Ncb Office Products Inc. Case Analysis

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NCB OFFICE PRODUCTS INC.

Executive Summery NCB is a manufacturer and distributer of a wide range of office products. In Canada, NCB uses several distributers in different regions. One of the major distributers is Harrison Stationary and Office Supply LTD. Harrison had distributed NCB’S products for over 50 years and NCB was the largest supplier of Harrison. In January 2003 Harrison was acquired by the president of the company and four senior officers. Most of the acquisition cost was financed by bank loans. Since the acquisition, Harrison had difficulties to pay NCB for the goods and the account receivable reached to unacceptable level. In September 2005 the Harrison account was 156 days old and amounted to $ 4.4 million. In
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Starts Its Own Distribution Company
Another option for NCB is to start its own distribution company. This option will require a significant capital investment in addition to the losses due to Harrison’s bankruptcy. If we look at the balance sheet of Harrison we can see that Net PP&E + Land amounted to $ 3,295,000. If NCB will decide to take this option, it must invest a similar amount. In addition, inventory investment is required and will be at minimum $ 500,000.
Total initial estimated investment: $ 3,795,000.
According to the income statement of Harrison, the average administration cost for a year is amounted to $ 2,425,000. The new company will handle NCB’s products only therefore administration costs will be lower (around $1,500,000).
The initial investment and the yearly administrative cost are needed before even the new company is starting to generate revenues. Harrison had average net sales for the last 4 years of $ 34,097,000. Harrison has a loyal customer base built in its 80 years of existents. It will be very hard to enter the market because the new company doesn’t have a customer base yet. We estimate the new company can generate approximately $ 5,000,000 in net sales for the first year.
Estimated losses from liquidation of Harrison: $ 3,716,500 (+)
Initial estimated

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