2011 CF forecast for LL requested by bank (Finance)

Our 2011 cash flow forecast assumes that the union will accept LL’s revised offer in June and the strike was only for April, 2010 which will not affect fiscal 2011 since the offer would be retroactive to April 30, 2010. Our forecast also assumes that MRL’s cash flows are excluded.

Our calculations are in APPENDIX. It shows that cash flow for 2011 is forecasted to be $8,646,000. Furthermore, cash flow is expected to decrease steadily in 2012 and beyond. It is doubtful that LL can remain as a going concern.

Our calculations are based on Mark’s assumptions about sales and operating costs reverting back to 2009 levels, as well as our own estimates of non-cash working capital declines and tax rates. Therefore, we cannot assure that our cash flow forecast will be 100% accurate. We should enquire Mark about why he thinks that 2011 sales and operating costs will revert back to 2009 levels, and verify its reliability. If the circumstances change, so will our analysis and conclusion about the Cash flow.

Competitor’s offer for LL’s inventory and subsequent liquidation of LL (Finance/Tax)

A competitor has offer $28 million for the inventory of LL. We will have to find the current value of LL and compare it with the offer to see if it worth accepting the offer and liquidating.

Under the Earnings-Based Approach, we could apply the cash-flow and discounted model by using 20% rate which is the estimated shareholder’s required after-tax return and using the cash flow from 2011 to 2015 (Appendix) which will give us a value of $18,545,503 which is way less than $28 million plus the lands $10 million fair value.

We would recommend selling the tobacco operations on a bulk-purchase basis and liquidate LL because Mark is losing interest in the tobacco business and wants to fulfill his dream of running the