Harris Case

Only available on StudyMode
  • Download(s) : 45
  • Published : February 25, 2013
Open Document
Text Preview
Harris Case Analysis
Objective: Should Harris invest into the shrimp processing plant? Issues:
1. Will this processing plant have a value today that is greater than or equal to the cost today? -If the NPV of the plant is greater than zero, then we should move forward with the investment. NPV Analysis:

Value> Cost
Value: PV: Value right now
PV= forecast of future cash returns (FCR)
-We used FCR to determine how much cash we get back and can deem the plan a good investment if we can bring in more than we would we spend. (Sales>Expenses) Revenues-Increase in A/R each year= Cash revenues

Expenditures (increase in other assets)-Increase in payables=Cash expenditures Revenues
-Increase in asset accounts
+Increase in payables
-Expenditures (expenses and capital ex)

Net cash returns + non-cash expenditures (depreciation & amortization) = Free Cash Flow

Year| 1980| 1981| 1982| 1983| 1984| 1985| 1986|
EBIT| 0| -363| 4139| 7119| 8141| 9287| 10564|
Depreciation| 0| 833| 787| 758| 746| 748| 764|
Tax| 0| -174.24| 1986.72| 3417.12| 3907.68| 4457.76| 5070.72| Inc. A/R| 0| 2416| 3446| 1857| 991| 1124| 1267|
Inc. A/P| 0| 2610| 3724| 2006| 1070| 1215| 1369|
Inc. Inventory| 2485| 2578| 4747| 3108| 1657| 1892| 2120| Inc. Other Assets| 100| 915| 1449| 779| 416| 473| 532| FCF| -2585| -2654.76| -2978.72| 721.88| 2985.32| 3303.24| 3707.28| | | | | | | | |

PV of FCF at 10%| -2350.00| -2194.02| -2237.96| 493.05| 1853.65| 1864.59| 1902.42| PV of FCF at 20%| -2154.17| -1843.58| -1723.80| 348.13| 1199.73| 1106.25| 1034.63| PV of FCF at 30%| -1988.46| -1570.86| -1355.81| 252.75| 804.03| 684.35| 590.82| | | | | | | | |

NPV at 10%| -7018.26| | | | | | |
NPV at 20%| -8382.80| | | | | | |
NPV at 30%| -8933.19| | | | | | |
tracking img