Harris Seafood Assignment 2

976 words 4 pages
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
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Also ratios are good sources of general industry information.

There are some disadvantages for this analysis in this sector because for example: the food and beverage ratio index, it will include companies that make prepared food and some that are distributors. In cases like this the rattios would be distorted; in this cases it’s better to use another analysis method.

iv. How can you apply the Comparable Valuation Framework here? Along which dimensions must one identify comparable firms? How reasonable is the comparability assumption?
I think it is important to compare with competitors to know our place in the industry. In this case we see how the company has a large participation in the market. We also know that economic conditions in the country have been unfavorable and had affected all sectors.

We should allways compare our company with the best in the market; and with others who have a similar participation, size, sales, etc.

All companies have:
Objective Value
Subjective Value
Functional Value
Value vs. Prices
Equity valuation vs. Firm valuation, etc.

b. Compare the weighted average cost of capital you used above to the cost of unlevered equity for the shrimp processing plant. By how much do these two rates differ? Which is higher? Is this sensible? What accounts for the difference?

We can observe that our Beta levered y higher than the beta unlevered, on the other hand obviously our cost of