Prior to beginning work on this discussion, please read the article
Discussion 1
Prior to beginning work on this discussion, please read the article by Hayley Peterson, 15 Companies That Are Defying the Retail Meltdown by Opening Hundreds of New Stores (Links to an external site.).
While many retailers are closing stores, some are rapidly building new locations, with at least one—Dollar General (NYSE: DG)—adding as many as 900 stores this year (Peterson, 2018).
Obtain Dollar General’s Form 10-K for the fiscal year ending on December 31, 2017. Form 10-K can be obtained either from the SEC (Links to an external site.)’s EDGAR Filing system or the “Investor Relations” link on the company’s website at www.dollargeneral.com (Links to an external site.). Read the “Growth Strategies” and the “Consolidated Statements of Cash Flows” sections of Dollar General’s 10-K Form to answer the following questions in an initial post of at least 200 words:
- How many stores is Dollar General planning to open during its 2018 and 2019 fiscal years? By what percentage would these new stores increase the size of the company?
- How much cash did General Dollar spend on investing activities during its 2016, 2017, and 2018 fiscal years? Do you think the amount spent on investing activities represents the full costs that General Dollar incurred to open new stores? Explain you answer.
- Where did General Dollar get the cash used to make these investments?
Guided Response: Review several of your peers’ posts. In a post of at least 100 words, respond to at least two of your peers’ posts in a substantive manner. Provide information that they may have missed or may not have considered about Dollar General’s capital expenditures during the most recent fiscal years. Do you agree with your peers’ findings? Why or why not?
Post by classmate 1
Hello Class!
When companies decide to expand their products or services by opening or relocating their stores or offices they must consider whether the new ventures will provide sufficient capital gains to sustain the existing business and the new projects. While reviewing a company’s 10-K form, one can see how well a business has performed in the past, present, and future projects while detailing how capital is obtain and how it will be allocated. Listed below are a few questions that one may ask prior to invest in a company, such as Dollar General.
How many stores is Dollar General planning to open during its 2018 and 2019 fiscal years? By what percentage would these new stores increase the size of the company?
As of Dollar General (DG) plans to open 900 new stores in 2018 and an additional 975 new stores are projected to open in 2019. This will increase the size of the company by 12.9%, a total of 1,875 new stores.
How much cash did General Dollar spend on investing activities during its 2016, 2017, and 2018 fiscal years? Do you think the amount spent on investing activities represents the full costs that General Dollar incurred to open new stores? Explain your answer.
DG investing activities are as follows: $550,936M in 2016, $645,028M in 2017, and $731,603M in 2018. After reviewing all of the costs they incurred open the new stores such as new employee salaries, insurance, and equipment, they spent more than projected. But, their sales increased by more than 3 percent per year, allowing them to repay investors, and still have a margin of profit. Even though DG investing activities are growing over the years, it is not a bad sign because the company is investing in future growth and showing profitability over the years because of store expansions.
Where did General Dollar get the cash used to make these investments?
Dollar General get the cash needed for investment from existing cash balances, cash flows from operations, availability under their Revolving Facility and/or the issuance of additional senior notes or Commercial Notes (CP) notes. CP notes are short-term investment, and unsecured promissory note issue in bearer which can be readily traded. Technically, a CP note promises to pay the bearer a stated sum of money at the maturity date. In addition, DG get revenues for investments from their traditional distribution centers for non-refrigerated merchandise.
Post by classmate 2
After reading over the highlights ok Dollar General’s 10-k filings, it appears some data might have been placed under new headings but I believe I was able to find the answers to each question. Dollar General plans to open 900 new stores in 2018 and 975 new stores in 2019. The addition of 900 stores in 2018 would result in approximately 6.1% growth and the addition of 975 stores in 2019 would result in approximately 6.2% growth for a total of 12.3% over the two years.
Dollar General’s spending on investment activities showed significant growth over the course of 2016 to 2018. Their spendings in fiscal year order were $503,400,000, $550,900,000, $645,000,000, and $731,600,000. I do not think that these investment spending amounts reflect the full costs that Dollar General incurred to open new stores. First, I believe these figures include advertising and other types of brand awareness spending. Second, similarly to buying a new home, there are unexpected expenses that occur, and someone can live in the place the day after the sign for it. There is the aspect of getting moved in and fully set up, or in this case, fully operational. These time delays could easily run into the next year depending on when the new stores are opened.
Dollar General was able to pay for these investments through its profits which consist of “…cash flow from operations, and existing cash balances, combined with availability under the Revolving Facility, CP Notes, and access to the debt markets… (Dollar General, 2022).
https://www.sec.gov/Archives/edgar/data/29534/000155837019002383/dg-20190201x10k.htm
Discussion 2
Prior to beginning work on this discussion, please read the article Capital Investment Appraisal Techniques: A Survey of Current Usage (Links to an external site.) by Sangster (1993).
After setting the company’s goals, managers evaluate capital investment projects and decide which should be funded. Suppose a company has four different capital budgeting projects from which to choose but has constrained funds and cannot implement all of the projects.
The following table contains information about four projects in which X Corporation has the opportunity to invest. This information is based on estimates that different managers have prepared about the company’s potential project.
Project
Investment Required
Net Present Value
Life of Project
Internal Rate of Return
Profitability Index
Payback Period in Years
Accounting Rate of Return
A
$ 226,000
$ 36,908
5
21%
1.17
2.97
20%
B
$ 406,000
$ 50,740
6
24%
1.13
3.13
15%
C
$1,040,000
$152,325
3
19%
1.16
2.18
14%
D
$1,630,000
$ 19,870
4
14%
1.02
3.00
23%
Part 1: Rank the four projects in order of preference by using the following table:
(a)
Net Present Value
(b)
Profitability Index
(c)
Internal Rate of Return
(d)
Payback Period
(e)
Average Rate of Return
1st preferred
Project A, B, C, or D?
2nd preferred
3rd preferred
4th preferred
Part 2: Write a response in an initial post of at least 200 words discussing the usefulness of capital investment techniques (net present value, profitability index, internal rate of return, payback period, and average rate of return) in selecting the four alternative investment opportunities in part 1.
Guided Response: Review several of your peers’ posts. In a post of at least 100 words, respond to at least two of your peers’ posts in a substantive manner. Provide information that they may have missed or may not have considered about the strengths and weaknesses of the capital budgeting techniques including a comparison between techniques based on the time value of money versus those that are not. Do you agree with your peers’ findings? Why or why not?
Post by classmate 1
Hello Class!
Part 1: Rank the four projects in order of preference by using the following table:
(a)
Net Present Value
(b)
Profitability Index
(c)
Internal Rate of Return
(d)
Payback Period
(e)
Average Rate of Return
1st preferred
C
A
B
C
D
2nd preferred
B
C
A
A
A
3rd preferred
A
B
C
B
B
4th preferred
D
D
D
D
C
Part 2: Write a response in an initial post of at least 200 words discussing the usefulness of capital investment techniques (net present value, profitability index, internal rate of return, payback period, and average rate of return) in selecting the four alternative investment opportunities in part 1.
The usefulness of capital investment techniques are as follows: Net present value is useful for the reason of capital budgeting and investment planning to analyze the profitability of a possible investment or project. Profitability index is useful because one if there is no profit then there is no business and two it’s a measurement of how attractive your product or commodity is. Internal rate of return assist in being a metric to estimate the profitability of potential investments. Payback period is useful because it lets you know how long its going to take to make a return on your investment, and essentially is your breakeven point. Average rate of return calculates the return generated from net income of your capital investment and is going to put you in the ballpark of how much of an average of return on your money you can expect if a certain amount of sales are made. However, this ratio does not consider time value of money.
Post by classmate 2
(a)
Net Present Value
(b)
Profitability Index
(c)
Internal Rate of Return
(d)
Payback Period
(e)
Average Rate of Return
1st preferred
C
A
B
C
D
2nd preferred
B
C
A
A
A
3rd preferred
A
B
C
D
B
4th preferred
D
D
D
B
C
The Usefulness of Capital Investment Techniques
Net Present Value: This method can be useful as it provides insight into whether an investment will be lucrative to a business and its stakeholders by presenting the value to be potentially created in a dollar amount.
Profitability Index: PI can assist in measuring the attractiveness of a project or investment by determining the ratio between the present value of expected cash flows versus the initial investment amount. If the PI is higher than 1.0, the investment is good.
Internal Rate of Return: This method provides an estimate regarding the success of possible investments. This method shows the growth rate of an investment year-to-year to determine whether the project will generate revenue.
Payback Period: Determining the payback period of investment allows a company to forecast how long it would take to recuperate the initial capital invested into the project. A shorter payback period would be more attractive.
Average Rate of Return: Average rate of return is useful for companies that are looking to determine how much profit will be generated from an investment over time. Typically, this rate of return is determined by taking the project’s average annual revenue and dividing it by the initial investment amount. Of course, a higher average rate of return would make the investment in a project more attractive to a company.
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