Pacific Grove Spice Company is a lucrative, fast developing producer, advertiser and supplier of good quality spices and seasonings. The organization’s business approach needs adequate funding in accounts receivables, stocking and fixed assets to facilitate sales. Although the organization has a high turnover and all the earned revenue is reinvested in the company to aid growth, the company needs to include debt in its finance structure to support its development and expansionary plans for assets as well as to aid in the growing sales. The bank is contemplating over the fact of the completefigure of interest-bearing debt on Pacific's balance sheet and has requested the organization to chalk out a design to lower it. The president and CEO, Debra Peterson, however has firm belief that the present financial predictions of four years are adequate as well as achievable. She is also taking into account three options: financing a tv show, raising capital by floating more equity, and purchasing a private label spice firm. Students are required to evaluate the company’s financial predictions and revenue projections in order to decide if the lower debt would be able to meet the bank’s demands. They must also assess the three options and discuss their individual as well as overall effect on the company’s financial standing. The case demonstrates the relation between investment and financing decision makings processes and results. the case has a number of different learning avenues and can be discussed in a single lecture, or multiple ones; it can also be given as a final exam case for an beginner level MBA finance course.
Free Cash Flows
Operating Cash Flows (All values in $ terms)
Yearly Net working Capital Investment
Total Net-working Capital Investment
Terminal Free Cash Flows
PV of Cash Inflows
Intrinsic Value of High Country Seasonings Company
Cost of Debt
Prime Interest Rate
Cost of Equity
Average BetaRisk Free RateRisk Premium
Net Income after acquisition
Number of Shares
Should Pacific accept an offer from a cable cooking network to produce and sponsor a new program?
Should Pacific acquire High Country Seasonings----a privately owned spice company with sales revenue approximately 22% of Pacific’s?
Should Pacific raise new equity Capital by selling shares of common stock?