1

Running Header: King Fisher Aviation

King Fisher Aviation Scenario 1

NAME

MGMT 332

Embry Riddle Aeronautical University

Running Header

Here at King Fisher Aviation, we are in the business of green jet fuel, an advanced

renewable fuel alternative to traditional jet fuel. The process used produces green jet fuel from a

variety of sustainable feedstocks. I have recently taken on the role of financial manager for the

young and growing company and was given a file that was in progress when the previous

financial manager left the position. As the new financial manager for King Fisher Aviation, I’ve

decided it is in my best interest to first, prepare by reviewing several important corporate

financial areas.

Shawn Paschal’s advanced technology for use in the green fuel production anticipated

that the first cash from technology would be $200,000 when it is received 2 years from today.

Subsequent annual cash flows are calculated to grow at 4.5 percent in perpetuity after that.

Based on these numbers, I calculated that the value one period before the first payment would be

approximately $178,571.43 and that today’s value was $2,380,952.38. Based on these figures,

King Fisher Aviation should invest in Shawn’s technology. Looking ahead to the future, this

technology will help us grow and benefit us greatly. “A short collection period means prompt

collection and better management of receivables. A longer collection period may negatively

affect the short-term debt paying ability of the business in the eyes of analysts” (Ross,

Westerfield, Jordon, 2017). I recommend King Fisher Aviation keep this collection period.

Adjusting or drastically changing the period could cause massive confusion for both suppliers

and consumers. If we already have some accounts contracted at the 30-day collection period,

then it also could be difficult to change it in the middle of a contract.

A company’s securities typically include both debt and equity; therefore, one must

calculate both the cost of debt and the cost of equity to determine a company’s cost of capital.

At some point, however, the cost of issuing new debt will be greater than the cost of issuing new
Running Header

equity. This is due to the fact that adding debt increases the default risk and, thus, the interest

rate that the company must pay in order to borrow money. My overall recommendation going

forward is to identify the “optimal mix” of financing, which is the capital structure where the

cost of capital is minimized so that the firm’s value can be maximized.

Running Header

Reference

Ross, Stephen A., Westerfield, Randolph W., Jordon, Bradford D. (2017), Essentials of

Corporate Finance, 9th Edition, McGraw-Hill Education (2017), 2 Penn Plaza, New

York, NY