Case ID: 4271
Solution ID: 20866
Words: 1396
Price $ 75

Harmonic Hearing Co Case Solution

Case Solution

Harmonic is an undersized, privately held producer of hearing aids. Harriet Burns and Marc Davis, two personnel at Harmonic, have a chance to acquire the company from the initiator. As knowledgeable insiders who know the business and the industry, Burns and Davis are under the impression that the advantages of having the ownership of the company are more than the associated threats and risks.Though the choice and resolve to acquire Harmonic is simple for them, planning and organizing the funding expenditure comes out to be more challenging. The company is in the process to introduce a novel hearing aid good and Burns and Davis seek the funding package to comprise of the further capital needed to finish both the manufacture and the marketing. Two funding choices are given: one is purely leveraged on debt, while the other purely on equity. The financing framework Burns and Davis choose will have an important influence on the existing items as well as the future prospects of the company. Students are required to compare and assess the two funding options, identify the pros and cons, and propose the most suitable option.

Excel Calculations

Debt Financing

Profit and Loss Statement ( Debt Financing) 2010 to 2017

Balance Sheet ( Debt Financing) 2010 to 2017

Free Case Slows  ( Debt Financing) 2010 to 2017

Terminal Value (Fourteen times Net Income of 7th year)

Cash Payment Made By the Company

Forcasted Cash Flow for Burns and Irvine ( Debt Financing) 2011 to 2017

Equity Financing

Profit and Loss Statement ( Equity Financing) 2010 to 2017

Balance Sheet ( Equity Financing) 2010 to 2017

Free Caseh Flows ( Equity Financing) 2010 to 2017

Terminal Value

Forcasted Cash Flow for Burns and Irvine  ( Debt Financing) 2011 to 2017

Questions Covered

1. For both financing alternatives, how large are the forecasted revenues, expenses, profits, and free cash flows generated by Harmonic in years one through seven?  What is the terminal value of the company under each scenario?  What cash payments will be made by the company at the end of year seven, and how large are these payments?

2. At what price must Harmonic repurchase the building and land from Frank Thomas to produce his required 15% after-tax return?

3. What proportion of the terminal value must be distributed to Comet Capital to produce its required 27% before-tax rate of return?

4. What are the forecasted cash flows, rates of return on investment, and value created for Burns and Irvine under the debt and equity financing alternatives?

5. What are the positives and negatives of each proposal?  Which financing alternative would you recommend, and why?