The final exam is based on the Pacific Grove Spice Company case. Deliverable: Written report that answers the following three questions posed in the case: 1. Should Pacific accept an offer from a cable cooking network to produce and sponsor a new program? This opportunity would increase the company’s sales, profits, and cash flow above that presented in Exhibit 1, but would require investment in television equipment, capacity, and working capital. 2. Should Pacific raise new equity capital by selling shares of common stock? 3. Should Pacific acquire High Country Seasonings – a privately owned spice company with sales revenue approximately 22% of Pacific’s? The overhang to the above questions that you should also address is the bank’s mandate to reduce Pacific’s debt level. There is a 5-page limit for the narrative (11 font, double-spacing); there is NO page limit for the exhibits. I will mark you down if you exceed the page limit for the narrative. Background: A company can grow organically or via acquisitions. While these are strategic choices, it is important to relate strategy to the firm’s resources, particularly capital. This project is aimed at that. Pacific Grove Spice Company (Pacific) is a profitable, rapidly growing, and highly levered company operating in the spice industry (they manufacture, market to end users, and distribute through retailers). The company faces the following issues: • In spite of retaining all of its net income (i.e., not paying out dividends or buying back stock), the company has utilized significant amounts of debt finance to fund growth. Pacific’s bank is now pressurizing the company to reduce its debt levels. Case Exhibit 1 gives you the company’s financials + the forecasts for the next few years. This is the overhanging issue indicated above. • Pacific has been approached by a cable cooking network (think The Food Network!) to both produce and sponsor a new program. Doing this would grow Pacific’s sales, profits, and cash flow above the forecasts in Exhibit 1, but would require capital to implement. • Pacific has also been approached by the Atwood sisters to buy their company, High Country Seasonings in an all stock deal. High Country Seasonings is about a fifth of Pacific in terms of sales but is growing and profitable. • Pacific is exploring the possibility of reducing its debt by raising additional capital by selling shares of common stock. These decisions are not mutually exclusive – Pacific can arguably do all of them. The question is one of resources, which may call for prioritization or simply choosing not to do something. That’s what you should determine in this project. Your recommendation should cover all 3 decisions above (the TV program sponsorship, the High Country Seasonings acquisition, and the new stock issue) – should Pacific do it or not do it. You have the following resources for the project: • The Pacific Grove Spice Company case in your case pack. Since this is a disguised company, stick to the facts in the case and don’t do additional data gathering. • An Excel spreadsheet that contains the data-based exhibits in the case. What Do I Except You To Do? The exam calls for both number crunching (e.g., calculating the financial impact on the forecasts of sponsoring the TV show, challenging and redoing the forecasts) as well as interpreting the analyses (e.g., the financial attractiveness of the TV sponsorship) provided in the case. I want you to submit all your number crunching as exhibits that should be positioned after the narrative. In other words, submit a written report that has a narrative that addresses the questions above and if any of these questions have financial implications, show them as exhibits.
