When students have the English-language PDF of this Brief Case in a course pack, they will also have the option to purchase an audio version. A manufacturer of private-label personal care products must decide whether to fund an unprecedented expansion of manufacturing capacity. The decision prompts fundamental financial analysis of the potential project, including development of cash flow projections and net present value calculations. Students will be required to compute net operating profit after tax, cash investment in working capital, and ongoing capital expenditures for a proposed investment, and to discount values to the present. The case also facilitates a systematic consideration of the company's capital planning process.
Projections for Expansion Project
Investment Appraisal for Expansion Project 2009-2018
Free Cash Flows, NPV, IRR, MIRR
Calculation of Cost of Capital
Riskfree Rate, Market Risk Premium, EquityBeta, Cost of Equity, Cost of Debt, WACC
Sensitivity Analysis of Key Projections
Decrease of 10% Current Increase of 10%
Capacity Utlilization, Selling Price, WACC, Production Cost
How would you describe HPL and its position within the private label personal care industry?
Using assumptions made by Executive VP of Manufacturing, Robert Gates, estimate the project’s FCF’s. Are Gates’ projections realistic? If not, what changes might you incorporate?
Using CFO Sheila Dowling’s WACC schedule, what discount rate would you choose? What flaws, if any, might be inherent in using the WACC as the discount rate?
Estimate the project’s NPV. Would you recommend that Tucker Hansson proceed with the investment?