Questions for the Kochman Case

1. What financial problems are posed by KR+H's operating strategy?

2. Assuming KR+H can obtain external funds to make the capital expenditures, whatare your cash flow forecasts for the years 1993 through 1998? What is the value ofthe business? To facilitate comparisons, please assume sales growth of 10% and1992 profit margins. Assume that cost savings occur in the year after theinvestments. You should also prepare forecasts using assumptions that you thinkare appropriate.

3. Assuming KR+H finances its investments internally, what are your cash flowforecasts for the years 1993 through 1998? What is the value of the business? Usethe same cases examined in Question 2.

4. Should KR+H finance capital expenditures internally or should it rely on external financing? If you recommended external financing, what kind should it use andhow should it obtain it?