Hansson Private Label Questions
Hansson Private Label Questions:
Group members: Ran An A20276158 & Guochen Ye A20273110
How would you describe HPL and its position within the private label personal care industry?
HPL is a company manufactured personal care products that sold under the band label by other companies. The company has stable whole sales growth rate and become a successful by efficient manufacturing, good expense management and appropriate customer service.
HPL is better off within the private label industry. Hansson had estimated that HPL had more than a 28% share of $2.4billion in wholesale sales from the manufacturers. That is HPL own a significant part of this market.
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?
Answer: see in table 1 the final answer FCF has been highlighted in red.
It is not realistic.
Because: 1. The contract HPL made with the customers is 3 years only, at the end of contract, the customer might not continue the contract. However, the financial estimation last for 10years. That is, the assumption of FCF is not realistic.
2. As the team acknowledged, after taking their project. HPL needs to tolerate much higher risk than it used to do. However, the estimation of the financial statement mostly based on the historical data of HPL which risk is stable in the lower lever. In other words, the estimated financial statement is not accurate.
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?
Answers: 9.38% is the discount rate we choose. With larger amount of leverage, the cost of debt would be increased significantly. That is, the cost of debt would not be stable at 7.75%.
Estimate the project’s NPV. Would you recommend that Tucker Hansson proceed with the investment?
Answer: the project’s NPV is $21099.34. Please see detail answer in table 2.
Yes, we recommend that Tucker Hansson proceed with the investment since the NPV is positive.
Table