Recommendation: Optimal Amount of Debt is 70% As Mr. Laporte approaches retirement‚ American Home Products (AHP) has an important decision to make with respect to adopting a more aggressive capital structure policy. Use of debt carries with it advantages and disadvantages. In accordance with value-based management‚ we recommend that AHP adopts a capital structure consisting of 70% debt. The following points justify such action: • The hallmark of value-based management is to choose strategies
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American Home Product Corporation (AHP)‚ a highly growing American company‚ has four business lines: prescription drugs‚ packaged drugs‚ food products‚ house wares and household products. Its policies include: -A tight financial control and maintained an aggressive capital structure policy. - Make money for its stockholders and to maximize profits by minimizing cost. - It has been able to finance internally its growth while paying a very high portion of its earning to its shareholders
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Grant Nauta AHP Case Study Because American Home Products (AHP) currently operates with virtually no debt‚ their financial risk is very small. This shifts the burden heavily towards business risk. A porter’s five forces analysis is appropriate to determine the exact levels of business risk for American Home Products. First‚ the threat of substitutes is a risk that AHP cannot afford to ignore. Because they spend very little on Research and Development‚ and have to rely on their marketing to catch
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American Home Products (AHP) has established a strong track record of revenue growth and return on equity over the past decade‚ producing a host of products in four separate business lines: prescription drugs‚ packaged drugs‚ food products‚ and housewares/household products. AHP’s distinctive culture emphasizes conservatism‚ cost control and risk aversion. AHP’s corporate structure also concentrated most decision-making authority with the incumbent chief executive‚ William F. Laporte. This approach
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Case 1：American Home Products How much business risk does American Home Products face? How much financial risk would American Home Products face at each of the proposed levels of debt shown in case Exhibit 3? How much potential value‚ if any‚ can American Home Products create for its shareholders at each of the proposed levels of debt? American Home Products offers a variety of products spread over 4 product lines. This allows the company to attract many consumers and if one product
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launch variously strategies‚ with wild coverage of products via extended channels in more regions/counties. • Because of debt free strategy‚ the company had limited investment in R&D. Even they can provide the “me to product” but the industry will change with more related regulation to be generated from government‚ that will require each pharmacy company spend longer time‚ more money to do the testing before launch to the market‚ “me to product” will slow down the process to catch the new market
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American Home Products 1. How much business risk does American Home Products face? How much financial risk would American Home Products face at each of the proposed levels of debt shown in case Exhibit 3? How much potential value‚ if any can American Home Products create for its shareholders at each of the proposed levels of debt? (See Exhibits 1 and 2 ) American Home Products currently has low business risk due to the conservative nature of their business. They piggyback on first movers
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Introduction American Home Product (AHP) was founded in 1926 with the merging of several small home product companies. As the company expanded in the 1930’s‚ it acquired companies in different businesses. After World War II‚ the company had four lines of businesses: prescription drugs‚ packaged (over-the-counter) drugs‚ food products‚ and housewares and household products. Although the name “American Home Product” has never appeared on its products‚ the firm produces many well-known brands in the
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Write UP On AMERICAN HOME PRODUCTS CORPORATION: Company Overview Background Information: American Home Products Corporation (AHP)‚ is a pharmaceutical company. The company was based in Madison‚ New Jersey‚ USA. They were known for manufacturing the over-the-counter (OTC) drugs Robitussin and the analgesic Advil (ibuprofen)‚ as well as the prescription drugs Premarin and Effexor‚ which both boast over US$3 billion in sales annually. American Home Product Corporation (AHP)‚ a highly growing
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bloomberg beta interpretation Beta definition A measure of an asset’s risk in relation to the market (for example‚ the S&P500) or to an alternative benchmark or factors. Roughly speaking‚ a security with a beta of 1.5‚ say‚ will move 50% more than the market. So if the market goes up by 20% the security’s price will go up by 30%. According to asset pricing theory‚ beta represents that part of the risk of the security called systematic risk that cannot be diversified away. When using beta‚ there are
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