HW-1546 Investment decisions recomendations

  
Problem #1
 
Apogee Corp. has approached your firm for $250,000 in funding. You have been asked to evaluate their request and make recommendations.
 
Apogee is a relatively young firm that: has reached cash flow breakeven; has been experiencing strong early growth levels; and needs the funds to fund its continuing expansion. The firm’s industry has been experiencing very strong growth and it’s total market is expected to peak in the $25-30 million range.
 
Evaluate the situation and make your investment recommendations.
 
Problem #2
Smith Corp. has approached your firm for $800,000 in funding. You have been asked to evaluate their request and make recommendations.
 
Smith Corp. has been a solid performer over the past 5 years. It has a record of: steady, though modest, growth; steady profitability; and stable and sufficient internally generated cash flows. While not a “high flyer”, it has been a consistent performer.
The firm’s industry is in the latter growth stages and is composed of about 100 firms. Most of the firms are fragmented with modest market shares with the exception of Mansfield Corp, which has a market share of about 50%. Firms in the industry have increased their market share by addressing new customers from the market’s growth.
Smith Corp. has developed a prototype of a very promising new product. They believe the new product is superior to the one presently offered by Mansfield Corp. and believe it will take market share from Mansfield. The requested funding will be used to finalize the new product; to create appropriate production facilities; to fund early production; and to initiate & support a marketing program.
 
Evaluate the situation and make your investment recommendations.
 
Problem #3
 
Sunnyside Corp. has approached your firm for $1.2 million in funding. You have been asked to evaluate their request and make recommendations.
 
Sunnyside produces high precision valves used by customers as the components in the manufacture of high quality, high value industrial machinery. Sunnyside enjoys a strong reputation for quality in the industry and has a solid performance track record. Growth has been steady but controlled and the firm produces a steady, stable, and reasonably sufficient internally-generated cash flow.
 
Sunnyside’s production is capital intense, with high fixed costs. Its technology is continually updated and changes are needed to stay ahead of competitors and meet continuing customer needs. Orders tend to be large and periodic with an approximate 1 month lead time. Products are “quasi-customized” and produced to order. The firm typically produces a “core” product and then customizes it (adding features) for the particular order.
 
Sunnyside markets using direct sales and has a very stable customer base of about 60 customers. It relies on repeat business and has not aggressively added new customers. Of its customers, two account for about 60% of the business and their needs have been important drivers of the business and solid sources of cash flows.
 
The firm anticipates increasing growth over the next 4 years. However, its production facilities, which are highly efficient and a source of material cash flow, are very close to capacity. And its plant space is already fully utilized. While the firm periodically uses increased shifts to respond to order flow, it anticipates the needs for a production expansion – thus the funding request.
 
Prepare an evaluation of the strengths & weaknesses of the firm; and specify the concerns and considerations for any investment.

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