Stock and High Country
Prepare a written report (3 to 4 pages) on this case. Please ensure you answer the following questions in your report. Note that this case requires extensive use of Excel.
1. Perform a ratio analysis on Pacific’s financial projections. Will its forecasted growth levels bring their ratios into compliance as requested by their bank?
2. Should Pacific produce and sponsor the television program (note the NPV and IRR analyses for this project have been completed in Exhibit 3)?
(a) Can Pacific take on debt to fund this project?
(b) If the only way to fund the television program is by issuing 400,000 shares of stock at $27.50 per share, should they proceed with the project? (Determine the equity issue’s impact on Pacific’s financial ratios and determine the equity issue’s impact on Pacific’s existing shareholders.)
3. High Country Seasonings is both an investment opportunity and a financing opportunity. Should Pacific acquire High Country Seasonings?
Suggested approach – investment opportunity:
(a) Forecast High Country’s Income Statement and Balance Sheet for 2012-2015.
(b) Determine High Country’s free cash flow to investors.
(c) Is High Country’s valuation greater than what Pacific must pay to acquire the firm?
(d) From an investment standpoint, should Pacific acquire High Country?
4. From a financing standpoint, what are the advantages of Pacific acquiring High Country? Suggested approach – financing opportunity:
(a) Prepare financial statements for the combined Pacific/High Country
(b) Forecast financial statements for 2012-15 for the combined entity. Use the assumptions given in the case for interest expense, goodwill, and the liability/owner’s equity accounts
(c) From a financing standpoint, should Pacific acquire High Country?
5. What is your final recommended course of action for Pacific regarding the television program project, the equity issue of 400,000 shares of stock, and the potential acquisition of High Country? Provide
1. Perform a ratio analysis on Pacific’s financial projections. Will its forecasted growth levels bring their ratios into compliance as requested by their bank?
2. Should Pacific produce and sponsor the television program (note the NPV and IRR analyses for this project have been completed in Exhibit 3)?
(a) Can Pacific take on debt to fund this project?
(b) If the only way to fund the television program is by issuing 400,000 shares of stock at $27.50 per share, should they proceed with the project? (Determine the equity issue’s impact on Pacific’s financial ratios and determine the equity issue’s impact on Pacific’s existing shareholders.)
3. High Country Seasonings is both an investment opportunity and a financing opportunity. Should Pacific acquire High Country Seasonings?
Suggested approach – investment opportunity:
(a) Forecast High Country’s Income Statement and Balance Sheet for 2012-2015.
(b) Determine High Country’s free cash flow to investors.
(c) Is High Country’s valuation greater than what Pacific must pay to acquire the firm?
(d) From an investment standpoint, should Pacific acquire High Country?
4. From a financing standpoint, what are the advantages of Pacific acquiring High Country? Suggested approach – financing opportunity:
(a) Prepare financial statements for the combined Pacific/High Country
(b) Forecast financial statements for 2012-15 for the combined entity. Use the assumptions given in the case for interest expense, goodwill, and the liability/owner’s equity accounts
(c) From a financing standpoint, should Pacific acquire High Country?
5. What is your final recommended course of action for Pacific regarding the television program project, the equity issue of 400,000 shares of stock, and the potential acquisition of High Country? Provide