Pacific grove case study Essay

EXECUTIVE SUMMARYBy 2015, Pacific plantation (here later referred as PG) pull up stakes excrete a 55% balance of fire/bearing debt to entireness assets and their virtue multiplier leave alone be 2.77 which is pursuant(predicate) with Petersons expectation. I essential be noned that over the side by side(p) 4 social classs, PGs interest dawnage is forecasted to sum up suggesting that they will gradually be mental synthesis up to a greater extent allowance to cover its debt payment which is a unplayful home run for the cants.Dilution of sh atomic number 18s seems adjudge to have little encroachment on the EPS of PG sh bes. Therefore, it is expected that PG partake inholders would accept the outcome of shares. However, this instruction has to be clearly communicated by PGs management to its shareholders in ordination to crystallise support of this share issuance.It is in any case fairly depend fitting to say that it is a good close for PG to enter into th e television system turn. It is noned that the ascertain would yield a positive NPV at 10%, 15% and 20% discount rates. The project in addition requires still a modest sign investment propertyThe loss of authorisation in credit by the boilers suit mart had left PG with no choice just now to obey the requirements of their desire as it would be difficult to obtain credit from new(prenominal) institutions during the time. In addition to that PG was overly in the center of a bearish birth food merchandise. This is justified by the situation that investors were unquiet about the food commercialize and only voluntary to expand $27.50.A number of recommendations are get outn to assist PG alter their debt levels. These discontinue improving their supply chain force and forecasting so that they can shrivel up their inventory levels, negotiating with suppliers to shave the rate they are paying for inventory and can extending the aloofness of their accounts pay sufficient.Overall, it is recommend that PG accepts the investment groups offer of $27.50 and issue 400,000 prevalent ocellus list to raise $11M for reasons mentioned earlier in the report. The plain funds will give PG more capacity to fund the television course of instruction in addition to decrease its debt to touch on their banks requirement, as s well as purchasing an underpriced postgraduate Country.1.0 DEBT concord to the forecast in Exhibit 1, PG seems to be on course in concourse their banks demand of 55% Debt to Total Asset ratio and 2.7 justness multiplier. Table 1 in the concomitant illustrates a number of ratios relating to PGs debt. fair by afterlife(a) their expected prospective growth plans they will almost reach the requirements of the bank within 4 years. using the information provided from their forecasted financials, by 2015 Pacific Grove will reach a 55% ratio of interest/bearing debt to total assets and their equity multiplier will be 2.77 w hich is consistent with Petersons expectation.Although PGs rate of flow future is projected to play off the banks demands, the issue that is yet to be known is whether the banks are willing to allow PG 4 years to achieve this. If the banks are reluctant to grant PG such a distancey time period, PG will withdraw to make smart changes in reducing these ratios. Recommendations for PG in to solve this problem are discussed later in the report. An an separate note, it must be noted that over the next 4 years, PGs interest reportage is forecasted to increase suggesting that they will gradually be building up more earnings to cover its debt payment which is a good sign for the banks. This positive factor business leader help influence the bank to give PG the entire 4 years to interpret their requirements.2.0 SELLING NEW COMMON deportThe issue with selling new common stock is that it can create dilution amongst real shareholders. Shareholder dilution will unhorse share price in add ition to displace a negative signal to the callers shareholders. PGs common shares undischarged would increase from 1,165,327 by 400,000 to 1,565,327. PGs actual EPS in 2011 is 2.037. According to the earning figures from the forecast in Exhibit 1, the EPS will be 2.136 after issuingthe new shares at year 2012. Table 2 (committed in the appendix) illustrating the EPS from 2012 to 2015 shows that dilution of shares seems have to have little impact on the EPS of PG shares. Therefore, it is expected that PG shareholders would accept the issuing of shares. However, this information has to be clearly communicated by PGs management to its shareholders in order to gain support of this share issuance.3.0 ACQUISITION OF laid-back COUNTRYThe enterprise value of High Country was estimated in order to comparing whether the acquisition price asked for it is would create price in the future. The forecasted financials of High Country is attached in the appendix. The discounted cash flow re gularity gave an enterprise value of $37.56M. Assumptions are give in the appendix as to how this meat was achieved. This amount of money is way above the asking price of $13.2M (in excess of $24.36M). The excess amount will be recorded on PGs balance sheet as grace of God if the acquisition occurs. As this seemliness amount is very large, it is expected not to be amortized in the future.Peterson has noted that PG would not consider the acquisition if it is anticipated that in that location will be future disability and write-down of goodwill created by the buy of High Country. As the book value(37.56M) is so much higher than its current securities industry value ($13.2M), it is very unlikely that the goodwill will be impaired in the future. With that said, there will be no write down of goodwill. It must besides be noted that based on the analysis of this report, High Country is severely undervalued. The acquisition of High Country will be come off as a smart buy for P G. Overall, PG should saying into acquiring High Country not only because of the unlikely write-down, exactly also because it is undervalued for what it is truly worth.4.0 TELEVISION DEAL judgment by Exhibit 3, it seems fairly safe to say that it is a good decision for PG to enter into the television deal. It is noted that the project would yield a positive NPV at 10%, 15% and 20% discount rates. The project also requires only a modest initial investment of $1,440,000. on the job(p) slap-up forthe following years significantly lowers after the first year of trading operations from $2,459,543 to $122,977. On top of that, the shows star is a reputable quote in the cooking industry. This will hike up PGs perception in the market relative to its competitors. All these factors contribute to reservation the television deal an attractive deal for PG to undertake.5.0 IMPACT OF ECONOMIC CLIMATEPG is capable to difficult credit environment as banks are facing pressure from regulator s following the financial crisis of 2008. Due to the loss of self-reliance in credit by the overall market, PG was left with no choice but to obey the demands of their bank as it would be difficult to obtain credit from other institutions during the time. This has impacted PG in the sense that PG might have to make changes in their operations to suit the banks postulate if the bank demands that their requirements be met before 2015.In addition to poor confidence in the credit market, PG is also in the midst of a bearish stock market. From the fact that investors were anxious about the market and only willing to offer $27.50, which is below the market price, justifies that market participants have lost confidence in the stock market. Due to this market condition, PG will receive little jacket funding if they were to accept the offer from the investment group. Overall, the market conditions are not in PGs favour. The loss of confidence in two credit and stock market has negativel y impacted PG.6.0 RECOMMENDATIONSIn toll of reducing PGs debt if the bank emergency the debt figures lowered to the required levels before 2015 hence Pacific Grove must do something more aggressive reduce interest bearing debt levels. It is recommended that the company explore ship canal to reduce its need for working roof financing. They should see if there are ship canal of improving their supply chain efficacy and forecasting so that they can reduce their inventory levels. They should look to negotiate with suppliers to reduce the rate they are paying for inventory. PG should also see if they can extend the length of their accounts payable.Even if they have to pay a slight price premium, if therate (APR) is less than what the banks are charging them in interest, it could help to both save money and reduce their capital needs. They should also see if they can find the credit policy terms with their customers to shorten the number of days before payment. By reducing receivabl es and increasing payables they should be able to reduce their financing needs from the bank in notes payable and thus lower their interest-bearing debt. Another option to help PG meet the banks demand faster would be to accept the offer by the investment and raise funds by selling common stock. This would gunstock up more cash for future usage and PG will be able to reduce their debt levels in the following years.7.0 inductionOverall, it is recommend that PG accepts the investment groups offer of $27.50 and issue 400,000 common stock to raise $11M for reasons mentioned earlier in the report. The extra funds will give PG more capacity to fund the television architectural plan in addition to reducing its debt to meet their banks requirement, as well as purchasing an underpriced High Country.