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Hansson Private Label, Inc.

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Sharon Zhao

on 1 March 2014

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Transcript of Hansson Private Label, Inc.

The Investment Proposal
Concerns About WACC
Private Label Personal Care Industry
Initial investment does not include working capital

DSO = Accounts Receivables/Sales*360
Working Capital = AR + Inventory - AP

Company Background
: Tucker Hansson
Founded time
: 1992
Main business
: personal care products
Management style
: expand conservatively
The largest single investment
: Hansson had bought HPL for $42 million
Hansson Private Label, Inc.:
Evaluating an Investment in Expansion

• Personal Care Market: Stable
• Unit volume increases: <1%
• Sale growth determined by price increase
• Branded products vs. Private labels

• Retailers involved: mass merchants; supermarkets…
• Historically: low-priced alternatives
• Cost: 50% lower; Profit: 200%
• Potential:
20% share of personal care market
<19% of total sales from personal care market

• Hansson: >28% share of private label industry
• Heavily depend on national retailers
• Quality improvements increase acceptance

Company Background and the New Situation
HPL's Historical Financial Statements
The New Situation
The arrival of new contract
: 3-year contract, need significant expansion
Estimation of expansion
: $50 million, double HPL’s debt and increase customer concentration
: bound too tight with the client; capacity utilization; loss of clients

FCF = NOPAT – Capital expenditures – Δ WC + Depreciation

At least the first 3 years work well with this model

NPV = $15,500 > 0, Hansson should invest.

Pro forma Statement
Team Members
Yang Zhang yzhang171@fordham.edu
Xueying Zhao xzhao28@fordham.edu
Junxiao Zhao jzhao37@fordham.edu
Private Label Personal Care Industry
Company Background and the New Situation
The Investment Proposal
Concerns about WACC
Personal Care Market
Private Label Industry
HPL in Private Label Industry
Our Calculation for Working Capital
Robert Gates's Proposal
Using the WACC as the Discount Rate
New project has the same risk as the average risk of projects of the company.

Sheila Dowling's Projected WACC Schedule
WACC Assumption
The company will have a constant target capital structure throughout its useful life, leaving financial risk unchanged.

Q & A

Thank you!
Full transcript