Pacific Grove

brain 1 Based on the unions forecasted financial statements, raise the go with flyingly comply with the intrusts requirements? It depends on what you consider chop-chop. If the deadline is to scarcely to name a plan ready by June 30th, 2012 then it looks like they provide come pretty close without implementing any major changes. Just by following their expected future growth plans they give almost tinct the requirements of the bank within 4 years. Using the information provided from their forecasted financials, by 2015 peace-loving orchard testament reach a 55% ratio of touch/bearing debt to total assets and their equity multiplier volition be 2. 7. (See abut 1) Depending on how stringent the bank is this whitethorn no be quick enough of a timeline or progressive enough of a plan. If they destiny these figures cut backed to the required levels by 2012 then pacific plantation essential do something more(prenominal) aggressive constrain stakes bearing debt l evels. The company should explore ways to reduce its need for working uppercase financing. They should catch out if there be ways of improving their supply chain efficiency and forecasting so that they open fire reduce their inventory levels.They should look to talk terms with suppliers to reduce the rate they are ease uping for inventory. Pacific Grove should excessively essay if they can extend the length of their accounts payable. Even if they have to pay a slight price premium, if the rate(APR) is less than what the banks are charging them in interest, it could table service to both save money and reduce their capital needs. They should also hear if they can adjust the credit policy terms with their customers to shorten the enumerate of days before payment.By reducing receivables and increasing payables they should be able to reduce their financing needs from the bank in notes payable and thus pooh-pooh their interest-bearing debt. It is unlikely that even with chan ges in working capital social organisation they will be able to reduce their debt within a year. aggrandisement funds by selling common stock to pay-off some of their interest bearing debt may be necessary in order to quickly comply with the banks requirements. My suggestion however would be to acquire the other company which has come apart debt structure.When the two companies are financial are combined Pacific Groves ratios will be under those required by the bank. Exhibit 1 2. Should the natural goggle box program be produced and sponsored by Pacific Grove gaminess? If yes how the necessary enthronization should be financed? I would say no. At first glance the new investment looks good. The upside of the investment is that it would increase the companys sales, profits, and gold immix above their presently expected levels. Despite this upside it also meaning(a)ly increases the yearly net profit working capital investment.The additional funds needed to pay for additio nal working capital means that the project has negative cash flow for both year 0 and year 1. Pacific Grove would authentically need to borrow or raise a total $2,573,118 to ab initio start and fund the venture before positive project cash flows start. If we are only looking at the financial implications of investing in the company using the expected IRR and NPV we may be fooled into thinking this new television program would be a great investment. Even if our WACC were 20%, we can expect the NPV of the project to be $1,716,414.When we look at discounted payback, however, we see that at a WACC of 20% the project payback period would be a little over 4 years and even the simple payback period is 3 years (see exhibit 2). This demonstrates that there is significant risk that the project investments may not be paid off, in particular if actual performance is worse than expected. The most important incommode shortly facing the company is to reduce its interesting bearing debt so tha t it can continue to receive financing from the bank to support operations and growth.Investing in a project with a payback period of 3 years or longer would not be a wise stopping point as it would initially raise the level of interest bearing debt unless funded by means of the selling of equity. Although there may be some synergies between the television network and Pacific Grove which could help to promote their brand, it may also take away needed focus from their core business and endure to a poorer performance and erosion of its competitive position in the market.Pacific Groves lack of experience and knowledge about producing a television show add to the level of risk of the project. If they were confident that the investment will work the only viable option to raise capital eyepatch not increasing debt would be to sell shares in the company. This may not please current shareholders as they would face dilution in both the take to be of their shares and their percentage of ownership in the company. Exhibit 2 3. Should the company issue new common stock to the external investment group?No, I dont think they should issue the stock. If they decide to issue shares they will lose some percentage of their company tick off. In fact, Peterson and the Founders will go from controlling a total of 32% of the company to only 23. 8% meaning that the investment group would actually have more control of the company than the founders at 25. 6%. (See exhibit3) Although the share price will only drop slightly to $31. 30, the dilution of shares and drop in stock price may displease current shareholders.The market may respond by the nurture selling off of existing shares dropping the stock price more and further hurting the companys financial status. Another caper with issuing the common stock is that although it will provide access to capital which they can use to pay off interest bearing debt If the bank requires the company to lowers its debt levels within the next year and no other banks are willing to lend, then issuing the common stock may be seem like the only viable option to quickly strike the banks lending requirements.I would argue, however, that acquiring High Country flavourer company would be a better choice as it will also resolve the debt issues while also providing other synergies and not menacing the stock price of the company. Exhibit 3 4. Should Pacific Group Spice acquire High Country flavorings? Yes. Acquiring High Country Seasoning would help to do several things. First because of the companys better financial debt structure will improve Pacific Spice Groups general debt structure upon merging.The deal would not require the issuance of debt and would not lower the companys current stock price. The two companies also sound in the same business line. This should help them to become a stronger faker in the market by capturing more market share in the industry. There should be some cost savings because of economies of sc ales and the ability to supplement both companies assets. The only question remaining is whether the purchase price is greater than the estimated value of the company. Exhibit 4 Exhibit 5