Evaluate the project using Weighted Average Cost of Capital (WACC). a) Explain your choice of the discount rate being used when evaluating the project.

Evaluate the project using Adjusted Present Value. Assume the debt will be paid back in equal installments over the life of the project. The cost of debt for computing the present value of the financing is 7.75%. a) Explain your choice of the discount rate being used when evaluating the project.

Evaluate the assumptions made by Robert Gates in developing his projections. If you dont agree with any of the assumptions, adjust them to what you believe should be appropriate and explain

Questions

How sensitive is the decision to the assumptions? Explain how you performed your sensitivity analysis and demonstrate the implications for your solution. Show how to obtain NPV and should they expand?

Historical Income Statement

Operating Results:				2003	2004	2005	2006	2007
Revenue				$503.4	$543.7	$587.2	$636.1	$680.7
Less: Cost of Goods Sold				405.2	432.3	496.2	513.4	558.2
Gross Profit				98.2	111.4	91.0	122.7	122.5
Less: Selling, General & Administrative				37.8	44.6	45.8	51.5	49.0
EBITDA				60.4	66.8	45.2	71.2	73.5
Less: Depreciation				6.8	6.2	6.0	5.9	6.1
EBIT				53.6	60.6	39.2	65.3	67.4
Less: Interest Expense				5.5	5.8	5.9	5.3	3.3
EBT				48.1	54.8	33.3	60.0	64.1
Less: Taxes				19.2	22.0	13.3	24.0	25.6
Net Income				$28.9	$32.8	$20.0	$36.0	$38.5
Margins:
Revenue Growth				NA	8.0%	8.0%	8.3%	7.0%
Gross Margin				19.5%	20.5%	15.5%	19.3%	18.0%
Selling, General & Administrative/Revenue				7.5%	8.2%	7.8%	8.1%	7.2%
EBITDA Margin				12.0%	12.3%	7.7%	11.2%	10.8%
EBIT Margin				10.6%	11.1%	6.7%	10.3%	9.9%
Net Income Margin				5.7%	6.0%	3.4%	5.7%	5.7%
Effective Tax Rate				39.9%	40.1%	39.9%	40.0%	39.9%
Payout Ratio				49.83%	50.00%	30.50%	49.72%	59.74%
Retention Ratio				50.17%	50.00%	69.50%	50.28%	40.26%
ROE				14.17%	14.88%	8.54%	14.26%	14.37%
Sustainable Growth				7.11%	7.44%	5.93%	7.17%	5.79%
Total Asset Turnover				149.02%	156.15%	163.25%	171.18%	178.76%
Equity Multiplier				165.59%	157.99%	153.52%	147.23%	142.14%
ROA				8.56%	9.42%	5.56%	9.69%	10.11%

Historical Balance Sheet

Assets:				2003	2004	2005	2006	2007
Cash & Cash Equivalents				$4.3	$5.1	$4.8	$7.8	$5.0
Accounts Receivable				62.1	70.1	78.8	87.1	93.3
Inventory				57.7	58.0	61.2	61.9	67.3
Total Current Assets				124.1	133.2	144.8	156.8	165.6
Property, Plant & Equipment				201.4	202.9	203.1	202.3	204.4
Other Non-Current Assets				12.3	12.1	11.8	12.5	10.8
Total Assets				$337.8	$348.2	$359.7	$371.6	$380.8
Liabilities & Owners' Equity:
Accounts Payable & Accrued Liabilities				$42.2	$45.0	$51.6	$53.4	$58.1
Long-Term Debt				91.6	82.8	73.8	65.8	54.8
Owners' Equity				204.0	220.4	234.3	252.4	267.9
Total Liabilities & Owners' Equity				$337.8	$348.2	$359.7	$371.6	$380.8
Net Working Capital:
Accounts Receivable				62.1	70.1	78.8	87.1	93.3
Plus: Inventory				57.7	58.0	61.2	61.9	67.3
Less: Accounts Payable & Accrued Expenses				42.2	45.0	51.6	53.4	58.1
Net Working Capital				77.6	83.1	88.4	95.6	102.5
Net Working Capital/Revenue				15.4%	15.3%	15.1%	15.0%	15.1%
Days Sales Outstanding				44.4x	46.4x	48.3x	49.3x	49.3x
Days Sales Inventory				41.3x	38.4x	37.5x	35.0x	35.6x
Days Payable Outstanding (1)				34.3x	34.0x	34.3x	34.0x	34.4x
Cash-to-Cash				51.4x	50.8x	51.6x	50.3x	50.5x
Days in Inventory				51.3x	48.3x	44.4x	43.4x	43.4x
Days in Payable				37.5x	37.5x	37.4x	37.4x	37.5x
Operating Cycle				95.7x	94.7x	92.7x	92.7x	92.7x
Cash Cycle				58.2x	57.2x	55.3x	55.3x	55.3x

Historical Cash Flows

Cash From Operations:				2003	2004	2005	2006	2007
Net Income				$28.9	$32.8	$20.0	$36.0	$38.5
Plus: Depreciation				6.8	6.2	6.0	5.9	6.1
Less: Increase in Accounts Receivable				3.1	8.0	8.7	8.3	6.2
Less: Increase in Inventory				0.5	0.3	3.2	0.7	5.4
Plus: Increase in Accounts Payable				0.3	2.8	6.6	1.8	4.7
Total Cash From Operations				$32.4	$33.5	$20.7	$34.7	$37.7
Cash From Investing:
Capital Expenditures				$7.3	$7.7	$6.2	$5.1	$8.2
Plus: Increases in Other Non-Current Assets				0.5	(0.2)	(0.3)	0.7	(1.7)
Total Cash Used in Investing				$7.8	$7.5	$5.9	$5.8	$6.5
Cash From Financing:
Repayment of Debt				$8.0	$8.8	$9.0	$8.0	$11.0
Plus: Dividend Payments				14.4	16.4	6.1	17.9	23.0
Cash Used in Financing				$22.4	$25.2	$15.1	$25.9	$34.0
Total Cash Generated				$2.2	$0.8	($0.3)	$3.0	($2.8)

Comparable Companies

		Market	Net	Enterprise	Equity				Net	Book
Company:		Value	Debt	Value	Beta	Revenue	EBITDA	EBIT	Income	Value
Cathleen Sinclair		298.9	1,329.6	1,628.5	2.22	1,346.8	255.3	163.4	21.5	(1,112.8)
General Health & Beauty		319.3	63.1	382.4	1.95	446.1	61.9	51.9	23.8	204.2
Women's Care Company		498.6	55.3	553.9	1.14	397.3	52.7	49.3	77.0	43.7
Skin Care Enterprises		1,204.2	371.9	1,576.1	1.35	1,247.6	155.8	125.4	65.3	316.2
Hansson Private Label		464.7	49.8	514.5		680.7	73.5	67.4	38.5	267.9
Company:			EBITDA	EBIT	Earnings	Revenue	EBITDA	EBIT	P/E	P/B
Cathleen Sinclair			19.0%	12.1%	1.6%	1.2x	6.4x	10.0x	13.9x	NM
General Health & Beauty			13.9%	11.6%	5.3%	0.9x	6.2x	7.4x	13.4x	1.6x
Women's Care Company			13.3%	12.4%	19.4%	1.4x	10.5x	11.2x	6.5x	11.4x
Skin Care Enterprises			12.5%	10.1%	5.2%	1.3x	10.1x	12.6x	18.4x	3.8x
Average			14.6%	11.6%	7.9%	1.2x	8.3x	10.3x	13.1x	5.6x
Hansson Private Label			10.8%	9.9%	5.7%	0.8x	7.0x	7.6x	12.1x	1.7x

Weighted Average Cost of Capital

				Debt/	Debt/	Equity	Debt	Asset
Company:				Value	Equity	Beta	Beta	Beta
Cathleen Sinclair				81.6%	444.9%	2.22	0.25	0.79
General Health & Beauty				16.5%	19.8%	1.95	0.00	1.74
Women's Care Company				10.0%	11.1%	1.14	0.00	1.07
Skin Care Enterprises				23.6%	30.9%	1.35	0.00	1.14
Average				32.9%	49.1%	1.67	0.06	1.18
		Dbet/	Debt/	Asset	Equity	Cost of	Cost of			Assumptions:
		Value	Equity	Beta	Beta	Equity	Debt	WACC		10-Year Treasury			3.75%
		0.0%	0.0%	1.18	1.18	9.67%	7.75%	9.67%		Market Risk Premium			5.00%
		5.0%	5.3%	1.18	1.22	9.86%	7.75%	9.60%
		10.0%	11.1%	1.18	1.26	10.07%	7.75%	9.53%		Tax Rate			40.0%
		15.0%	17.6%	1.18	1.31	10.30%	7.75%	9.45%
		20.0%	25.0%	1.18	1.36	10.56%	7.75%	9.38%		Est. Hansson EBITDA Multiple			7.0x
		25.0%	33.3%	1.18	1.42	10.86%	7.75%	9.31%		Est. Hansson Enterprise Value			514.5
		20.9%	26.4%	1.18	1.37	10.61%	7.75%	9.37%
										Existing Net Debt			49.8
										Plus: New Expansion Debt			57.8
										Total Estimated Debt			107.6
										Existing D/V			9.7%
										Estimated New D/V			20.9%
										Assumed Debt Beta			0.00
										Estimated Cost of Debt			7.75%

Investment

						Percent	Cost of
Cost Components:			Amount	Est. Life	Depr'	Maintenance	Maintenance
Facility Expansion			$10,000	20yrs.	500	5.0%	500
Manufacturing Equipment			20,000	10yrs.	2,000	5.0%	1,000
Packaging Equipment			15,000	10yrs.	1,500	5.0%	750
Working Capital (1)			12,817		0	0.0%	0
Total Investment			57,817		4,000		2,250
(1) The increase in working capital is not expected to ocurr upfront
at the time of the initial investment. It is assumed to take place
throughout the year, and should be considered as part of the
2009 cash flows.
Note: working capital is defined as accounts receivable plus inventory
less accounts payable and accrued expenses. At the end of the
project, working capital will be returned in an amount equal to
accounts receivable less accounts payable.

Operating Assumptions

Revenue Projection:					2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
Total Capacity (000's)					80,000	80,000	80,000	80,000	80,000	80,000	80,000	80,000	80,000	80,000
Capacity Utilization					60.0%	65.0%	70.0%	75.0%	80.0%	85.0%	85.0%	85.0%	85.0%	85.0%
Unit Volume					48,000	52,000	56,000	60,000	64,000	68,000	68,000	68,000	68,000	68,000
Selling Price Per Unit - Growing at				2.0%	1.77	1.81	1.84	1.88	1.92	1.95	1.99	2.03	2.07	2.12
Revenue					84,960	93,881	103,124	112,700	122,618	132,887	135,545	138,256	141,021	143,841
Production Costs:
Raw Materials Per Unit Growing at				1.0%	0.94	0.95	0.96	0.97	0.98	0.99	1.00	1.01	1.02	1.03
Manufacturing Overhead Growing at				3.0%	3,920	4,038	4,159	4,283	4,412	4,544	4,681	4,821	4,966	5,115
Maintenance Expense Growing at				3.0%	2,250	2,318	2,387	2,459	2,532	2,608	2,687	2,767	2,850	2,936
Salaried Labor Cost:
Managers					4	4	6	6	6	6	6	6	6	6
Average Annual Fully Loaded Cost				3.5%	160.0	165.6	171.4	177.4	183.6	190.0	196.7	203.6	210.7	218.1
Total Salaried Labor Cost					640.0	662.4	1,028.4	1,064.4	1,101.6	1,140.2	1,180.1	1,221.4	1,264.1	1,308.4
Hourly Labor Cost:
Average Fully Loaded Hourly Cost				3.5%	20.00	20.70	21.42	22.17	22.95	23.75	24.59	25.45	26.34	27.26
Hours Per Year					2,000	2,000	2,000	2,000	2,000	2,000	2,000	2,000	2,000	2,000
Cost Per Hourly Employee					40,000	41,400	42,849	44,349	45,901	47,507	49,170	50,891	52,672	54,516
Number of Hourly Workers					450	473	509	545	582	618	618	618	618	618
Total Hourly Labor Cost (000's)					18,000.0	19,570.9	21,814.0	24,190.2	26,706.0	29,368.2	30,396.1	31,460.0	32,561.1	33,700.7
Total Labor Cost					18,640.0	20,233.3	22,842.4	25,254.6	27,807.6	30,508.4	31,576.2	32,681.4	33,825.2	35,009.1
Selling, General & Administrative/Revenue					7.8%	7.8%	7.8%	7.8%	7.8%	7.8%	7.8%	7.8%	7.8%	7.8%
Working Capital Assumptions (1):
Days Sales Outstanding					47.6x	47.6x	47.6x	47.6x	47.6x	47.6x	47.6x	47.6x	47.6x	47.6x
Days Sales Inventory					37.6x	37.6x	37.6x	37.6x	37.6x	37.6x	37.6x	37.6x	37.6x	37.6x
Days Payable Outstanding					34.2x	34.2x	34.2x	34.2x	34.2x	34.2x	34.2x	34.2x	34.2x	34.2x
(1) Based on historical averages.
Hourly Labor Cost Per Unit					0.38	0.38	0.39	0.40	0.42	0.43	0.45	0.46	0.48	0.50
Units Per Total Labor Hours					0.05	0.06	0.06	0.06	0.06	0.06	0.06	0.06	0.06	0.06