Hanson Industry Hpl

Satisfactory Essays
HPL.tx.txt Hansson Private Label, Inc.: Evaluating an Investment in Expansion Case ID - 4021 Solution ID - 12177 1769 Words $75

Abstract Hansson Private Label (HPL) is a manufacturer of personal care products. The company was purchased by Mr Hanson in 1992. The investment represented significant risk for Hanson because a significant portion of his wealth was tied up is a single investment. Over the past sixteen years Hanson has grown the company at a conservative but persistent fashion. He is now faced with an investment opportunity that promises swift growth but also accompanies significant amount of risk. The sales of the private labels are dependent on few larger customers and customer retention is very important to a company like HPL. Recently HPL’s largest customer has approach the company for a large order. The company will need to invest in expanding its facilities in order to meet the order requirements. This is an excellent opportunity for HPL but the downside is that the customer would only commit to a three year contract and the company can bear significant losses if the customer refuses to buy the product after the contract expires. Therefore Hansson needs to accurately calculate the cash flows related to the investment and account for the risk inherent in the investment before he can make decision on the expansion project.

Excel Sheet Projections for Expansion Project Investment Appraisal for Expansion Project 2009-2018 Free Cash Flows, NPV, IRR, MIRR Calculation of Cost of Capital Riskfree Rate, Market Risk Premium, EquityBeta, Cost of Equity, Cost of Debt, WACC Sensitivity Analysis of Key Projections Decrease of 10% Current Increase of 10%

Capacity Utlilization, Selling Price, WACC, Production Cost

Page 1

HPL.tx.txt

Questions Covered 1.There are two main parts to any valuation analysis: Projection of cash-flows and discounting them by the appropriate discount rate. Your main objective is to analyze the appropriateness of both these

You May Also Find These Documents Helpful

  • Better Essays

    ABC Company is a manufacturing firm that specializes in making cedar roofing and siding shingles. The current annual sales of the company are roughly $1.2 million. This is a 25% increase from the previous year. The goal of this company is to reach $3 million in annual sales within the next 3 years. The CEO has decided to expand the product line to include an additional product. The product expansion consists of manufacturing cedar dollhouses using shingle scrap materials. A product expansion will result in additional revenue and gross profit to help reach the goal of $3 million in annual sales but there are many factors that need to be considered before moving forward with the expansion. The issues that will be addressed are current economy and industry issues, company cash flow statement, product cost, and potential investments to accelerate profit.…

    • 1234 Words
    • 5 Pages
    Better Essays
  • Powerful Essays

    PFF Outcome2

    • 780 Words
    • 5 Pages

    I have been asked to produce a report for management of Matteck plc in which I will evaluate the financial viability of the investment proposal. The company is considering expanding into Asia. This operation would involve the acquisition of a factory, a purchase of several new motor vehicles and a new distribution unit. The following are the estimated costs of the planned investment:…

    • 780 Words
    • 5 Pages
    Powerful Essays
  • Good Essays

    Abc Company - 1

    • 1244 Words
    • 5 Pages

    The ABC Company is a manufacturing firm that specializes in making cedar roofing and siding shingles, introducing the new project to build cedar dollhouses by shingle scrap materials for reaching $3 million annual sales within the next 3 years. Explain the overall risk profile of the ABC Company based on current economic and industry issues. In order to help out the CEO I prepare reports that will contain the information regarding the project. These statements refer to the accompanying Excel spreadsheet as well as word documents. The statements are; Cash Flow statements, Product Cost, Net present value, Depreciation, Contribution Margins and Break-even Point of sales. In the last conclude the major risk factors in this project, management accountant responsibilities of the project and recommendations.…

    • 1244 Words
    • 5 Pages
    Good Essays
  • Powerful Essays

    Capital Budgeting

    • 2183 Words
    • 9 Pages

    In particular this assignment focused on Bauer Industries. Bauer Industries is an automobile manufacturer. Management is evaluating a proposal to build a plant that will manufacture lightweight trucks. An important responsibility of corporate financial managers is determining which projects or investments a firm should undertake. The assignment shows the mathematical solutions for the problem.…

    • 2183 Words
    • 9 Pages
    Powerful Essays
  • Good Essays

    Running Simulation Paper

    • 3567 Words
    • 15 Pages

    They are: 1.‘Match my Doll’ Clothing Line, 2.Retail Store Expansion in Northeast and 3.New Doll Film / DVD. We choose these three projects because they are all high or medium risks. Usually the high risk comes with the high return. So we want to see what will happen if we all choose high or medium risker projects. Even if these three projects do not have good 1 Yr. EBITDA, it has the highest three 5 Yr. EBITDA. So when we choose these three projects we do not want it went well in the first year but for the future benefits. After a whole year running, in 2010 the net income was 12.58 million and it was less than 2009. The revenue became 252.42 million and the APV we got this year was 319.38. This is not a problem now because the future view form the financial analysis and project details were going very…

    • 3567 Words
    • 15 Pages
    Good Essays
  • Good Essays

    Commercial Fixture

    • 738 Words
    • 3 Pages

    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.…

    • 738 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    The results of the analysis lend favourably towards accepting the investment project. First it is important to note that based on the after tax cost of borrowing and a risk premium of 3.75%, a discount rate of 8.89% was deemed appropriate for the project. The majority of the investment indicators used to value the project use discounted cash flows to determine the investment’s profitability. This technique allows for comparison amongst different investment opportunities available, as it provides the total return that is expected to be achieved over the project’s horizon in current dollar terms.…

    • 3248 Words
    • 13 Pages
    Powerful Essays
  • Good Essays

    This report utilizes the base case analysis, worse case analysis and best case analysis feeling these analyses are sufficient, while many analyses may be of interest, they could confuse the recommendations and strategic value of the project. In preparation the board would be told that calculating multiple NPVs for multiple inflationary rates for labor cost and supply cost would further confuse the issue. The information presented the NPV, IRR, MIRR and payback times would be calculated and discussed. Additionally, a break even point would be calculated. The break even point calculation included in fixed cost would…

    • 495 Words
    • 2 Pages
    Good Essays
  • Good Essays

    Chef's Toolkit

    • 806 Words
    • 4 Pages

    Define the Issues Chef’s Toolkit has exhausted all of their financial resources trying to develop their product. The owner, Peter Jeffery, is seeking external investment to fund the launch of his product, and the potential investor, Dale Reid, has asked for projected financial statements for the company’s pessimistic, expected, and optimistic projected sales for the first year of operation ending July 30, 1995. Analyzing the Case Data Fragmented information was given in the case, along with a balance sheet and a production schedule for the expected sales of 10,000 units. There was no statement of cash flows, income statement or any information about their cash account or their accounts payable account. Generating Alternatives Dale Reid could choose to either invest $85,000 for 50% of the company, choose to invest more or less for a negotiated percentage of the company, or not invest in Chef’s Toolkit. The pessimistic projected sales is 5,000 units per month, totaling 60,000 units in the year. The expected amount of sales is 10,000 units, summing to 120,000 units per year. The optimistic projected sales is 30,000 units per month resulting in a total of 360,000 units sold in the year. In the optimistic option, a double mold is needed since the total required production exceeds the maximum amount for the single mold. Selecting Decision Criteria • Low additional investment • High revenues with low expenses • Return on Investment • Break Even Analysis Analyzing and evaluating alternatives Break Even…

    • 806 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Through our analysis we found that the cost of capital of the project to be 13.487% and a Weighted Average Cost of Capital (WACC) to be at a value of 9.70%. Factoring in the WACC into our projections we found that if the demand maintains at an average rate the project will be at a positive Net Present Value of $5,997,505.31 with an IRR of 13.21%, a profitability index of 8.84, and an approximate payback period of 6.84 years. Please see Exhibits below for a snapshot of the capital budget and NPV values.…

    • 3279 Words
    • 11 Pages
    Good Essays
  • Satisfactory Essays

    Valuation of AIrthread

    • 279 Words
    • 2 Pages

    4. Valuation done for the cash flows and terminal value at a discount rate corresponding to industry average D/V Ratio…

    • 279 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    Industrial Equipment Case

    • 1984 Words
    • 6 Pages

    Industrial Equipment INC. sold and serviced a variety of industrial equipment and related products to hospitals, nursing homes, hotels, motels and various other organizations in the four Atlantic Canadian provinces of New Brunswick, Nova Scotia, PEI and Newfoundland/Labrador. In addition to distributing a broad line of specialized equipment IE provided design, specification and planning assistance to architects, builders and owners designing new facilities or renovating existing operations. Since its inception in 2004 the company had experienced growth in sales. The main concern for the owner of IE Jon Costello is how to maintain the growth trend that the company has experienced over the first few years. Mr. Costello wants to see the business growth through expanded operations and selective acquisition. The way he perceives it, he has three options to choose from (1) expanding by purchasing Hines Equipment his father-in-law’s business an existing equipment business and his most direct competitor in the area (2) he can also expand by purchasing Metro service the sub-contraction company so it has its own service facility (3) he can purchase Quebec equipment so IE can expand its geographic reach and also enter the food services industry. Mr. Costello needs to evaluate these options to see which one of these options give him the best opportunity to grow the business in the long term.…

    • 1984 Words
    • 6 Pages
    Powerful Essays
  • Powerful Essays

    Capital Valuation: Target

    • 1499 Words
    • 6 Pages

    Valuation models are used in investment decisions whether it is a decision on which assets are under or overvalued. When in an efficient market, the market price is the best estimate of value. The purpose of the Discounted Cash Flow valuation model is the justification of the value. In the discounted cash flow valuation, the value of an asset is the present value of the expected cash flows on the asset. The information needed to use the discount cash flow valuation is: estimate of the life of the asset, estimate the cash flows during the life of the asset, and estimate the discount rate applied to these cash flows to obtain a present value (Damodaran, n.d.).…

    • 1499 Words
    • 6 Pages
    Powerful Essays
  • Satisfactory Essays

    Hansson Case

    • 621 Words
    • 3 Pages

    Objectives: • • • • • Define and derive debt free cash flows Critically analyze the assumptions underlying financial projections Role of opportunity cost of capital in capital budgeting decisions. Calculate NPV and its sensitivity to project variables Alternative methods of project evaluation…

    • 621 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    | Both produce almost all of their respective informational reports on a routine monthly basis.…

    • 3022 Words
    • 13 Pages
    Good Essays