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Banking and Financial Institutions Case Study
Hansson Private Label
There is a proposal for a $ 50 million expansion for Hanson Private Label or HPL. HPL manufactured personal care products such as sop, shampoo and mouthwash The proposed expansion is HPL’s response to a retail customer’s desire to expand HPL’s share of their private label manufacturing. Consider the firm’s overall competitive strategy and proceed as follows:
- How would you describe HPL and its position within the private label personal care industry ? Use Exhibit 1 to obtain the firm’s profitability, growth rate and leverage (see Exibit 8 as well) versus its competitors.
- Estimate the project’s NPV. Would you recommend that Tucker Hanson proceed with the investment ?
Banking and Financial Institutions Case Study
NPV Analysis with Constant Growth
Operating Results
2009 2010 ……..2018
Revenue (Use Exhibit 5)
Less: Raw Material Costs Unit Volume x Raw Materials per unit Exhibit 5
Less Labor Expense Total Labor Cost Exhibit 5
Less: Manufacturing Overhead Exhibit 5
Less: Maintenance Expense Exhibit 5
Less: Selling, General and Administrative Expense .078 x Revenue see Exhibit 5
EBITDA = Earnings before interest, taxes, depreciation and amortization Revenue – Raw Material Costs – Labor Expense – Manufacturing Overhead –Maintenance Expense – Selling, General and Administrative Expense
Banking and Financial Institutions Case Study
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The next line is depreciation. The figure of 4000 is given on p.5 in the table.
Use this figure for each year.
Less: Depreciation expense
EBIT = EBITDA – Depreciation
Less Taxes
Taxes = EBIT x .4
NOPAT
Unlevered Free Cash Flow:
NOPAT
Plus Depreciation
Less: Change in Working Capital
Banking and Financial Institutions Case Study
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For Working Capital, perform this computation
Accounts Receivable/sales/360 = Days Sales Outstanding
Accounts Receivable = Days Sales Outstanding from Exhibit 5 x Revenue from the top line of this chart/360
Accounts Payable= Days Sales Inventory x inventory/360
Days Sales inventory is from Exhibit 5 and inventory is the 2007 figure on page 6.
The next line is unlevered free cash flow. Compute for each year.
Cost of capital: Take any WACC from Exhibit 7’s last column in the second short table such as 9.38%.
Return of Working Capital
Use 3, 147 prior to 2009 and 7,174 in 2018.
From page 3, add facilities expansion, manufacturing equipment and packaging equipment to get the initial investment.
Compute NPV = – Initial investment + PV of an annuity of annual unlevered free cash flows
For payment, use the unlevered free cash flows obtained in this analysis. For i/y, use the cost of capital. For n, count the number of years from 2018 to 2009.
Banking and Financial Institutions Case Study
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