American Home Products Corporation

1) It is obvious that when take on more debt, the risk of ability to service the interest payment is increased. However, in case of AHP they still have a certain level to absorb more debt into their balance sheet. Even at 70% Debt to Total Capital ratio, their interest coverage still better their competitor.

A. Describe Eco-Products’ early history (1990 through 2003). Would you view the firm during that period as being a life-style business, an entrepreneurial venture, or? Why?

How much business risk does American Home Products face? How much financial risk would American Home Products face at each of the proposed levels of debt shown in case Exhibit 3? How much potential value, if any, can American Home Products create for its shareholders at each of the proposed levels of debt?

Despite being well-established, over the last three years, sales at Atherley Furniture Company have remained the same while profits have declined by almost 24%. Their chair division produces three different types of chairs, the Atherley, the Caledonia and the Parkdale. Each model has its own production plan and production costs. The increasing production costs, alongside the intense competition the company faces, have become a great cause of concern for John Atherley.

Please provide an articulate, concise, and theoretically sound answer. Answers need to be supported with examples from the texts and Exhibits. This may require some due diligence on your part. Please retype the question and your response.

Technologically more advanced than us and removed more contaminants including cryptosporidium and giardia (which we do not)

The first would be that instead of capitalizing the $210,000 to set up displays to promote the line, these displays could have been recorded as an Advertising Expense. One of the IFRS criteria for something to be considered an asset is that the benefit must be reasonably measurable. When it comes to anything done for the purpose of advertisement or promotion, it is hard to measure the benefit and that is why this cost could have been expensed rather than capitalized. However, by recording this event as an expense this would mean that Athina’s net income would have been overstated by $210,000 and that is an undesirable outcome for the national chain.

The Clorox Company is about to enter a new product market by launching a faucet mounted filter system in order to maintain its dominance in the water filtration business. To do this in a successful way, Clorox has to conquer this market with the right entry strategy. Main goal is therefore to gain market share by targeting the right customer segment and make an appropriate marketing investment. Also the previous pitcher market leadership must be maintained.

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1. There were many adjustments that were made in the original balance sheet to properly record overstatements made by DHB Inc. In the current assets, one major entry that was heavily overstated was inventory. Inventory went from $47,560,000 to $38,231,000. The difference of $47,742,000 is a material due to the magnitude of the difference.

1. How should Acorn organize now, considering both their commercial business and their growing government business?

A down payment of $70,000 would be required, and a first year interest payment of $45,370 (Exhibit 9). It is expected that the two machines would run at 40% capacity bringing in incremental revenue of $613,225, and incremental operating income of $234,855. The cost breakdown structure and the incremental gains for the laser cutter and water cutter can be seen in Exhibit 10. The ROI at 40% capacity is 33.80% (Exhibit 5), which is well above the banks lending rate. The payback period at 40% capacity is the lowest of all options at 3 years (Exhibit 6). With a score of 30, this option scored the highest against the decision criteria (Exhibit 7). This is largely due strongest cash flow, highest ROI, and emphasis on maintaining a high quality product and excellent costumer service.

As Mr. Laporte approaches retirement, American Home Products (AHP) has an important decision to make with respect to adopting a more aggressive capital structure policy. Use of debt carries with it advantages and disadvantages. In accordance with value-based management, we recommend that AHP adopts a capital structure consisting of 70% debt. The following points justify such action:

Acorn Industries, in spite of being a small organization with a single product line had strong technical capabilities, and a compelling marketing division whose core philosophy heavily relied on the importance of Voice of the customer, market research and competitive benchmarking, which was used in creating and submitting contract proposals. During the 1990’s, most companies such as Apple, Nike, McDonalds etc. were substantially dependent on the marketing departments that emphasized on face to face meetings with the customers, and employees pushing their sales numbers to increase revenue and business profits, which is similar to Acorn Industries’

A. Describe Eco-Products’ early history (1990 through 2003). Would you view the firm during that period as being a life-style business, an entrepreneurial venture, or? Why?