Hansson Private Label Inc Evaluating an Investment in Expansion Case Solution

Case ID: 4021
Solution ID: 21017

Words: 2120

Price: $95

Case Solution

An English-language PDF of this Brief Case in an academic course pack will allow the students with the opportunity to buy an audio form as well. A producer of exclusive individual care goods has to determine whether to sponsor the first-time development of the production facility. The decision will lead to the primary pecuniary study and analysis of the prospective project – which will also entail the estimation of cash flow projections and NPV calculations. It will also be mandatory for students to calculate other financial details, including net operating profit earned after tax, the component of cash investment in working capital, and the ongoing capital expenses and outlays for the proposed expansion. Students will also be required to apply the discounting model to obtain present values. The case also encourages an overview of  contemplation for a company’s capital planning schedule. 

Excel Calculations

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

Questions Covered

How would you describe HPL and its position within the private label personal care industry?

Using assumptions made by Executive VP of Manufacturing, Robert Gates, estimate the project’s FCF’s.  Are Gates’ projections realistic?  If not, what changes might you incorporate?

Using CFO Sheila Dowling’s WACC schedule, what discount rate would you choose?  What flaws, if any, might be inherent in using the WACC as the discount rate?

Estimate the project’s NPV.  Would you recommend that Tucker Hansson proceed with the investment?

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