Essay about Hansson Private Label, Inc Case Analysis

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Overview of the Industry

As a manufacture of private label personal care products, Hansson Private Label, Inc. has a considerable amount (28%) of market share in its specific industry. However, private labels as a whole constitute less than 19% in the entire personal care industry. Therefore, growth of HPL depends on the growth of the industry and more importantly the growth of private label component within the industry. In terms of the personal care industry, market growth will not improve significantly in the future. As proven in the past four years, unit volumes in the industry increases less than 1% in each year and the dollar sales growth was only driven by modest price increases. Therefore, the opportunity for private labels …show more content…
Therefore the project’s risks, in the forms of assumptions about future cash flows and appropriate discount rate, are things that the Hansson team lack experience in evaluating. Also, since the retailer is already Hansson’s largest customer, the actual incremental revenue does not carry the benefits of expanding customer base. The three-year only commitment may not be sufficient time for the project to really take off and generate returns. The facility, manufacturing equipment and packaging equipment that need to be acquired for the project will outlive the duration of the project by 7 to 17 years. Hansson needs to prepare a strategy for the end of three years. Hansson also needs to take into account the opportunity cost for pursuing this investment will close off all other investment options. Even if the expected returns did justify the various costs, Hansson still would have to consider the limitations and uncertainties of forecasting.

Project FCF Valuation

The project’s future cash flows are calculated using the equation FCF = EBIT (1-T) + DA – WC- CAPEX. The cash flows are projected for year 2009 to 2018 for a total duration of 10 years despite the three-year-only commitment from the retailer. Executive VP of Manufacturing, Robert Gates, also made several other important assumptions:
1) Total capacity is fixed at 80,000,000 units per year and utilization will grow 5% every
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