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Essay Available:
Pages:
2 pages/β‰ˆ550 words
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Check Instructions
Style:
APA
Subject:
Accounting, Finance, SPSS
Type:
Case Study
Language:
English (U.S.)
Document:
MS Word
Date:
Total cost:
$ 9.36
Topic:

Harris Seafoods

Case Study Instructions:

In your analysis, you should address the following points. (As always, your report should be written as a recommendation to the manager that touches upon all of the key issues.).

1. Given the information available in the case, how can you calculate/estimate the cash flows that we need to discount?

2. Although the various estimates for the project end in 1986, the project will not be over by then. How can you account for this fact in your valuation?

3. What is the cost of capital for this project? Discuss the various inputs that are needed to calculate the cost of capital (debt-to-equity ratio, return on equity, return on debt, etc.)

4. Is the data on comparable firms useful for estimating the risk of this project, or can you rely just on Harris Seafoods’ historical data?

5. What is the NPV of the project under the WACC approach? Under the APV approach?

6. How sensitive are your estimates to your assumptions? Do you recommend undertaking the project?

Case Study Sample Content Preview:

Harris Seafoods Case Analysis
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Harris Seafoods Case Analysis
In order to establish whether the processing plan will be a viable investment for the company, we must first determine Present Net Value (NPV) using the Weighted Average Cost of Capital (WACC) technique as well as the Adjusted Present Value (APV). There is also a need to discount the free cash flow using the WACC approach. The APV approach assumes that the company was funded using equity alone. Using the provided information, the best approach to determine the cash flows is using the WACC approach. The technique utilizes the Pro-Forma Income Statement in exhibit 7, where the projection is within nominal terms. In this regard, the value of the project would be comprised of three main sections: excess cash discounted FCFs, and terminal value (Harvard Business School, 1993).
Another valuation technique that can be utilized for the project beyond 1986 is the discounted terminal value. While the project is estimated to end in 1986, we can account that it will not be over by using the discounted terminal value approach. The business usually has a long business life, and the terminal values usually provide the firm's actual value after 1986. This can be based on the value of the long-term assets as well as networking capital. This provides a reasonable lower limit for the company's value at the time (Harvard Business School, 1993).
The cost of capital is determined using the information provided about the ...
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