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Hansson Private Label , Inc (HPL) Evaluating an Investment in Expansion - Assignment Example

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Hansson Private Label , Inc (HPL) Evaluating an Investment in Expansion

This would require an investment above $50,000 by HPL which is unprecedented in its history. Hanson’s executives have made cash flow and WACC projections using their traditional estimates as well as some external consulting with banks etc. However, Trucker Hanson is not sure of their methodologies and needs to review it. The initial part of the report performs a qualitative analysis of the company where the key risks and positives for the company are identified. The report then delves into financial analysis where the WACC and cash flow calculations are done. The limitations of these analyses are also discussed. Thereafter, the sensitivity of NPV to various factors is discussed. Finally, the key options in front of Hanson and the corresponding recommendations are discussed. 1. Introduction Hansson Private Label (HPL) is a firm which is exclusively into the manufacturing of private label products for large retailers and supermarkets. ...
Hanson’s managers and executives have tried to evaluate the proposal from various dimensions. However, Tucker Hanson faces a lot of unresolved issues and needs to come to a decision quickly. However, the market growth is quite small and driven by price rise. 2. Key issues and risks The key issues faced by Hanson Private Limited and the risks involved are discussed below: 2.1. Large size of investment The biggest issue HPL faces is regarding the size of the investment. The company has never made such a large investment in a single project at one go. This would practically stall investments into all other projects in the pipeline for the medium term. Hence, the company is not in a position to afford any failure in this project. 2.2. Short Payback Period The retail partner is willing to agree to a 3 year contract only. However, with such a large investment, there is a risk of not getting the money back within 3 years. It is possible that the products fail or are rendered obsolete at the end of 3 years. 2.3. Large debt requirement The company faces a risk of debt trap. Right now, HPL maintains a highly favorable debt position. For adding new capacity, there are constraints in raising money through equity and almost all the financing will have to be done through debt. This raises the risk exposure of the company enormously. 2.4. Intense Competition Hanson manufactures private label products in the personal care space where the competition is very intense. A large number of branded and non-branded companies are vying for a limited shelf space. Hanson already covers 28% of the private label market in personal care space. Therefore, there is a limit to the scope of further acquiring the market share. 2.5. ...Show more

Summary

Table of Contents Executive Summary 2 1.Introduction 3 2.Key issues and risks 3 2.1.Large size of investment 4 2.2.Short Payback Period 4 2.3.Large debt requirement 4 2.4.Intense Competition 4 2.5.Stagnant growth in market 5 2.6.Method of evaluation 5 3.Key positives 6 3.1.Huge customer base 6 3.2.Deterrent for other private label manufacturers 6 4.Financial Analysis 6 4.1.WACC and Discount Rate 6 4.2.Limitations of Dowling’s approach 7 4.3.Cash Flow and NPV analysis 9 4.4.Validation of Gate’s projections and Sensitivity Analysis 9 5.Key Options & Recommendations 13 References 14 Executive Summary The report assesses the situation of a company Hanson Private Limited (HPL), which produces …
Author : hodkiewiczloma
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