Harris Seafood Case Summary

Satisfactory Essays

Harris Seafood

Answer the following questions

a. Should Harris Seafoods enter the shrimp processing business by building the new plant? Please assume the firm will be unable to use the Industrial Revenue Bond financing mentioned at the end of the case (we will return to this topic in a later case).

Yes, I think that this company should build a new plant that allows them to grow in the industry, even if they are unable to use the Industrial Revenue Bond, they will have other financing alternatives.

Instead of Industrial Revenue bonds, Harris Seafoods can use conventional bonds; which they are going to reduce de NPV.
Although it can use bank loans, the NPV will decrease.
The company can financed the new plant with only debt or only …show more content…

I am going to use the WACC to discount the Free Cash Flows.

As I mentioned before, we should consider all posible alternatives:
Industrial revenue Bonds
Bank loans
Conventional bonds
Debt Financing
Equity financing, etc.
All these alternatives will have different impacts in the NPV.

We should Exhibit 6 with Exhibit 7, beacuse the last one considers an inflation of 11%; also Exhibit 8 can help us to obtain the Rm and Rf.

iii. Prepare a basic discounted cash flow analysis; i.e. compute incremental cash flows and a terminal value, and discount them at a weighted average cost of capital. Can you do a multiples-type analysis here as well?

Harris Seafood should make an investment on the new shrimp plant because the NPV of the Project >0.
Also this cashflows also depend on the financing alternative we choose. In this case I used the Industrial Revenue Bond.

“Multiple-type analysis is a method of estimating the value of an asset by comparing it to the values assessed by the market for similar or comparable assets. For using valuation with multiples we need to:
1) Identifying comparable assets and obtain market values for these assets.
2) Converting these market values into standardized values. This process of standardizing creates valuation multiples.
3) Apply the valuation multiple to the key statistic of the asset being valued, controlling any differences between asset and the group that might affect the multiple”1.

I think we can make

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