...Hansson Private LabelHansson Private LabelHansson Private 1. How would you describe HPL and its position within the private label personal care industry? HPL is a mid-sized private label manufacturer of personal care goods. In 1992, the company acquired production assets from Simons Health and Beauty Products, and through increased efficiency had enjoyed growth within the sector. The company’s production is estimated to account for about 28% of the $4 billion sold in their product category, generating revenue of $681 million in 2007. The company was recently presented an opportunity by its largest retail customer to significantly increase its share in their private label manufacturing. The prospect of growth was risky, since it required an initial investment larger than any HPL had previously encountered. The 3-year contract offered was also relatively short. The company would be running the risk of discontinued business after expiration and subsequent heavy losses. However, the upside was obvious. If the company succeeds by locking in long-term business with a powerful retailer, it will surely pay off for many years to come. A special quality of the private label business is that manufacturers generally produce at levels demanded by the retailers they produce for. Even though private labels have been steadily gaining market penetration due to quality improvements, growth in the overall market were modest, leaving manufacturers little opportunities for big investments. Therefore...
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...Summarize the case in one or two paragraphs. Polar Sports, Inc is located in Littleton, Colorado where it manufactures fashion skiwear. The production of skiwear has a unique design where they use special synthetic material that improves insulation and durability. In order to develop market share in a competitive industry Polar Sports, Inc must develop new fabrics and use innovative patterns. Between September and January the company generates over 80% of sales and they depend on seasonal production to respond on time to customers orders. Throughout these months Polar Sports, Inc must quickly increase production by hiring and training additional workers, meaning that they often pay them overtime. There have been some concerns from the vice president of operations regarding the costs associated with seasonal production and therefore presents a suggestion to switch to level production. This proposal can reduce costs and improve efficiency but it can also affect other aspects of company finance. 1. What are total saving from adopting level production? Build pro forma for 1 year and then compare current net income forecasted. The total savings from the adoption level production can be calculated by comparing the Cost of Good Sold under seasonal production ($11,880,000) and the Cost of Goods Sold under level production ($10,800,000). The total savings altogether will be $1,080,000 if Polar Sports, Inc adapts to level production. 2. Which factors...
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...SaSampa Video, Inc. 10/12/10 12.27 9-201-094 REV: OCTOBER 7, 2003 GREGOR ANDRADE Sampa Video, Inc. Sampa Video, Inc. was the second largest chain of videocassette rental stores in the greater Boston area, operating 30 wholly owned outlets. Begun in 1988 as a small store in Harvard Square catering mostly to students, the company grew rapidly, primarily due to its reputation for customer service and an extensive selection of foreign and independent movies. These differentiating factors allowed Sampa Video to compete directly with the leader in the industry, Blockbuster Video. But unlike the larger rival, Sampa had no ambitions to grow outside of its Boston territory. Exhibit 1 contains summary financial information on the company as of their latest fiscal year-end. In March 2001, Sampa Video was considering entering the business of home delivery of movie rentals. The company would set up a web page where customers could choose movies based on available in-store inventory and pick a time for delivery. This would put Sampa in competition with new internet-based competitors, such as Netflix.com that rented DVDs through the mail and Kramer.com and Cityretrieve.com that hand delivered DVDs and videocassettes. While it was expected that the project would cannibalize the existing operations to some extent, management believed that incremental sales would be substantial in the long run. The project would provide customers the same convenience as internet-based DVD rentals for the...
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...2006 CASE QUESTIONS DR. KISS Please allow these questions to serve as a guide when you prepare your case write-up in accordance with the syllabus or other instructions. Table of Contents Page Case: Name and Number, Bruner 5e Note Number I. C12- Best Practices—WACC No Questions II. C2- Bill Miller & Value Trust 2 III. C5- Financial Detective, 2005 Contained in Case IV. C7- Body Shop Intl* Contained in Case, but see page 3 V. C6- Krispy Kreme Doughnuts, Inc. 4 VI. C17- The Investment Detective* Contained in Case VII. C28- Intro. to Debt Policy & Value* No Questions, but review M & M Theory on debt and value of the firm. VIII. HBS Case- “Leveraged Betas and the Cost of Equity No Questions IX. C16- The Boeing 7E 7* 5 X. C26- Jet Blue Airways, IPO Valuation* 6 XI.a C35- Merton Electronics 7 XI.b C36- Carefour S. A.* 8 XI.c C44- Palamon Capital Partners* 9 XII. GM Dividend Policy Negotiation (Information to be provided by Dr. Kiss) * Note: Excel Spreadsheets containing some of the exhibits from the case are available for this case at www.mhhe.com/bruner5e FIN 620, CASE QUESTIONS DR. KISS Please allow these questions to serve as a guide when you prepare your case write-up in accordance with the syllabus or other instructions Case 2- Bill Miller & Value Trust Suggested Questions for Your Preparation of the Case. ...
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...Concern in the budget planning A budget ca be defined as a summary of an itemized likely income and expenses for a given period or year. It is important for a company to prepare a budget as well as revise them after that period. This will help in to decrease the stress level and any financial surprises that might arise. The data from the flexible budget performance report shows the expected units to be produced is 3510 for December year 9. The concern here is that if competition Bike is expected to produce 3510 units, the budget is for the exact amount which might be a problem later when production starts. There is no allowance made for excess materials in case there is waste. The reason why this is a concern is that production might be halted if there is no available inventory. Another concern is that utilities under selling, general and administrative budget shows that the amount of budget allocated for utilities is 150,000. This is not ideal because when comparing the horizontal analysis comparative income statement, utilities for 2006 was 130,000, in 2007 it is 135,000 and for 2008 it is 150,000. That means there has to be inflation added. My projected amount would be around 160,000. This follows the trend from the three previous years. And the final concern is that there is no allocation of extra for depreciation in other general and administrative expense. The budget for 2009 is 170,000 but following the history or the trend, 2006, 2007and 2008 had an increase...
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...Case: Monmouth Inc. Ching Guo, Ryan Doyle, Todd Pinter What We Would Have Done Differently The analysis of the current situation that Monmouth Inc. is in was very well analyzed financially and subjectively. We agreed with most of the assumptions made as well as the analysis of their situation and final decision. They analyzed the value of the acquisition of Robertson Tool Company in multiple ways to get a complete understanding of the situation. The fits thing they brought forth was their problem statement and assumptions. We disagreed with their problem statement in the manner that it did not present an actual problem, but rather a goal for Monmouth Inc. To go along with their problem statement to develop the solution, they presented many assumptions that had strong support such as a Beta of 1.0, the forecast horizon and the future cash flows calculated by the CEO of Monmouth. However, many of their assumptions were very optimistic and included a solution to the problem. Assuming that equity is all that is available and will be used for a company to make an acquisition eliminates many financing options as well as states that they are going to acquire Robertson Tool Company. The second assumption they made without any support is the cost to acquire Robertson. The price of $50 dollars per stock from Simmons is acceptable, as it is stated in the case; however, they show no support for $57 per share for Robertson Tool Company shares. They follow their assumptions...
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...1.0 Introduction Eastern gear Inc. is a manufacturer of custom made gears ranging in weight from a few ounces to over 50 pounds. The gears are made of different metals depending on the customer’s requirements. Eastern gear sells its products primarily to engineering research and development laboratories or very small manufacturers. The president of Eastern Gear decided to accept a few larger orders for 100 gears or more. Although lower prices were accepted on these orders, they helped pay the overhead. It was found that the large orders caused many of the small orders to wait for a long time before being processed. As a result some deliveries of small orders were late. Roger Rhodes had faced many problems and the major problem is not having an efficient production line. The current production process is inefficient and disorganized. After consideration of several alternatives, we have found some major problems that occur in Eastern Gear Inc. The problem that have been analyse is the problem in term of raw materials, production flows, factory layout, poor quality control checks, unproductive way to rush orders and others The problems come from the process design that is inefficient. They also are lacking an organized quality control program. This has resulted in the doubling of production times and a six percent return rate on orders. As the president, he needs to take a responsible by doing actions to solve all the problems that occurred. The actions that should be properly working...
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...ACFI 703 Blades Inc. Case Answers: 1. 15,691,262.40 2. 16,075,791.36 3. Based on the Cash Flows, Blades should stray away from Holt’s plan as it makes a significant amount less than my plan. The proper way of increasing their cash flows is to convert it instantly and then use the interest rate to produce more. They will not be subject to any depreciation if they convert now. 4. Even if you have a higher interest rate, doesn’t mean you are going to make the more money in cash flows. In this case, if you exchange earlier rather than later you are bound to make more because of less chance of fluctuation in the market with such a high interest rate. 5. 16,373,491.20 6. .02066 7. Part 1: 14,736,142.08 Part 2: 13,839,159.52 This happened because the spot rate had changed, and if you convert the cash flows right away, the spot rate effects it the most from the beginning. The interest rate plays a bigger role with a lesser value in the spot rate. 8. MEMO: Dear Ben Holt, The options are tough to decide between, but at the spot rate that we currently have, my way of going about this is the one you should pick. The best way is if we convert our cash flows over the earliest to avoid as much depreciation as we possibly can. Along with this, we should try and convert so the interest rate isn’t as much of an effect if the economy in Thailand declines. The only way I’d say go with your plan is if we believed the spot rate were to decline, which is a very good possibility...
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...improved or deteriorated? d. How attractive is it to take trade discounts? Tuesday, January 24: Clarkson Lumber Company (continued) Reading: a. Note on Financial Forecasting b. Note on Bank Loans a. How much of a loan will Mr. Clarkson need to finance the expected expansion in sales to $5.5 million in 1996 and to take all the trade discounts? (Prepare a projected income statement for 1996 and a pro forma balance sheet as of December 31, 1996.) b. As Mr. Clarkson’s financial adviser, would you urge him to go ahead with, or to reconsider, his anticipated expansion and plans for additional debt financing? c. As the banker, would you approve Mr. Clarkson’s loan request; and if so, what conditions would you put on the loan? Thursday, January 26: SureCut Shears, Inc. a. Evaluate SureCut’s financial performance using standard ratios. b. Why can’t SureCut repay it’s loan on time? In addressing this question, you may find it useful to construct a “sources and uses” statement for the period June 30, 1995 - March 31, 1996. Tuesday, January 31: SureCut Shears (continued) a. What actions would you recommend that SureCut take in...
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...6.4%P0 = D1/(rs − g) $18.29 | | | | Points Received: | 10 of 10 | | Comments: | | | | 2. | Question : | (TCO D) If D0 = $2.25, g (which is constant) = 3.5%, and P0 = $50, what is the stock’s expected dividend yield for the coming year? | | | Student Answer: | | 4.42% | | | | 4.66% | | | | 4.89% | | | | 5.13% | | | | 5.39% | | Instructor Explanation: | Chapter 7D0 $2.25g 3.5%P0 $50.00D1 = D0(1 + g) = $2.329Dividend yield = D1/P0 = 4.66% | | | | Points Received: | 10 of 10 | | Comments: | | | | 3. | Question : | (TCO D) Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share. If the required return on this preferred stock is 6.5%, at what price should the preferred stock sell? | | | Student Answer: | | $104.27 | | | | $106.95 | | | | $109.69 | | | | $112.50 | | | | $115.38 | | Instructor Explanation: | Chapter 7Preferred dividend $7.50Required return 6.5%Preferred price = DP/rP...
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...opportunities? Copyright ©2015 Pearson Education, Inc. All rights reserved. 7-3 Chapter Preview In this chapter, we take a closer look at why financial institutions exist and how they promote economic efficiency. Topics include: •Basic Facts About Financial Structure Throughout the World •Transaction Costs •Asymmetric Information: Adverse Selection and Moral Hazard Copyright ©2015 Pearson Education, Inc. All rights reserved. 7-4 Chapter Preview (cont.) • The Lemons Problem: How Adverse Selection Influences Financial Structure • How Moral Hazard Affects the Choice Between Debt and Equity Contracts • How Moral Hazard Influences Financial Structure in Debt Markets • Conflicts of Interest Copyright ©2015 Pearson Education, Inc. All rights reserved. 7-5 Basic Facts About Financial Structure Throughout the World • The financial system is a complex structure including many different financial institutions: banks, insurance companies, mutual funds, stock and bonds markets, etc. Copyright ©2015 Pearson Education, Inc. All rights reserved. 7-6 Basic Facts About Financial Structure Throughout the World • The chart on the next slide shows how nonfinancial business attain external funding in the U.S., Germany, Japan, and Canada. Notice that, although many aspects of these countries are quite different, the sources of financing are somewhat consistent, with the U.S. being different in its focus on debt. Copyright ©2015 Pearson Education, Inc. All rights reserved. 7-7 Sources of Foreign...
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...In the given case Liquid Chemical Company manufactures and sells a range of high-grade products. Many of these products require careful packaging. The company has a special patented lining made that it uses in specially designed packing containers. Mr. Walsh the general manager was carefully looking at the problem and as a matter of solution he came up with the four alternatives: * Alternative A: It is the status quo. (i.e., Liquid Chemical Co. will continue making the containers and performing maintenance.) * Alternative B: Liquid Chemical Co. will continue making the containers, but it will outsource the maintenance to Packages, Inc. * Alternative C: Liquid Chemical Co. will buy containers from Packages, Inc., but it will perform the maintenance. * Alternative D: It is completely outsourced. Packages, Inc. will make the containers and provide the necessary maintenance. The analysis of each of the four alternatives is given below in terms of the NPV: Option A | Year | 1 | 2 | 3 | 4 | 5 | Cost of GHL net of tax savings | | | | | -144000 | Purchase of other materials | -500000 | -500000 | -500000 | -500000 | -500000 | Supervisor | -50000 | -50000 | -50000 | -50000 | -50000 | Worker | -450000 | -450000 | -450000 | -450000 | -450000 | Rent of warehouse | -85000 | -85000 | -85000 | -85000 | -85000 | Maintenance | -36000 | -36000 | -36000 | -36000 | -36000 | Other Expense | -157500 | -157500 | -157500 | -157500 | -157500 | managers...
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...Case 08-1 Go With the Flow, Inc. Go With the Flow, Incorporated (“Company”) designs, manufactures, and sells a broad range of mobile network products and systems and communication devices, including mobile, cordless and corded telephones. The Company's primary sources of liquidity are internally generated cash flows, the Company's debt and revolving credit facilities, and the sale of trade accounts receivables. The Company’s liquidity and capital requirements are primarily a function of its working capital needs, capital expenditures, and debt service requirements. The Company has the following transactions that need to be analyzed under FASB Statement No. 95, Statement of Cash Flows. 1. Insurance Settlement Proceeds The Company reached a settlement with its insurance carrier related to a claim from a tornado that destroyed one of the Company’s manufacturing facilities. During the year, the Company received proceeds of $20 million from its insurance carrier in connection with its claim for reimbursement for the destroyed building. The Company plans to use the insurance proceeds to fund its defined-benefit pension plan, rather than to rebuild the destroyed facility. 2. Sale of Accounts Receivable The Company sells undivided interests in designated pools of qualified accounts receivable to a securitization vehicle (a qualifying special purpose entity). The Company utilizes securitization as a “financing technique” (e.g., to reduce more expensive bank...
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...Warren Buffett, 2005 Executive Summary On May 24, 2005, Berkshire Hathaway Inc. chief executive officer Warren Buffett announced the acquisition of PacifiCorp by MidAmerican Energy Holdings Company, a subsidiary of Berkshire Hathaway Inc., for about $9.4 billion in cash, liabilities, and preferred stock. The announcement led to a market value gain of $2.55 billion . Buffett was a well respected businessman with a successful investment philosophy. His philosophy included accounting with economic realty, acknowledging opportunity cost, assessing the time value of money, and scoring performance by intrinsic gain, along with other principles. Buffet was a believer in diversification; he helped Berkshire attain a diverse portfolio that included investments in insurance companies, apparel manufacturers, and grocery distributers. Though highly successful in the past, Buffett was frustrated after a few-year period that resulted in a lack of major investment by Berkshire Hathaway Inc. Rather than focus on investments that yielded short term gains, Buffett was waiting for an “elephant” investment opportunity to present itself. Buffett hoped to have found just that in the PacifiCorp acquisition. Problem Buffett badly wanted to make a significant gain for Berkshire Hathaway Inc. However, Buffett needed to consider if PacifiCorp was worth his cash offer of $5.1 billion. Should the investment be undertaken? Analysis As mentioned above, the announcement of the acquisition was met...
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...Commercial Fixtures Inc. + Business valuation overview Suggested questions for the Commercial Fixtures Inc. case are given below. 1. What would you as an outside third party bid under the same conditions (with the same information) for the entire company (both halves)? Why? 2. What do you expect Albert Evans to bid for Gordon’s half interest? Why? 3. What should Gordon Whitlock bid for Albert’s half interest? Why? 4. How would you structure the purchase of the business? Question #1 is a business valuation question. There are a number of ways to estimate the value of a business. You have probably covered one or more of these ways in a previous class. The next two pages review a few of the various ways to go about it. For a discounted CF approach of valuing Commercial Fixtures Inc., I will use the following template: VALUATION APPROACHES – OVERVIEW/REVIEW 1. Comparable Trades Analysis — Using valuation ratios, or “multiples” of comparable firms Use one or more valuation ratios, which include (a) Price-Earnings (b) Market-Book (c) Price-CF (d) Price-Revenues (e) Enterprise Value to EBITDA, and (f) Other ratios. The prospective value (price) of the subject firm is quantified into—and compared with—one or more of the valuation ratios of its peers. The better the performance of the subject firm relative to comparable firms in the relevant performance measures (as measured by operating ratios), the higher the appropriate...
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