Johnson & Johnson (J&J) Capital Budgeting

Executive summary

The American global firm Johnson & Johnson (J&J), established in 1886, produces consumer packaged products, medicines, and medical equipment. The firm is rated No. 36 on the 2021 Fortune 500 list of the biggest American companies by total revenue, and its common stock is a component of the Dow Jones Industrial Average. One of the most valuable firms in the world, Johnson & Johnson is one of just two U.S.-based businesses with an excellent credit rating of AAA, which is higher than the rating of the US government.

The consumer division of Johnson & Johnson is based in Skillman, New Jersey, while the company's headquarters are in New Brunswick, New Jersey. The firm has over 250 subsidiary businesses that operate in 60 countries and sell their goods in more than 175 nations. In the 2020 calendar year, Johnson & Johnson generated $82.6 billion in global revenue. There are various well-known brands of pharmaceuticals and first aid products under the Johnson & Johnson umbrella.

The paper analyzes the different financial ratios to determine the financial performance and management of the organization. In this case, the organization's performance has been well above the industry averages for almost all the ratios. In this case, the profitability ratios show that Johnson and Johnson have remained profitable in their operations throughout the five years. Additionally, the organization has consistently maintained a debt ratio of 59% and 64% of the total assets.

Finally, Johnsons and Johnsons plan to undertake a project that requires an initial investment of $800 million to purchase equipment and $35 million for shipping & installation fees. The fixed assets fall in the 10-year MACRS class. The salvage value of the fixed assets is 15% of the purchase price. The capital budgeting analysis results obtained from the project show that the project should be undertaken since the NPV of the project is positive, the IRR is high, and the project promises to become profitable within the first three years of operations.

1) Suppose a corporation currently has $500 Million of USDs in exce...