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Balance Sheet and High Country

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Balance Sheet and High Country
Pacific Groove Spice Company is a company that sells a selection of food, spices, teas and coffees. Due to ever increasing awareness regarding diet and flavor in public, the company has experienced tremendous growth and is in constant need of funds. Debra Peterson, the CEO of the company, is evaluating different options to raise the funds required to invest in accounts receivable, inventory and fixed assets. Need for funds became more critical when the chief supplier of funds to the company, the Bank, asked the company to decrease the debt to asset ratio so that it remains less than 55 % by the next year to continue availing the loan from the bank. Raising funds through equity issuance is an option but since the transaction costs associated with a small scale arrangement have reduced the sale price to $ 27.50 as compared to market price of $ 32.50, this option may not be ideal. But the need for funds is so crucial at this stage of business that such costs can be ignored. Company is also considering producing a TV cooking show. Feasibility analysis of this project has very convincing reasons to approve the project i.e. IRR is 41 %. Another source of finance and business expansion for the company is the acquisition of a business of comparable size. Debra is very seriously considering acquiring “High Country Seasonings” but she has to establish that the purchase price offered is reasonable. The CEO is evaluating different options that can help the company to maximize the shareholder’s wealth

3. High Country Seasonings is both an investment opportunity and a financing opportunity. Should Pacific acquire High Country Seasonings?
Suggested approach – investment opportunity:
(a) Forecast High Country’s Income Statement and Balance Sheet for 2012-2015.
(b) Determine High Country’s free cash flow to investors.
(c) Is High Country’s valuation greater than what Pacific must pay to acquire the firm?
(d) From an investment standpoint, should Pacific acquire High
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