Running head: PROJECT SUMMARY 1

Project Executive Summary

Name

Institution
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Executive summary

McCormick & Company, Inc. is global leader in flavor products. The company strength lies in

its diverse and balanced portfolio. Strategically the company is positioned to meet the increasing

customer demand for flavor products globally. Through the close analysis of the company

investment activities, the report seeks to:

1. Evaluate the new plant and equipment viability.

2. Analyse the company cost of capital.

3. Evaluate the investment IRR and the NPV.

Methods

To evaluate the viability and profitability of the the new plant and equipment, the internal

project rate of return, net present and the weighted average cost(WACC) was computed. The

computations were done by using the company after-tax cash flows and cost of the capital.

Results and the conclusions

McCormick & Company has an imbalanced capitalization structure with the company having a

higher level of debt as compared to the equity. in fact, the company equity capital stand at

$14,237,510,000 as compared to the debt capital which stand $ 3,237,150,000. The capitalization

structure show that the company is composed of 81% equity and 19% debt. The structure gives

the company a lower leverage, which a positive bargaining power to raise more finances for

funding the project. However, the higher outstanding share-capital means that the company

distributes most of its profit as dividend hence leading to shrink capital reserve.

The investment project(plant and equipment) has a higher positive NPV of $ 99 million

stipulating that the project is viable and is worth consideration. Also, the project has a relatively
PROJECT SUMMARY 3

higher internal rate of return of 93% compared to the weighted average cost of capital of 9.24%.

The higher IRR stipulate that the project will generate more earnings to the company.

Lastly, the company can either be financed using the equity and debt finances. The

McCormick & Company has a WACC of 9.24% which is used as the basis of comparison. The

after-tax cost of debt stands at 4.8% while the cost of equity is 12.2%. By comparing the two

sources of finance, the company should go for more debt financing since it is relatively cheaper

than equity finance and falls below the expected WACC.

Recommendations

1. McCormick & Company should strive to source for more debt capital to finance the

investment in new plant and purchase of the equipment.

2. The company should reduce the volume of its equity to minimise on the amount of the

profit that is annually distributed to the shareholders in the form of dividends, and it can

be done through the process of share repurchase scheme.

3. The investment should be accepted since it will generate a positive stream of income for

the company.