Case Study - Canada Hardware

It is January 1st, 2018. You are a Senior Analyst at Canada Hardware Inc. (CHI), one of the top hardware, sports, and apparel providers in Canada with hundreds of stores across Canada. The CEO of Canada Hardware, Tony Stark, has reached out to you to draft a report to evaluate two investment proposals, building on your analysis from Assignment 1.

Purpose For this case approach, you will demonstrate your ability to develop costing methods and a set of forecasts of future cash flows for two proposed investment projects. You will also be required to identify the cost of financing through the issuance of bonds.

How to Proceed

Building on your analysis and proposal from Assignment 1, develop your investment proposal business case draft:

1. Create a title page with the project proposal names and author identification.

2. Calculate the bond yield to utilize as your required return.

3. Prepare a summary narrative (i.e., a detailed description) of each proposal with detailed elements on the initial investment, as well as the costs/revenues over the life of each of the projects. Identify which revenues and costs are relevant to your analysis, and which costs are irrelevant. Identify the time horizon for each investment.

4. Calculate the after-tax cash flows during the life of each of the projects. Be sure to identify the total costs of ownership and deduct those costs from the benefits to arrive at the net cash inflow per year.

5. Utilizing the after-tax cash flows from Part 4, evaluate each investment proposal utilizing the following criteria (unless directed otherwise): a. IRR b. Payback; c. Discounted payback; d. NPV; e. Profitability index.

6. Clearly indicate whether any of the above criteria support each of the project proposals, and what the company should ultimately decide to do.

Assignmemt 1 Details

Mission Statement: Canada Hardware is running with the aim of providing best product and services in a market. Companys mission is to satisfy customer and shareholders as well. Bring new ideas and foremost technology to provide best experiences to consumers.

Ratios:

Current Ratio: Current ratio is one of the liquidity ratio which is calculated to know the financial position of company to meet companys short-term investment. It is calculated by dividing current assets with current liabilities. CHIs current ratio was 1.54 percent in 2013 and it was kept increasing till 2017 and ends with 2.76 percent in 2017.

Quick Ratio: Quick ratio means companys ability to use its cash resources. CHI witnessed a decrease in quick ratio as it was 1.05 percent in 2013, 0.97 percent in 2015 and 0.84 percent in 2017 which company was lacking in this ratio.

Cash Ratio: Cash ratio of the company was decreasing for over 4 years. It was 0.21 percent in a year of 2013, 0.17 percent in 2014 but in 2017-year cash ratio again start increasing with the difference of 0.6 percent from 2016 to 2017.

Inventory Turnover: Inventory turnover ratio witnessed a sharp decrease for over a period of 5 years. It was 3.5 percent in 2013, 1.6 percent in 2014, 1.28 percent in 2015 and it was 0.66 percent in 2017.

Total Asset Turnover: Asset turnover calculate the total sales company incurred and compared it to the total assets. CHI had decreasing asset turnover declined from 1.08 percent in 2013 to 0.68 in 2017.

Profit Margin: This ratio calculates the profit margin of the company and CHI witnessed decrease in margin throughout 5 years. It was 0.20 percent in 2013 and it kept decreasing till 2017 and ends with the percentage of 0.08 in 2017.

Return on Asset: This ratio calculates the return on assets company get through their business means output of assets. CHIs return on asset was declining with 0.22 percent in 2013, 0.11 percent in 2015 and 0.05 percent in 2017.

Total Debt Ratio: To calculate total debt ratio first need to calculate total asset and total liabilities. Then, divide total asset by total liabilities. CHIs total debt ratio witnessed a drop from year 2013 to 2017. It was 0.5 percent in year 2013 and dropped to 0.39 percent in year 2015.

Investment Proposal:

While analyzing the annual reports of Canada Hardware, there were different factors where company should invest but most important are where investment is really needed is distribution of goods from one place to another place. To strengthen the distribution chain company should buy warehouses in different areas. So, they can store their products in warehouses. Moreover, these warehouses will need other resources like trucks, drivers, employees and forklifts. Another field where company should invest is food industry. Food business is growing at rapid rate and CHI can increase their market share by investing in this business.

Capital Cost Allowances

CCA is widely used to calculate depreciation under taxable income. The beginning UCC of company is 1,35,000 in 2015 with the CCA 40,500 (30%) and Ending UCC was 94,500 in 2015. Moving further, in year 2016, starting UCC was 229500 and CCA was 68,850 and Ending UCC was 1,60,650. In year 2017 the ending UCC was 1,12,455. If equipment sold for $90,000 the tax will be 22,455 or if sold for $120,000 the tax would be 7,545.S

	2013	2014	2015	2016	2017
Current ratio	1.542316	1.999205	2.32632	2.92928	2.766151
quick ratio	1.052632	1.005564	0.976578	0.944169	0.847914
Cash ratio	0.210526	0.170906	0.142914	0.119934	0.174966
inventory turnover	3.588994	1.6576	1.285294	0.895208	0.661638
Days sales in inventory	101.6998	220.1979	283.9817	407.7263	551.6609
Total asset turnover	1.082735	0.908761	0.860038	0.789906	0.68469
profit margin	0.209473	0.192226	0.128502	0.116622	0.082118
return on assets	0.226804	0.174688	0.110516	0.09212	0.056226
return on equity	0.528589	0.337178	0.19458	0.150976	0.093257
Total debt ratio	0.570925	0.481912	0.432027	0.389835	0.397093
long term debt ratio	0.378215	0.291758	0.251857	0.224341	0.209446
time intrest earned	21.73	20.72	15.26	14.55	8.01
debt/ quity ratio	0.760341	0.514933	0.420805	0.361533	0.37091
euity multiplier	2.330596	1.930175	1.760646	1.638901	1.65863

Revenue				2018(2%)	2019(3%)	2020(1.5%)	2021(2.5%)	2022(4%)
	hardware segment			6500.46	6695.474	6795.9059	6965.8036	7244.436
	apprel segment			918	945.54	959.7231	983.71618	1023.065
	sporting goods segments			1326	1365.78	1386.2667	1420.9234	1477.76
	total revenue			8744.46	9006.794	9141.8957	9370.4431	9745.261
cost of goods sold				3847.44	3962.863	4022.3061	4122.8638	4287.778
gross profit				4897.02	5043.931	5119.5896	5247.5793	5457.482
operating expence
	advertising & marketing			1020	1050.6	1066.359	1093.018	1136.739
	general & administrative			1224	1260.72	1279.6308	1311.6216	1364.086
	Research, it 7 development			1020	1050.6	1066.359	1093.018	1136.739
	Depreciation & amortization			714	735.42	746.4513	765.11258	795.7171
	total operating expenses			3978	4097.34	4158.8001	4262.7701	4433.281
operating income				919.02	946.5906	960.78946	984.8092	1024.202
	interest expense			102	105.06	106.6359	109.3018	113.6739
pre-tax income				817.02	841.5306	854.15356	875.5074	910.5277
	income taxes			98.94	101.9082	103.43682	106.02274	110.2637
net income				718.08	739.6224	750.71674	769.48465	800.264
Extra		6373
		900
		1300
		8573

Year	Beginning UCC	CCA(30%)	Ending UCC
2015	135000	40500	94500
2016	229500	68850	160650
2017	160650	48195	112455
			$90,000 or $120,000
	if we sold at	22455
		-7545