Hansson Private Label Case Questions

Each Question carries 5 points

1) How would you describe Hansson Private Label and its position within the private label personal care industry?

2) Before calculating the NPV, discuss what are the opportunities and risks of the investment proposal.

3) Using assumptions (Exhibit 5) made by Executive VP of Manufacturing, Robert Gates, estimate the NPV of the investment proposal. For simplicity, use a WACC of 9.38%. Note that the time of the initial investment is 2008 so the NPV is in the year 2008.

4) Discuss Gates’ assumptions. Are they realistic? If not, what changes would you consider making? For example, note that there is no yearly capital expenditure in Gates’ projections.

Guidelines:

1) For Question 3, show a spreadsheet that shows all line items used in FCF calculation. Project the cash flows from 2009 to 2018 and calculate NPV. Show the working capital calculations either in the same spreadsheet or a different one. Print the excel spreadsheet(s) (in “landscape” mode if the page doesn’t fit) and attach it to the report.

2) Remember that there are three operating costs: Production Costs, Labor Costs and SG&A. Production Costs comprise Raw Materials, Manufacturing Overhead and Maintenance Expense.

3) Make the following correction to Gates’ projections: Use a Manufacturing Overhead expense of 3,920 for the year 2009 instead of 3,600 mentioned in Exhibit 5. For years 2010 onwards, grow this new number by 3%. Thus, the Manufacturing Overhead for 2010 will be 3,920 * (1 + 3%) = 4,038 and so on. We are changing this line item to reconcile the working capital number with the rest of the case.

4) The case mentions that the net working capital of 12,817 is part of the 2009 cash flows. For the year 2008, remember the net working capital is zero because the working capital investment does not occur up front.

5) When calculating the Accounts Payable, use the total sum of Production Costs, Labor Costs and SG&A as the denominator in the Days Payable Outstanding Ratio.

6) The project is discrete, therefore there is no terminal value.

7) The yearly depreciation amount is given in the investment proposal.

8) Note that the numbers in the investment proposal table are in the same units as Exhibit 5.

9) Your report cannot exceed 5 pages in total. Handwritten reports will not be accepted.