Expert answer:External capital funding proposal.
Expert answer:Use the attached documents for resources to follow the paper. The Company is (NORDSTROM) Overview: The final project for this course is the creation of an external capital funding proposal. Most businesses face a landscape of uncertainty and a never-ending stream of risks and opportunities. Managers must continually project the likely financial
impact of decisions, make recommendations, act on those decisions, determine how to pay for them, and evaluate the costs and effectiveness of what has been
done. Many decisions are short-term, routine, and operational. Others are longer-term investment decisions that require substantial new resources, such as
developing new services, expanding into new geographic markets, or undertaking business combinations or spin-offs. Each requires managers to forecast, plan,
and make decisions based on a thorough understanding of both internal and external factors that can affect a company’s financial success. For the summative assessment in this course, you will bring your finance and economics knowledge to bear by preparing an external capital funding proposal for
a major international investment at a publicly traded corporation. In order to secure the support of potential financial backers, your proposal will need to lay out
what the proposed investment opportunity is, how it fits within the company’s broader mission and goals, its financial impact, and the amount being requested
and why (including alternative funding mechanisms considered). In addition, it will also need to include information on the organization’s context, risk factors,
and microeconomic assumptions that could affect the success of the investment. Prompt: Submit a short paper that addresses Section III, Part C; Section V; and Section VI of the final project. Specifically, the following critical elements must be addressed:
III. Justification:
C. Financial impact. This section should discuss the project’s most likely financial implications and the consolidated financial projection with and without
the project. Be sure to: 1. Project the incremental, annual, and cumulative cash benefits and outflows associated with the proposed expansion for the next seven to
10 years, using a spreadsheet or other relevant presentation vehicle to support your narrative. Be sure to justify your assumptions and
methodology based on sound microeconomic and financial principles. For example, what assumptions have you made about demand, price,
volume, capital purchase costs, incremental hiring, and so on? 2. Develop a consolidated financial projection of revenue, pretax income, and cash flow for the overall business, over that same number of
years, both with and without the proposed investment. Use a spreadsheet or other relevant presentation vehicle to support your narrative,
being sure to describe any relevant assumptions. IV. Financing: In this section, compare the proposed loan to alternative financing methods. Specifically: A. Weigh the pros and cons of raising money using internal financing mechanisms versus seeking funding through global capital markets via loans,
commercial paper, bonds, or equity financing. Which might be viable alternatives should the loan not be approved? Support your answer with
appropriate research and evidence. B. Assess the viability of a business combination as a mechanism for expanding into the new market. Is this a reasonable option for the company? Why
or why not? Support your answer with appropriate research and evidence. VI. Track Record: Use this section to persuade the lender that you are credit-worthy. You must: A. Convincingly argue that your organization is on solid financial footing, and thus at a low risk for default, supporting your argument with appropriate
financial statements, ratios, and other indicators of financial performance and health. B. Convincingly argue for your organization’s trustworthiness, providing credible evidence of legal and ethical financial behavior. For example, this
might include recent audit results; credit history; absence of significant lawsuits, recalls, or regulatory judgments; or other evidence designed to
show that the company holds itself to the highest legal and ethical standards. Rubric
Guidelines for Submission: Your investment project and justification paper should be approximately 8–10 pages in length (excluding spreadsheets, other exhibits,
and list of references as necessary). It should be double-spaced with 12-point Times New Roman font and one-inch margins, and should use APA format for
references and citations.
mba_640_m2_risks.docx
mba_640_milestone_three_guidelines_and_rubric.pdf
3_2_short_paper__executive_memo.docx
4_2_milestone_one__investment_project_and_justification.docx
Unformatted Attachment Preview
Running Head: NORDSTROM INC, EXTERNAL CAPITAL FUNDING PROPOSAL
Nordstrom, Inc External Capital Funding Proposal
Section IV; Risks
Southern New Hampshire University
Eric Drewery
January 7, 2018
1
NORDSTROM INC, EXTERNAL CAPITAL FUNDING PROPOSAL
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Section IV; Risks
Nordstrom, Inc. External Capital Funding Proposal
Introduction
Nordstrom is one of the most successful retailers in the United States. It has a strong
position in the retail market. Initially, the company founded as a reseller of shoes, but today the
company sells shoes, clothing, accessories and other products. Nordstrom wants to take the leading
position in the US market. The company focuses on customer satisfaction and meets the needs of
customers. The company is very successful thanks to effective customer relationship management
and a successful marketing strategy that benefits the society compared to its competitors.
As one of the most successful retailers in North America, Nordstrom has successfully
entered the last decade in developing a business as the best products with outstanding service and
product concepts of the most successful channels in the industry (Nordstrom 2015 Company
Review, 2016). Nordstrom can grow and become a national company with the successful launch
of the NCR sales department at Nordstrom Rack. Nordstrom could expand its target customers by
offering options based on price and availability to its customers. Now, with the e-commerce, the
company has developed its sales targets and expansion plans. In this case, given increased local
market negligence, the company is attempting to expand its scope by expanding its operations in
Canada. The feasibility study shows that the planned expansion will have a positive impact on the
overall productivity of Nordstrom Inc. There are many ways in which companies can settle on the
world market, including joint ventures, franchises, and purchases from other businesses. In the
case of Nordstrom, the institute aims to license the various new market. Ultimately, the company
sees itself with minimal objections to its position in the new target position. Therefore, this
NORDSTROM INC, EXTERNAL CAPITAL FUNDING PROPOSAL
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proposal aims at evaluating all parameters that justify the expansion of Nordstrom’s operations
globally. Also, the project estimates the company’s financial position and determines what it takes
to complete development in Canada. (Lunicheva, 2014).
After careful consideration, Nordstrom will prepare to expand its sales activities outside
the United States. Nordstrom has expanded into Canada, where the latest success has lowered the
company’s profits to the fall of the Canadian dollar. Preventing global economic conditions has
shown that a further expansion of the business would allow the company to grow into a worldwide
enterprise. It would follow other American traders globally e-commerce portal to launch the
company’s expansion. Alliances that have proposed in some places with commercial enterprises
and the creation of national firms in other countries require additional financial resources to
implement business plans that need such a request.
Section IV; Risks
Internal risks and opportunities
The internal environment of a company is an essential determinant of its success and capability to
engage in projects and be successful. There are several internal risks and opportunities that
Nordstrom has that affect the success of the expansion project.
Opportunities
Excellent customer service- The company has been offering quality service to its customers. The
quality of the services it provides has been fundamental to acquisition and retention of market
share. With the same variety of services extended to Canada, it is possible to get a market share in
Canada and retain it.
NORDSTROM INC, EXTERNAL CAPITAL FUNDING PROPOSAL
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A large number of stores- The company operates a large number of stores in the areas that it has
operations (Simoneaux, & Stroud, 2011). The company is, therefore, able to reach customers fast.
Customers do not have to travel long distances to find their fashion supplier. If Nordstrom keeps
this strength into Canada, market entry is simple.
Many years of service- Nordstrom has been offering fashion services to customers since 1901. It
has been in the industry for over a century. The many years of experience make the company
understand the needs of its customers well. According to Simoneaux, & Stroud, (2011), quality of
service improves with some years of experience.
Hence, this has therefore been a factor
contributing to its competitive edge.
Innovations- Nordstrom Inc is innovative. It is effective in the integration of technology in the
fashion industry (Simoneaux, & Stroud, 2011). The company has an innovation lab where there is
a qualified workforce working on innovations that work in the innovation lab, to integrate
technology into its products. In 2017, the company created an executive position; the Chief
Innovation Officer, a place tasked with ensuring innovations is a continued strength of the firm.
Corporate Social Responsibility- The company has CSR as one of its priorities as it operates. In
the latest reports, the firm reports what it has accomplished concerning corporate social
responsibility. CSR is a way of giving back to the society in which a business operates and
improving the welfare of the people (Simoneaux, & Stroud, 2011). With this CSR record, the
company will be accepted readily into Canada after showcasing the same level of CSR.
Norms, standards, and Values- Nordstrom have set standards above which customer service must
always be. Subsequently, this has helped maintain customer service quality and enhance market
NORDSTROM INC, EXTERNAL CAPITAL FUNDING PROPOSAL
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share (Simoneaux, & Stroud, 2011). With these standards still the basis of operation in Canada,
the expansion project will be successful.
Internal Risks
Regardless of the many internal strengths that the firm boasts, some internal risks threaten the
firm’s operational process. These include;
The high price of its products- The products of Nordstrom are expensive. Many customers have
been complaining about the high prices (Simoneaux, & Stroud, 2011). The price is not affordable
for some customers. There is, therefore, a customer segment that is locked out due to the exorbitant
costs. The customers are price sensitive. Any Increases in prices affects the sales significantly. In
Canada, we will address this by offering low, stable rates that are competitive in the market. We
will let profitability driven by the volume of sales and not the price.
The quick renovations and expansions of Nordstrom reduce the efficiency of performance of the
workers since the maintenance of the quality of services in fluctuating situations is hard. We will
cope with this risk by entering the Canadian market slowly, to prepare the workforce for the entry
and maintain service delivery quality.
The is a risk of high cost of reputation enhancement via dealing with the upper social class which
could negatively affect profitability. The company will deal with this risk by diversifying to the
lower social level in Canada, through the initiative of sales volume rather than selling price driven
profitability.
External
NORDSTROM INC, EXTERNAL CAPITAL FUNDING PROPOSAL
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The expansion into Canada will also be affected by external factors. This section looks at the
different external risks and opportunities that the company faces as it expands. They include;
Competition- There is a risk of the high level of competition as it enters into Canada. The source
of the competition is the big Canadian fashion companies that dominate the market (Karakowsky,
& Guriel, 2015). The risk of competition posed by highly competitive fashion designers that
include; Greta Constantine, Sid Neigum, Beaufille, Hayley Elsaesser among others. As part of its
entry plan, a company will offer quality services at competitive prices. The raw materials will
obtain from cheap sources, and Nordstrom will also utilize the cheap labor in Canada, and with
these, the cost of production will maintain low, and hence allow the company offer low,
competitive prices. Maintenance of high quality will enable the company to cope with the high
level of competition.
Legal risks- Canada governed by three levels of government in the federal structure. Each of these
levels of government has regulations that affect the conduct of business. The laws that govern
operations in Canada are different from those that regulate activities in the United States. It is
therefore essential for the company’s management to prepare to face a different legal structure in
Canada. The risk is that the legal structure may be unfavorable to the firm (Karakowsky, & Guriel,
2015). This risk will be managed by complying with all the levels of governance and having a
legal team to advise the company in the course of its operation so that it does not conflict the
constitutional provisions during its process.
Human rights and business risk- Some human rights regulations must follow for companies that
operate in Canada. The company faces a compliance risk as it expands into Canada. It will be
bound to comply with these regulations, and any violations are punishable (Karakowsky, & Guriel,
NORDSTROM INC, EXTERNAL CAPITAL FUNDING PROPOSAL
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2015). The risk will avoid by following strictly, the provisions of all the Human rights regulation
agencies in Canada.
The Canadian culture of non-tolerance to corruption and bribery- Canada is among the top 10
countries in the world with least corruption (Karakowsky, & Guriel, 2015). Any form of crime
could punish by having the license to operate in Canada revoked. This risk will avert by educating
the employees of the company, from management to line operational workers to ensure zero
corruption.
Terrorism Threat- Canada has been reported in recent reports to be vulnerable to indiscriminate
terrorist attacks (Karakowsky, & Guriel, 2015). The risk of terrorism will minimize the company’s
management keeping track of terrorist reports in Canada and always being vigilant to the terrorist
like activities.
Organized crime- Canada, like many other countries is vulnerable to organized crime
(Karakowsky, & Guriel, 2015). Adequate security measures must, therefore, be put in place to
minimize established crime risk. For this company, the risk will reduce through insurance against
several forms of organized criminal activities such as burglary.
Macroeconomic Factors Affecting the Expansion
The microeconomic factors are essential in making expansion decisions. In this section, we look
at different microeconomic factors that affect expansion into Canada.
Price- Price is an essential factor affecting expansion into a new geographical area and business in
general. If there is a high demand for a product, it often priced inelastically. If the market is low,
the product is price elastic (Silberston, 2016). The products of Nordstrom in the United States are
NORDSTROM INC, EXTERNAL CAPITAL FUNDING PROPOSAL
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costly. They, however, priced elastic. Changes in price significantly affect the volume of sales. If
the price offered to the Canadian market is still high, the price elasticity may frustrate sales. As a
result, the company will provide low, stable prices to avoid the loss of market share to other
competitive firms in Canada.
Competition in the Canadian fashion Industry- The Canadian fashion industry is competitive.
Several companies dominate the market. However, the market is not as competitive as in the
United States. With the experience that Nordstrom has gained from many years, it has been in the
industry; the company can cope with the competition in the Canadian market.
Customer tastes and preferences- The company’s policy is to always integrate customer tastes and
preferences into the products it offers. The company’s products, therefore, reflect the customer
wants. Nordstrom, Canadian branch will consequently be successful as the company will provide
according to customer demands (Silberston, 2016).
Suppliers and raw material cost- The cost of raw materials is an essential factor in the operation
process of a company (Silberston, 2016). Highly costly raw materials could inflate the production
cost significantly and therefore reduce the profitability. Nordstrom acquires its raw materials from
stable suppliers. For purposes of operations in Canada, the raw materials must be sourced from
cheap sources available, offering quality raw materials. With this, the firm will be able to provide
low prices and therefore maintain market share.
Employees- The employees of the company have a culture of commitment and guided by a set of
values, standards, and norms that govern the company’s operations. The services of its employees
are outstanding in quality. The company will utilize local labor in Canada. There is the availability
of cheap labor in Canada that is more cost-effective than using US labor in Canada. Using local
NORDSTROM INC, EXTERNAL CAPITAL FUNDING PROPOSAL
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labor force will enable the company to be competitive in the market (Silberston, 2016). The
workers will be trained and cultured to follow the company’s norms, standards, and values.
Customers- The company has reported one of the best customer loyalties. The company does not
lose its customers to competitors. The market share of the company keeps on enlarging. The reason
for the customer loyalty is because of the quality of the services that the company offers and
maintenance of standards, values, and norms. Silberston, (2016) suggests that this microeconomic
factor is vital for success in Canada. Once the company starts its operations in Canada, the market
share will keep on expanding as a result of customer loyalty.
Shareholders- The company has an extensive network of shareholders that fund the organization.
Funding is therefore not a problem for Nordstrom. In case of need for more funding, if the selling
of shares is an option, the company has always been obtaining the needed funds. The operations
in Canada are therefore possible with that sizeable stable shareholder base.
Alternate financial scenarios
In this section, we discuss the sensitivity of your financial projections to different situations. In the
course of operation, various economic scenarios emerge. The scenarios affect operations ion
different ways and different magnitudes.
Decline in sales
If there is a decline in sales, for instance by 20%, the financial performance would be adversely
affected. The gross profit will reduce, as well as the net profit. However, the profit margins will
stay the same. If the sales increase by 20% on the other hand, the financial performance will be
NORDSTROM INC, EXTERNAL CAPITAL FUNDING PROPOSAL
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positively affected. It is, therefore, necessary for the management to ensure that sales are not
adversely affected by providing sales always increase.
Inflation could be a reason for the decline in sales. If there is a rise in the general price level, the
prices of the products of the company will also rise. The demand for these products is, however,
price elastic and therefore an increase in price will adversely affect sales and financial
performance. If the general price level decreases, however, the effect on economic performance
will be positive. The management should put in strategies, to cope with any possible inflation to
ensure the financial performance is not affected.
Changes in general wealth level could also affect the sales. If people become more wealthy and
increase in the real wages, the financial performance of the company will positively impact. The
converse is also true. A decline in the general wealth level of the citizens will negatively affect the
business performance. In case of the decrease in wealth level, the company should put in place
policies to cushion financial performance, such as reduction in prices within the profit range.
Capital Budgeting Techniques and Their Implications for The Different Alternate Financial
Scenarios
Net Present Value
In the Expansion decision, the Net Present Value decision criteria are that, invest in the project if
it has a positive NPV (Shrieves, & Wachowicz Jr, 2011). The increase in sales by 20% would
increase the NVP of the project and make it more acceptable. A decline in sales of 20% would
negatively affect the NPV. In case the NPV is negative, the expansion project should not undertake.
The management should check the other financial situations possible and ensure that the plan
commits if the possible NPV is positive.
NORDSTROM INC, EXTERNAL CAPITAL FUNDING PROPOSAL
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Internal rate of return
The IRR of a project is the interest rate at which the NPV is zero. The investment decision under
IRR is that, invest in a project if the prevailing interest rate is lower than the IRR (Vernimmen, Le
Fur, Dallochio, Salvi, & Quiry, 2018). Ultimately, this ensures that the project’s NPV is always
positive. In case the sales decline by 20%, the IRR would increase. If the IRR rises above the
prevailing market interest rate, then the project should not be undertaken. In the case of an increase
in sales by 20%, the IRR reduces. In this case, acceptance of the plan becomes more definite.
Payback period
Payback period is the time it takes for a project to recoup the initial investment. For an exclusive
project, the investment decision is; invest in the project, if it has a good and acceptable payback
period (Gorshkov, Rymkevich, Nemova, & Vatin, 2014). In the case of the increase in sales by
20%, the payback period is shorter as opposed to a decrease in sales by 20% that increases the
payback period.
Conclusion
In summary, it is evident that there are many aspects that a company needs to consider before
establishing itself in the global marketplace. In the case of Nordstrom Inc., the company has
evaluated all available channels that can reasonably ensure that the company is still the productive
new market. Also, adequate project funding will facilitate the smooth operation of the project and
thus ensure rapid implementation. By providing the necessary resources on time, the company will
continue to develop and win the customer base before other players in the field discover that the
Camada manufacturing base exists.
NORDSTROM INC, EXTERNAL CAPITAL FUNDING PROPOSAL
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References
Gorshkov, A. S., Rymkevich, P. P., Nemova, D. V., & Vatin, N. I. (2014). Method of calculating
the payback period of investment for a renovation of building facades. Stroitel’stvo
Unikal’nyh Zdanij I Sooruzenij, (2), 82.
Karakowsky, L., & Guriel, N. (2015). The Context of Business: Understanding the Canadian
Business Environment. Pearson.
Shrieves, R. E., & Wachowicz Jr, J. M. (2011). FREE CASH FLOW (FCF), ECONOMIC VALUE
ADDED (EVA™), AND NET PRESENT VALUE (NPV): A RECONCILIATION OF
VARIATIONS
OF
DISCOUNTED-CASH-FLOW
(DCF)
VALUATION. The
engineering economist, 46(1), 33-52.
Silberston, A. (2016). 12. FACTORS AFFECTING THE GROWTH OF THE FIRM-THEORY
AND
PRACTICE. Microeconomic
Analysis
(Routledge
Revivals):
Essays
in
Microeconomics and Economic Development, 329.
Simoneaux, S. L., & Stroud, C. L. (2011). SWOT analysis: The annual check-up for a
business. Journal of Pension Benefits: Issues in Administration, 18(3), 75-78.
Vernimmen, P., Le Fur, Y., Dallochio, M., Salvi, A., & Quiry, P. (2018). The Internal Rate of
Return. Corporate Finance: Theory and Practice, Fifth Edition, Fifth Edition, 284-296.
MBA 640 Final Project Milestone Three Guidelines and Rubric
Overview: The final project for this course is the creation of an external capital funding proposal.
Most businesses face a landscape of uncertainty and a never-ending stream of risks and opportunities. Managers must continually project the likely financial
impact of decisions, make recommendations, act on those decisions, determine how to pay for them, and evaluate the costs and ef …
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