Executive Summary

By 2015. Pacific Grove ( afterlife referred as “PG” ) will make a 55 % ratio of interest/bearing debt to entire assets and their equity multiplier will be 2. 77 which is consistent with Peterson’s outlook. I must be noted that over the following 4 old ages. PG’s involvement coverage is forecasted to increase proposing that they will bit by bit be constructing up more net incomes to cover its debt payment which is a good mark for the Bankss.

Dilution of portions seems have to hold small impact on the EPS of PG portions. Therefore. it is expected that PG stockholders would accept the issue of portions. However. this information has to be clearly communicated by PG’s direction to its stockholders in order to derive support of this portion issue.

It is besides reasonably safe to state that it is a good determination for PG to come in into the telecasting trade. It is noted that the undertaking would give a positive NPV at 10 % . 15 % and 20 % price reduction rates. The undertaking besides requires merely a modest initial investing

The loss of assurance in recognition by the overall market had left PG with no pick but to obey the demands of their bank as it would be hard to obtain recognition from other establishments during the clip. In add-on to that PG was besides in the thick of a bearish stock market. This is justified by the fact that investors were dying about the market and merely willing to offer $ 27. 50.

A figure of recommendations are given to assist PG cut down their debt degrees. These include bettering their supply concatenation efficiency and prediction so that they can cut down their stock list degrees. negociating with providers to cut down the rate they are paying for stock list and can widening the length of their histories collectible.

Overall. it is recommend that PG accepts the investing group’s offer of $ 27. 50 and publish 400. 000 common stock to raise $ 11M for grounds mentioned earlier in the study. The excess financess will give PG more capacity to fund the telecasting plan in add-on to cut downing its debt to run into their bank’s demand. every bit good as buying an underpriced High Country.

1. 0 Debt

Harmonizing to the prognosis in Exhibit 1. PG seems to be on class in run intoing their bank’s demand of 55 % Debt to Total Asset ratio and 2. 7 equity multiplier. Table 1 in the appendix illustrates a figure of ratios associating to PG’s debt. Just by following their expected hereafter growing plans they will about make the demands of the bank within 4 old ages. Using the information provided from their forecasted financials. by 2015 Pacific Grove will make a 55 % ratio of interest/bearing debt to entire assets and their equity multiplier will be 2. 77 which is consistent with Peterson’s outlook.

Although PG’s current hereafter is projected to run into the bank’s demands. the issue that is yet to be known is whether the Bankss are willing to let PG 4 old ages to accomplish this. If the Bankss are loath to allow PG such a drawn-out clip period. PG will necessitate to do smart alterations in cut downing these ratios. Recommendations for PG in to work out this job are discussed subsequently in the study. An another note. it must be noted that over the following 4 old ages. PG’s involvement coverage is forecasted to increase proposing that they will bit by bit be constructing up more net incomes to cover its debt payment which is a good mark for the Bankss. This positive factor might assist act upon the bank to give PG the full 4 old ages to run into their demands.

2. 0 Selling New COMMON STOCK

The issue with selling new common stock is that it can make dilution amongst bing stockholders. Shareholder dilution will take down portion monetary value in add-on to directing a negative signal to the company’s stockholders. PG’s common portions outstanding would increase from 1. 165. 327 by 400. 000 to 1. 565. 327. PG’s current EPS in 2011 is 2. 037. Harmonizing to the earning figures from the prognosis in Exhibit 1. the EPS will be 2. 136 after publishing the new portions at twelvemonth 2012. Table 2 ( attached in the appendix ) exemplifying the EPS from 2012 to 2015 shows that dilution of portions seems have to hold small impact on the EPS of PG portions. Therefore. it is expected that PG stockholders would accept the issue of portions. However. this information has to be clearly communicated by PG’s direction to its stockholders in order to derive support of this portion issue.

3. 0 ACQUISITION OF HIGH COUNTRY

The endeavor value of High Country was estimated in order to compare whether the acquisition monetary value asked for it is would make damage in the hereafter. The forecasted financials of High Country is attached in the appendix. The discounted hard currency flow method gave an endeavor value of $ 37. 56M. Premises are given in the appendix as to how this sum was achieved. This sum is manner above the inquiring monetary value of $ 13. 2M ( in surplus of $ 24. 36M ) . The extra sum will be recorded on PG’s balance sheet as good will if the acquisition occurs. As this good will sum is really big. it is expected non to be amortized in the hereafter.

Peterson has noted that PG would non see the acquisition if it is anticipated that there will be future damage and write-off of good will created by the purchase of High Country. As the book value ( 37. 56M ) is so much higher than its current market value ( $ 13. 2M ) . it is really improbable that the good will will be impaired in the hereafter. With that said. there will be no write down of good will. It must besides be noted that based on the analysis of this study. High State is to a great extent undervalued. The acquisition of High Country will be come off as a smart bargain for PG. Overall. PG should look into geting High Country non merely because of the improbable write-down. but besides because it is undervalued for what it is genuinely deserving.

4. 0 Television Deal

Judging by Exhibit 3. it seems reasonably safe to state that it is a good determination for PG to come in into the telecasting trade. It is noted that the undertaking would give a positive NPV at 10 % . 15 % and 20 % price reduction rates. The undertaking besides requires merely a modest initial investing of $ 1. 440. 000. Working capital for the undermentioned old ages significantly lowers after the first twelvemonth of operations from $ 2. 459. 543 to $ 122. 977. On top of that. the show’s star is a reputable name in the cookery industry. This will hike PG’s perceptual experience in the market comparative to its rivals. All these factors contribute to doing the telecasting trade an attractive trade for PG to set about.

5. 0 IMPACT OF ECONOMIC CLIMATE

PG is exposed to hard recognition environment as Bankss are confronting force per unit area from regulators following the fiscal crisis of 2008. Due to the loss of assurance in recognition by the overall market. PG was left with no pick but to obey the demands of their bank as it would be hard to obtain recognition from other establishments during the clip. This has impacted PG in the sense that PG might hold to do alterations in their operations to accommodate the bank’s needs if the bank demands that their demands be met before 2015.

In add-on to hapless assurance in the recognition market. PG is besides in the thick of a bearish stock market. From the fact that investors were dying about the market and merely willing to offer $ 27. 50. which is below the market monetary value. justifies that market participants have lost assurance in the stock market. Due to this market status. PG will have less capital support if they were to accept the offer from the investing group. Overall. the market conditions are non in PG’s favor. The loss of assurance in both recognition and stock market has negatively impacted PG.

6. 0 Recommendation

In footings of cut downing PG’s debt if the bank want the debt figures lowered to the needed degrees before 2015 so Pacific Grove must make something more aggressive cut down involvement bearing debt degrees. It is recommended that the company explore ways to cut down its demand for working capital funding. They should see if there are ways of bettering their supply concatenation efficiency and prediction so that they can cut down their stock list degrees. They should look to negociate with providers to cut down the rate they are paying for stock list. PG should besides see if they can widen the length of their histories collectible.

Even if they have to pay a little monetary value premium. if the rate ( APR ) is less than what the Bankss are bear downing them in involvement. it could assist to both salvage money and cut down their capital demands. They should besides see if they can set the recognition policy footings with their clients to shorten the figure of yearss before payment. By cut downing receivables and increasing payables they should be able to cut down their funding demands from the bank in notes collectible and therefore lower their interest-bearing debt. Another option to assist PG run into the bank’s demand faster would be to accept the offer by the investing and raise financess by selling common stock. This would hive away up more hard currency for future use and PG will be able to cut down their debt degrees in the undermentioned old ages.

7. 0 Decision

Overall. it is recommend that PG accepts the investing group’s offer of $ 27. 50 and publish 400. 000 common stock to raise $ 11M for grounds mentioned earlier in the study. The excess financess will give PG more capacity to fund the telecasting plan in add-on to cut downing its debt to run into their bank’s demand. every bit good as buying an underpriced High Country.