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Prairie Venture Limited Case Solution & Answer

Risks:

Crestline Coach Ltd is theonly supplier in North America providing both (diesel and gasoline-driven chassis) type of ambulance. Currently, the company provides only these two types of ambulances while the other providers provide other type of ambulances, therefore, there is a risk that in long-term the company may face problems in getting or maintaining its market shares.

While operating in the United States, Crestline needs a KKK standard ambulance, ascurrently company is unable to maintain this standard, therefore, it should not enter into this market else it may face potential penalties.

Furthermore, as Canadian dollar appreciates against US dollar therefore, after the conversionthe revenue earned from US customers will be reduced therefore, it will jeopardize the overall position of the company.

The other risk which is faced by the company is that the style of the ambulances’ chassis is not compatible with the requirement of foreign markets, therefore, the company may face difficulties in obtaining market shares in other countries.

The paint of the ambulance plays a vital role in enhancing the product reputation and customer satisfaction. Currently, Crestline Ltd outsources its painting facility along with this, the company relieson a single supplier it means thecompany is unable to find the alternative therefore, in long run company may face problem relating to maintaining product reputation and customer satisfaction.

The current place at which company conducts its manufacturing has insufficient space. Its available space does not allow itto conduct its outsourced facilities in-house.After analyzing this we can conclude that the company may face problems in grasping opportunities because after grasping them company will need more manufacturing space to fulfill the demand.

  1. How should the financing package be designed?

Prairie Venture Limited can design its financing package as follows:

DEBT:

If PVL intends to design the finance package as the debt, then on maturity the company will receive the principal amount however, at each year end company will also receive the interest. When calculating interest, ifwe assume that the interest rate will remain same at 10%, then the overall value which would be received by the company at the maturity of debt will be approximately 14.55 million. See Exhibit 2

All preferred shares with a fixedassumed Dividend:

Preferred shares are defined as the class of shares that has higher claim over the assets and earnings of the company than the common shares holders.

If PVL decide to design the finance package as the preferred share with a fixed dividend (assume 10%), then whenever Crestline Ltd declares a dividend PVL will receive it first as opposed to common stockholders.

Through free cash flow method, we calculate the free cash flow to equity of the company for the next five years. In calculating free cash flow, we assume that the required capital expenditure is 3% of total revenue. These free cash flows enable us to determine the dividend which will be earned by the PVL.After calculation we can conclude that PVL will receive approximately 1.04million of dividend in next five years if the pattern remains same, then it PVL can recover its initial investment in approximately 47 years…………….

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