PLEASE HELP!!!!!!!!!!!!!!!!! EXTREMELY IMPORTANT Does anyone know or have the assignment based on the Galveston Fishing Company to share with me please? (Questions and answers). Thanks

Galveston Fishing Company, page 1

GALVESTON FISHING COMPANY1

From a modest beginning, Galveston Fishing Company had evolved into one of the largest

producers of frozen shrimp in the United States by 2000. It is a privately held company. The

company has a fleet of over 100 boats, which plies the waters between Texas and Mexico. Each

boat has a built-in freezer. Every night, as soon as the shrimp are taken out of the nets, they are

deheaded and flash frozen. On a typical trip, a boat stays out 45 to 60 days before returning to

port.

Galveston Fishing Companys in-shore facilities included a dock and packing plant where the

shrimp are unloaded, graded by size and quality, and put into 5 lb. containers. In turn the 5lb.

containers are placed in 50 lb. cartons for shipment to a local cold storage plant from which the firm leased space.

The shrimp are distributed through a captive sales organization. Roughly 40% of sales are made

to wholesalers along the East Coast of the United States. The wholesalers sell the shrimp to

retail establishments and institutional outlets. Another 35% of sales are made to Japanese

trading companies. The remaining sales are made to processors. Processors converted the raw

shrimp into an intermediate product such as pre-cooked or breaded shrimp. In turn, the

processors sold their products to the same mix of outlets as that described above (i.e. retail and

institutional establishments).

Galveston Fishing Company is considering several investment projects including expansion in

existing business, entering the lobster business which requires somewhat differently outfitted

boats and entering into new shrimp processing business where it can use its existing equipment.

There are no dominant competitors in the shrimp processing industry. There are about six

processors with sales greater than $30 million. It is somewhat difficult to get accurate data on

sales and profitability of these companies because most are also privately owned. However, there are two publicly traded companies, Treasure Isle, Inc. and Ocean Foods, Inc. Selected

information for these companies is shown in Exhibit I.

Galveston Fishing Companys finance staff has determined that it would cost about $7 million to

build an efficient size processing plant. If construction were to begin in the first quarter of 2004,

the plant could be finished by the end of the year the operation will start at the beginning of

2005. The plant would be located on land which is owned by the City of Brownsville, Texas,

and which would be leased to Galveston Fishing Company for 99 years at a nominal cost.

The raw shrimp to be processed at the plant were to be purchased on the open market. There

was a possibility that some product of the new business would be sold to other plants of the

parent, but given the fact that demand exceeded supply for the new shrimp company, few

intercompany sales were contemplated.

A 6-year pro-forma data for the processing plant are shown in Exhibit II.

In answering the questions given below make the following assumptions for Galveston Fishing

Company:

Risk free rate 7%

Market risk premium 8%

Tax rate 35%

Target debt/value ratio 30%

Cost of (unsecured) debt at target debt/value ratio 8%

Galveston Fishing Company Page 4

EXHIBIT I

Information on Comparable Companies

Ocean Foods, Inc. Treasure Isle, Inc.

Sales $ 27,451 $ 71,457

Net Income 1,307 1,264

Total current assets 6,020 10,292

Total assets 10,276 22,130

Total current liabilities 3,771 7,023

Long-term debt 1,400 3,577

Net worth 5,105 11,530

Closing share price $ 11.25 $ 10.875

Shares (000) 887 507

Earnings per share $ 1.47 $ 2.49

Dividends per share $ 0.46 $ 0.40

Price to earnings ratio 7.65 4.37

Beta (equity) 0.85 1.60

Beta(debt) 0 0

Tax rate 35% 35%

Galveston Fishing Company Page 5

EXHIBIT II

Processing Plant Proposal Projections

PROJECTED INCOME STATEMENT

2004 2005 2006 2007 2008 2009

Pounds - 5,500 12,000 14,250 14,500 14,750

Price per pound ($) $ 4.75 $ 5.27 $ 5.85 $ 6.50 $ 7.21 $ 8.00

Revenues (thousands) $ 28,999 $ 70,230 $ 92,572 $ 104,557 $ 118,059

COGS 25,339 57,588 75,908 96,808 85,738

Gross profit 3,660 12,642 16,663 18,820 21,251

SG&A 3,190 7,725 8,794 9,933 11,216

Depreciation 833 787 758 748 746

Pretax operating profit $ (363) $ 4,130 $ 7,111 $ 8,141 $ 9,287

PROJECTED BALANCE SHEET

2004 2005 2006 2007 2008 2009

Assets

Cash $ 450 $ 290 $ 702 $ 926 $ 1,046 $ 1,181

Accounts receivable - 2,415 5,850 7,719 8,709 9,834

Inventories 2,485 5,063 9,790 12,919 14,575 16,458

Other current assets - 581 1,404 1,853 2,361 2,092

Total Current assets $ 2,935 $ 8,349 $ 17,746 $ 23,418 $ 26,422 $ 29,834

Net plant and equipment 7,000 6,944 7,019 7,218 7,535 7,966

Other long-term assets 100 435 1,056 1,390 1,771 1,568

Total assets $ 10,035 $ 15,728 $ 25,821 $ 32,026 $ 35,525 $ 39,571

Liabilities

Accounts payable - 2,083 4,733 6,246 7,957 7,047

Net asset value $ 13,645 10,035 $ 21,088 $ 25,780 $ 28,478 $ 31,614 $

QUESTIONS

1- Keeping the pure play approach in mind, find beta of the unlevered firm and calculate RA, the unlevered cost of capital and RE of all companies

2-Calculate EBIAT using a tax rate of 35%

3- Detailed calculations the FCF FOR EACH YEAR

4-What's the terminal value of the ongoing business from ear 2010 onwards assuming that the FCF will grow at 2% annual rate (details please)

5-What is the NPV OF THIS PROJECT (detiled steps)

6-Using the Dupont identity tree, fill in the tree and derive all the drivers for year 2008 and 2009.

PLEASE HELP!!!!!!!!!!!!!!!!!!! EXTREMELY IMPORTANT