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- Calculate unlevered free cash flows for each year; and levered and unlevered terminal value using the perpetual growth method (Terminal Value = (FCFn x (1 + g)) / (WACC g)

2--What are the NPVs OF THIS PROJECT assuming levered firm and unlevered firm (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