$ 2,838		Retained Earnings	$ 3,264	$ 3,753	$ 4,316
Total liabilities and owners equity	$ 4,532	$ 4,771	$ 5,075	$ 5,447		Total liabilities and owners equity	$ 6,264	$ 7,204	$ 8,285

Answer rating: 100% (QA)

You can then use this information to conduct further research and analysis to complete your assignment accurately Financial aspects to consider in the decision to insource PCB production Cost of Goods ... View the full answer