Strategic Decision Making and Complexity

This assignment delves into the complexities of strategic decision-making. It requires analysis of various theoretical frameworks, models, and real-world examples to understand how organizations navigate uncertainty and make informed choices. The focus is on identifying key factors influencing strategic decisions within complex environments.

STRATEGIC AND
FINANCIAL DECISION
MAKING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Measuring weighted average cost of capital of Goodway Plc...............................................1
TASK 2............................................................................................................................................3
TASK 3............................................................................................................................................4
A. Measuring CAPM..............................................................................................................4
B. Measuring the WACC for Noggin Plc:..............................................................................5
TASK 4............................................................................................................................................6
TASK 5............................................................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
The development of suitable decision which will be helpful in improving the operational
ability as well as better financial administration in organisation. Goodway Plc is a holding
corporation which deals in the marketable security the managerial concern is to improve equity
and capital structure of firm. Similarly, as to have appropriate development of strategies there
will be consideration of various measurement such as cost of capital, CAPM and WACC are the
major factors which will be helpful to make proper improvements in business viabilities.
Moreover, the directors of this organisation will be suggested as to make satisfactory changes
into operations as well as managing financial operations.
TASK 1
Measuring weighted average cost of capital of Goodway Plc
To analyse the weighted average cost of capital there is need to have appropriate
estimation of costs implemented in each business operations. However, it brings the appropriate
information and details relevant with the debts and equity of the business which will be used in
context with improving the capital structure of the firm (Pollanen and et.al., 2017). Similarly, to
analyse the cost of capital of Goodway Plc there will be analysis based on various capital
treatment as listed below:
Cost of preference share capital::
Particulars Details
Preferred Stock Price 25
P Shares O/S 8000000
Market Value (P) 200000000
Dividend on preferred stock 11.4
Cost of Preferred Stock 46%
Cost of debt for 3% irredeemable loan stock
Particulars Details
Face Value of Bond 31.6
Bonds O/S 1400000
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Coupon Rate 0.03
Market Price of Bond 100
Coupon 0.948
Market Value 140000000
Maturity (Years) 10
Corporate Tax Rate 0.35
Cost of Debt before tax 74.3%
Cost of Debt after tax 48.30%
Cost of 9% redeemable loan stock:
Particulars Details
Face Value of Bond 103.26
Bonds O/S 1500000
Coupon Rate 0.09
Market Price of Bond 100
Coupon 9.2934
Market Value 150000000
Maturity (Years) 10
Corporate Tax Rate 0.35
Cost of Debt before tax 42.20%
Cost of Debt after tax 27.43%
Cost of 6% Unsecured loans
Particulars Details
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Face Value of Bond 100
Bonds O/S 2000000
Coupon Rate 0.06
Market Price of Bond 75
Coupon 6
Market Value 150000000
Maturity (Years) 6
Corporate Tax Rate 0.35
Cost of Debt before tax 70.40%
Cost of Debt after tax 45.76%
Bank loan cost:
Bank loan 1540
Interest @ 13% 200.2
Maturity period 6 years
256.6666666667
256.6666666667
Cost of debt before tax 1
Corporate Tax Rate 35.00%
Cost of debt after tax 0.65
Weighted average cost of capital:
weight After tax Total weight
v 640000000
Weighted cost of preferred shares 0.3125 0.109375 0.0341796875
Weighted cost of 3% loan stock 0.21875 0.0765625 0.0167480469
Weighted cost of 9% loan stock 0.234375 0.08203125 0.0192260742
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Weighted cost of 6% loan stock 0.234375 0.08203125 0.0192260742
Cost of Preferred Stock 45.60%
Cost of 3% debt 74.30% WACC 8.94%
Cost of 9% debt 42.20%
Cost of 6% debt 70.40%
Interpretation: In relation with measuring the weighted average cost of capital it can be
said that there is need to have consideration of cost of equity, cost of debts which in turn will
have the effective analysis over the cost of capital. Therefore, the weights of this capital stock of
Goodway Plc is 640000000. The weighted cost of preferred shares is 0.3125, weighted cost of
6% loan stock is 0.21875, 9% loan stock as 0.2343 and 6% unsecured stock as 0.2343. However,
the corporate tax has been charged over the weighted capital at the rate of 35%. It comprises with
the weighted average cost of capital for 8.94%. Evermore, the outcomes are quite favourable and
adequate for the development of the entity. Thus, the costs of equity and cost of debts are proper
for the business. Moreover, in relation with the costs of debts which are comparatively higher
than cost of equity.
TASK 2
Cost of capital as per managing director:
After tax Total weight
Cost of Preferred Stock 51.56% 0.18046 0.093045176
cost of 3% loan stock debt 19.30% 0.06755 0.01303715
cost of 9% loan stock debt 4.20% 0.0147 0.0006174
cost of 6% unsecured debts debt 14.40% 0.0504 0.0072576
WACC 11.40%
Interpretation: In relation with the managerial decision made by Shilpa Gohal on which
she thinks that the costs of debts are needed to be much cheaper than the costs of equity.
Therefore, in relation with such assumptions the calculations has been made which in turn will
be helpful to the professionals as to have the appropriate determination of the facts However, the
cost of equity has been estimated as 51.56% while the total costs of debts are 37.90%. To analyse
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the weighted average cost of capital, considering all the relevant costs which will be assistive and
helpful to the business as to have the most appropriate and adequate analysis over the business
operations. Thus, the WACC has been measured as 11.40% which states that the cheaper debts
will be helpful in reducing the cost of capital. Therefore, to reduce the costs of capital there wis
need to have rise in the costs of debts. Thus, it can be said that the firm is capable of making the
payments to it shareholders and bring them the adequate return over their investments.
Therefore, the analysis of various factors will be helpful and appropriate as to have development
of company policies.
TASK 3
A. Measuring CAPM
To analyse required rate of return over the assets of business the concept Capital assets
pricing model will be fruitful for such measurements. However, it will be accurate and effective
as it considers the market risk of return, risk free rates and beta value of concerning firm. It
enables the managerial professionals in decision making as well as making profitable changes in
the asset valuation (Kaufmann, Wagner and Carter, 2017). Moreover, to value the assets of the
organisation which will be helpful to the firm in terms of presenting the fruitful returns. Thus, in
relation with the managerial decisions made by Mark Darcy the CAPM will be measured as
follows:
Particulars Details
Market risk of return 0.14
Risk free rate 0.05
Market risk premium RM-RF 0.09
BETA 0.78
0.039
Capital Assets Pricing Model 0.35%
Interpretation: On the basis of above analysis it has been determined here that the market
risk of return is of 14% risk free rate as 5% on which the market premium will be measured by
the professionals as 9%. Thus, it computed as deducting the risk free rate from market risk.
Similarly, the beta rate of Goodway Plc is 0.78. Thus, after analysing all the factors the CAPM
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has been measured as 0.35%. Moreover, it can be said that, the assets of firm will be valued at
0.35%.
B. Measuring the WACC for Noggin Plc:
By considering the balance sheet and the capital structure of Noggin Plc. The following
analysis will be based on various operations such as determining the costs of equity and debts
which will be helpful in demonstrating the WACC measurements for business (Consigli, Kuhn
and Brandimarte, 2017).
Cost of capital:
Particulars Details
Share Price 3.51
Shares O/S 600000
Market Cap (E) 2106000
Stock Beta 1.51
Risk Free Rate 0.05
(e.g. return on 10 year treasury bonds)
Required Market Return 0.14
Market Risk Premium 0.09
Cost of Equity 18.6%
Debts:
Long term debts 2600000
Tax 0.35
WACC:
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Weighted After tax Total weight
v 4706000
Weighted cost of equity 0.4475138122
0.15662983
43 0.0700940142
Weighted cost of debt 0.5524861878
0.19337016
57 0.1068343457
Cost of Equity 18.59%
Cost of debt 0.35% WACC 17.69%
Interpretation: By considering various analysis and determination of the facts it can be
said that the weight of all the capital stock of the firm is 4706000 the weight of equity has been
determined as 0.4475, weighted costs of debts is 0.5524 while the costs of equity as 18.59% and
the debts as 0.35%. Therefore, the taxes has been levied over the costs is of 35% which brings
the favourable outcomes to business such as 17.69% of WACC. Thus, in relation with such
outcomes it can be said that, the cost of equity are comparatively higher than the costs of debts.
Thus, the costs of debts is on favourable instinct which demonstrates here that the firm is being
capable of meeting its debts on the right time.
TASK 4
By analysing weighted average cost of capital with consideration of Mark Darcy's
comments that the debts will be higher while the equity must be cheap. However, in relation with
such arguments there has been analysis based on various operations which will be satisfactory in
determining the solutions (Jeong and Harrison, 2017). Thus, after reducing the equity costs in
comparison with the debts the outcomes has been derived as listed below:
WACC on the basis of Mark Darcy's comments:
After tax Total weight
Cost of Preferred Stock 30.00% 0.105 0.0315
cost of 3% debt 25.00% 0.0875 0.021875
cost of 9% debt 25.00% 0.0875 0.021875
cost of 6% debt 20.00% 0.07 0.014
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WACC 8.93%
Interpretation: In relation with managing the business operations there can be influences
of various outcomes which in turn will be helpful as to have the most indicative and appropriate
analysis over the facts. Therefore, here the costs of equity is 30% and total costs of debts were
70% has been mention as to analyse the WACC as 8.93%. Thus, the weighted average cost of
capital will be 8.93% which is appropriate and favourable to the professionals of the
organisation.
Additionally, in accordance with reducing the cost of capital of the business there are
various techniques which will be beneficial to the professionals of Goodway Plc. Moreover, the
reduction in the costs which will be assistive to entity in terms of having better financial control
over the debts and revue generated by the managerial heads (Astley and et.al., 2017). In addition,
there are several techniques which are needed to be implicated by managers in Goodway Plc
which in turn will be helpful for bringing the satisfactory control over capital expenditures such
as:
Equity capital costs:
To measure the effective costs of equity and the measures which will be helpful to the
business as to have proper control over the facts. Thus, it comprises with the common stock,
retained earnings on which the professionals made returns to the investors on their investments.
The costs of equity identify the profitability of organisation which incorporated with inherent
risks (Capital Structure Considerations, 2018). Therefore, the determination of risk will be
helpful as to have the most adequate appropriate analysis over the equity risk premium as well as
the opportunity costs. Moreover, the reduction in the given risk rate will be beneficial in
reducing the equity costs (Xia, Yu, Gao and Cheng, 2017). Thus, reducing the cost of equity will
eventually help the organisation in reducing the cost of capital.
Debt costs:
These are the interest rates which will be applicable to the loans and borrowing made by
the organisation in a period. Therefore, the applied interest rate indicates non-payment relative to
collateral requirements attached to the borrowings. Thus, it insists that the reducing the cost of
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debts which will be helpful in reducing non payments of funds. Moreover, it will be helpful in
bringing the higher interest rates of other capital in comparison with the interest rates of debts. In
addition, it can be said that to reduce the cost of debts which will be assistive and helpful as to
have the reduction in firm's expenses as well as the payments made in context with paying off
the debts (Astley and et.al., 2017).
Redeveloping the capital structure:
It comprises with the review at capital structure of the firm which will be beneficial as to
make the reduction in the WACC. Therefore, capital restruction involves substituting debts for
equity as it belongs to reduction in costs after taxation. Therefore, the substitution if the costs of
capital will be beneficial in developing the capital structure if the firm. Therefore, there will be
favourable reduction in the WACC cost of the firm (Leiblein, Chen and Posen, 2017). The
balance cost of debts and equity will be assistive and fruitful for having most preferred and
appropriate management of the costs of debts.
Remuneration:
In relation with managing firm's expense which are mainly salaries, commission, bonus
amount etc. which were being payable to the employee in the organisation. However, to have the
appropriate productive work there will be need of having employees and worker which will
support the work and make efforts in attaining the organisational tasks. Thus, to have appropriate
managements of the work there will be need of making proper development of strategies which
will reduce the costs or expenses of business (Loibl, 2017). In relation with this, the firm has to
install various machineries and equipments which will reduce the labour costs. Moreover, this
approaches will make reduction in the liabilities or debts of firm which will be beneficial as to
have proper managements of the funds for the operations.
TASK 5
In relation with determining the favourable policies which will be helpful in decision
making as well as growth of the entity there is need to have proper consideration of all the
relevant costs (Bruch and Feinberg, 2017). In addition, to improve the financial health and
operational efficiency of the organisation the terms organic growth and acquisition will be
helpful to Goodway Plc such as:
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Organic Growth:
This the most fruitful technique which will be indicative and helpful in the growth of the
operational practices of the organisation such as increasing the outputs of firm. Moreover, here
the main emphasis is made on making appropriate increment in the level of sales made by the
professionals. However, it does not comprise with acquisition, takeover of the business profits
and the assets for having better revenue generation as well as developing the adequate capital
structure (Pollanen and et.al., 2017). Similarly, it comprises with various operational activities
which will be indicative and helpful as to have the most preferable and beneficial development in
the operational activities. There will be rise in the employees' confidence, efforts and motivates
them to make the productive efforts in achieving the business targets. Thus, the rise in the
production will be depends of various techniques such as introducing new product line as well as
making innovative changes in the existing production.
Existing Product/Consumers: In most of the rim the firm takeover the business of
another firm in relation with improving the industrial economies. Therefore, it requires proper
information relevant with the production capacity, capital structure as well as revenue growth of
the firm. On the other side, the improvement in the existing product line of the organisation
which requires innovative thinking and the strategic decision which will be beneficial in the
growth of business (Kaufmann, Wagner and Carter, 2017). To reframe the framework of
organisation with making changes in the products and services offered by the firm as to have
appropriate development in sales. It requires proper assessment of the consumers wants and
needs in the business which will help in strategic planning decision making to the managers of
Goodway Plc. Moreover, such technique will be helpful in providing suitable satisfaction among
the consumers (Consigli, Kuhn and Brandimarte, 2017). The designing of the products which
will be in accordance with the needs and wants of buyers which in turn will be helpful for the
growth of business operations.
New consumer/ products: This technique mainly helps in attracting the consumers at
new location as per the expansion of the business ate the new place (Organic Growth
Framework, 2018). Therefore, it implies with promotion of the goods and services offered by the
business to develop the brand identity in the market (Jeong and Harrison, 2017). Moreover, in
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relation with generating the adequate numbers of consumers which requires appropriate
promotional techniques in organisation.
New products and services: To retain the previously existing consumers in the
organisation to make them brand loyal there is need to have launch of new and innovative
products. Thus, in relation with services offered by Goodway Plc which are mainly relevant with
marketable securities (Astley and et.al., 2017). However, it will be suggested to managers that
they must make changes in the dividend policies as well as changes in the returns made by them.
Acquisition:
By considering the operational practices made by Noggin Plc it can be said that the firm
is having satisfactory amount of cost of equity which will be effective and adequate as to have
the most appropriate development of the industrial economy. Moreover, in relation with making
effective changes into operations which will be helpful for developing the capital structure of the
firm (Leiblein, Chen and Posen, 2017). Thus, it will be suggested to the professionals of
Goodway plc that they musty make appropriate acquisition of the Noggin Plc. Which will be
assistive and helpful for better development of the gains and profitability in entity.
CONCLUSION
By considering the above report it can be said that there are various measurements which
has been made by the professionals such as weight average cost of capital, CAPM analysis etc.
therefore, it will be suggested to the professionals of Goodway that the reduction in cost of debt
will be most effective to the firm as to have the lower cost of capital. The comment of Mark is
liable to have the improvement in the financial position of business. Further, it has been
suggested to the professionals that they must make necessary improvements in organisation on
the basis of organic and acquisition techniques. Therefore, the suitable and efficient way will
make necessary improvements in the business operations.
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REFERENCES
Books and Journals
Arend, R. J. and et.al., 2017. Strategic planning as a complex and enabling managerial
tool. Strategic Management Journal. 38(8). pp.1741-1752.
Astley, W. G. and et.al., 2017. COMPLEXITY AND CLEAVAGE: DUAL EXPLANATIONS
OF STRATEGIC DECISION-MAKING [1]. Revival: The Bradford Studies of Strategic
Decision Making (2001). 19. p.4.
Bruch, E. and Feinberg, F., 2017. Decision-making processes in social contexts. Annual review of
sociology. 43. pp.207-227.
Consigli, G., Kuhn, D. and Brandimarte, P., 2017. Optimal Financial Decision Making Under
Uncertainty. In Optimal Financial Decision Making under Uncertainty (pp. 255-290).
Springer, Cham.
Jeong, S. H. and Harrison, D. A., 2017. Glass Breaking, Strategy Making, and Value Creating:
Meta-Analytic Outcomes of Women as CEOs and TMT members. Academy of
Management Journal. 60(4). pp.1219-1252.
Kaufmann, L., Wagner, C. M. and Carter, C. R., 2017. Individual modes and patterns of rational
and intuitive decision-making by purchasing managers. Journal of Purchasing and Supply
Management. 23(2). pp.82-93.
Leiblein, M. J., Chen, J. S. and Posen, H. E., 2017. Resource allocation in strategic factor
markets: A realistic real options approach to generating competitive advantage. Journal of
Management. 43(8). pp.2588-2608.
Loibl, C., 2017. 26 Living in Poverty: Understanding the Financial Behaviour of Vulnerable
Groups. Economic Psychology. 2380. p.421.
Pollanen, R. and et.al., 2017. Relationships between strategic performance measures, strategic
decision-making, and organizational performance: empirical evidence from Canadian
public organizations. Public Management Review. 19(5). pp.725-746.
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