Harris Seafoods, Inc. Case Solution & Answer

Problem Statement

Harris Seafoods Inc. intends to expand its business to achieve this objective the companygrasps different opportunities at different times such as in 1979 the company enters into lobster business, however, the return on investment from this expansion is not in accordance with the Harris expectation. Moreover in 1979 the company attempt to acquire shrimp processing operation however they failed. After this failure, Mr. Harris decided that the company should create its own processing facility. Therefore he wants to evaluate this proposal that either it is beneficial for the company or not.

Qualitative Analysis:

  • Shrimp processing facility will convert the raw shrimps into the final product which can be sold to the retail and institutional establishment hence due to this facility the company will move towards the forward integration and hence it will increase its market share and profitability.
  • Moreover the final products need to be freeze and the freezing (storage) is most expensive step in thewhole process as the company has built-in freezing facility in its boats, therefore, this can be used to freeze the final products this may reduce the overall cost of the final products and hence company may create price war in the industry.
  • Furthermore, the history of the industry indicates that the industry is in ahighgrowth phase. In 1976 the total sales of this industry were approximately $3.6million which is 50% of total Seafood salesin the United States.
  • Along with this the demand for Shrimp increase dramatically in the 1970s moreover it becomes the luxury good in the industry therefore forward integration will result in positive change in the company’s growth.
  • Furthermore, the rivalry among the competitors is low in this industry. Most of the player in this industry are privates companies there are only two publically traded companies Treasure Isle, Inc. and Ocean Foods, Inc. As Harris Seafoods, Inc. has a good brand name therefore that brand name along with the strengths of the company may help the company in obtaining the market share of this industry.

Quantitative Analysis:

To evaluate the project on the terms of financials we calculate the discounted cash flows and value of the project. To calculate the discounted cash flows we first determine the WACC of the company.

Reasonableness of the Pro-forma Statement:

To create the pro-forma statement management of the company take numerous assumption however the key assumptions are:

  • Growth in the price per pounds
  • Company’s ability to capture the market share.
  • Investment Requirement

Management of the company assumes that the will need approximately $10million for the expansion. This $10M consists initially required funds and the working capital management intends that they will fund this expansion from there operating liabilities and parents company funds. However, from the proformastatement, we conclude that the working capital requirement will be approximately $21.9million at the end of 1986. Hence to fund the proposal company has to use debt sourcing…………………….

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