Question: Since the early 1990s woodstove sales have declined from 1 200 000 units

Since the early 1990s, woodstove sales have declined from 1,200,000 units per year to approximately 100,000 units per year. The decline has occurred because of
(1) Stringent new federal EPA regulations, which set maximum limits on stove emissions beginning in 1992;
(2) Stable energy prices, which reduced the incentive to switch to woodstoves to save on heating costs; and
(3) Changes in consumers’ lifestyles, particularly the growth of two-income families.
During this period of decline in industry sales, the market was flooded with woodstoves at distressed prices as companies closed their doors or liquidated inventories made obsolete by the new EPA regulations. Downward pricing pressure forced surviving companies to cut prices, output, or both. Years of contraction and pricing pressure left many of the surviving manufacturers in a precarious position financially, with excessive inventory, high debt, little cash, uncollectible receivables, and low margins.

a. Calculate the financial statements ratios listed in Exhibit 10.22 for MSC under each of the three scenarios for Year 8–Year 12.
b. What advice would you give the management of MSC regarding its decision to enter the gas stove market? Your recommendation should consider the profitability and risks of this action as well as other factors you deem relevant.

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  • CreatedJune 30, 2012
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