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Huffman Trucking Strategic Financial Plan

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MEMORANDUM

TO: All Department heads

FROM: Corporate Office

DATE: August 29 2011

SUBJECT: Strategic Financial Plan

In Team B's cash flow statement, the team has notice a significant trend in net profits and marketable securities fueled by the cash provided by operating activities. The team could use the profits now to gain more land for building more facilities. This may cut down on the travel distances of trucks to save money on fuel and maintenance costs. This would also gain more efficiency, which will push the sales to increase. Also the company should focus on using more of the capital to pay off long-term obligations.

One of the biggest risks in business and with capital budgeting is whether a project is going to be acceptable and bring wealth to the company. Risk is also always around when making long-term decisions, especially when a company is dealing with finances. That is why corporate must have well managed techniques that will help gain the company wealth and not make them bankrupt. The company must learn to ration their capital. Two of these techniques to help the company ration their capital and choose the best projects that will gain the company maximum wealth include, the net present value (NPV) approach and the internal rate of return (IRR) approach. The NPV is the approach that uses present values of the company to predict the projects that will gain the company maximum wealth. The IRR approach uses graphs for different projects against the total investment. On the graphs the financial manager will draw a cost of capital line and then imposing budget constraint and by this line the financial manager can choose what projects will be accepted or rejected. This is only a satisfactory solution because this technique does not guarantee maximum dollar return to the company. So just using the IRR can be a risk, if not combined with other techniques.

The capital structure is extremely important for a company's financial planning process. Strong capital structure decisions can lead a company to have lower costs of capital, which in turn raise the company's NPV's and will have more acceptable projects. By having more acceptable projects will raise value of the company. Poor capital structures decisions will increase cost of capital, and drop the NPV's of projects. These projects will then be unacceptable to pursue, and will result into dropping the value of the company.

To find the company's financial leverage, so that someone may be able to see how the company is doing financially, the person can use the debt, times interest earned, and the fixed-payment coverage ratios. These ratios help determine to someone how financially sound a company is, and determine

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