Hanson Private Label

1200 WordsDec 27, 20105 Pages
A brief evaluation of Hanson Private Label (HPL) will reveal signs of an excellent, growing, and well run company. There are no danger signs within the financials of HPL. The following have seen growth with every passing year: revenue, current assets, owner’s equity, net working capital, and sales (even groceries). The following categories have grown every year with the exception of 2005, where a higher than usual COGS caused a dip in gross margin – 15% versus a historically high teen’s percentage: Gross Profit, EBITDA, EBIT, and Net Income. Utilization rates are high. During this same period, long term debt trended downward with decreases every year. Sales across HPL retail channels increased every year over year in the following…show more content…
In our opinion, the assumptions regarding Capacity Utilization for the new plant will have the largest impact on NPV and present the largest risk to the success of the project. The biggest driver of this risk is the limited 3 year commitment of the customer. NPV at the 9.38% discount rate for a 3 year period results in ($39,150,990). If Capacity Utilization for the new plant drops below 72.5% for an extended period of time beginning in Year 4 of the project, the 10 year NPV will likely be negative. The most significant way to mitigate the risk associated with this project is to acquire a longer contractual agreement from the existing client, or, sign additional new clients to similar agreements that will span the length of the 10-year proposal. This will ensure sustainable sales and revenue stream for the time period of the project. This project represents the largest expansion HPL has conducted in more than a decade. The company’s historical capital budgeting projects model may not accurately portray the amount of risk, and consequently, the appropriate discount rate to assign. HPL could hire an outside consulting firm that has experience with assessing appropriate discount rates that are relative to the magnitude of the expansion project. Should Hansson decide to decline the expansion proposal, there are three potential alternatives he might
Open Document