FIN650 Finance|Bank’s Covenants

Your third case is about valuation. In a valuation case, we try to identify which strategy leads to the best expected payoff for the firm’s current owners, then describe implementation risks and how they might be mitigated. As is usually the case, how assets are financed affects what options are available to management.  Avoid leaping to a preferred solution on intuition alone.


You should try to answer the following questions as a guide to analyzing the case and should consider the weights assigned to each in the grading.  Reports should organically approach the case and not simply compile a series of answers.


  1. Briefly discuss Pacific Grove’s industry and what the financial implications of its strategy will be for the firm.


  1. Make a pro forma forecast of Pacific Grove’s financial statements for 2012.  Are we expected to comply with the bank’s covenants?  What consequences can we expect if we don’t meet the bank’s demands and how would these impact the firm’s strategy?


  1. Is the TV show a good investment? How do you know?


  1. Is an equity placement a good idea?  Who “wins” and why? Would we be in compliance with the bank’s covenants? Assess the the potential investor and the dilution of control.


  1. Create a discounted cash flow model to value High Country Seasoning as an acquisition target. Aside from direct cash flows, are there any other possible synergies or sources of value? How do you feel about dilution and sharing the firm with HCS?


  1. Assess all of the options open to Pacific Grove (or combination thereof) and provide a recommendation to the firm’s owners supported by a careful financial analysis which considers both quantitative and qualitative factors
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