Questions for Preparation Corporate Finance I

Tire City
1.
2.

3.
4.

5.

6.

Evaluate Tire Citys financial health. How well is the company

performing?
Based on Mr Martins prediction for 1996 sales of $28,206,000 and
for 1997 sales of $33,847,000 and relying on the other assumptions
provided in the Tire City case, prepare complete pro forma forecasts of
TCIs 1996 and 1997 income statement and year end balance sheets.
As a preliminary assumption assume that any new financing required
will be in the form of bank debt. Assume all debt (i.e. existing debt and
any new bank debt ) bears interest at the same rate of 10%.
Using your set of financial forecasts, assess the future financial
health of Tire City as of the end of 1997. Will Tire City be in a stronger
or weaker financial condition two years from now?
What would be the impact on TCIs external funding needs as of the
end of 1997 if:
1.
Inventory were not reduced by the end of 1996?
2.
Accrued expenses were to grow less than expected in
1996?
What would be the impact on TCIs external funding needs as of the
end of 1997 if:
1.
If TCI depreciated more than 5% of the warehouses total
cost in 1997?
2.
TCI experienced higher price inflation in its revenues and
operating costs (but not in the cost of its warehouse expansion)
than was originally anticipated in 1996 and 1997?
3.
Days receivables were reduced to 45 days or days
payables were increased to 45 days?
Suppose the terms of the bank credit included a covenant ( a
contractual obligation that binds a borrower to specific actions

Polar Sports Inc

1.

Which factors should Mr. Weir consider in deciding whether to adopt

level production?
2.
What are the total savings from adopting level production?
3.
Prepare pro forma income statements, balance sheets and cash flow
statements to estimate the amount of funds required and the timings
of the needs under level production. Does Polar need more than $4
million short term financing in any month?
4.
Think about the concerns of Polars bank. As the banker, would you
be willing to extend the line of credit to more than $4 million to finance
level production? Why or why not?

5.

Compare the liability patterns feasible under the alternate

production plans. What implications do they have for the risk assumed
by various parties?

Titanium Dioxide
1.
What are Du Pont's competitive advantages in the Ti02 market as of
1972? How permanent or defensible are they? What must Du Pont do
to retain its competitive advantages in the future?
2.
Given the forecasts provided in the case, estimate the expected
incremental free cash flows associated with Du Pont's growth strategy
and maintain strategy for the Ti02 market. How much risk and
uncertainty surround these future cash flows? Which strategy looks
most attractive?
3.
How might competitors respond to Du Pont's choice of either
strategy in the Ti02 market? What other factors should Du Pont
consider in making this decision?
4.
Which strategy should Du Pont pursue?
Super Project
Capital Budgeting - Titanium Dioxide
1. What other relevant cash flows for General foods to use in evaluating
the Super project? In particular how should management deal with the
issues such as
1. test market expenses?
2. overhead expenses?
3. erosion of Jell-O contribution margin?
4. allocation of charges for the use of excess agglomerator
capacity?
2. How attractive is the investment? How useful are these measures of
investment attractiveness?
3. How attractive is the Super project in strategic and competitive terms?
What potential risks and benefits does General foods incur, by either
accepting or rejecting the project?
4. Sure General Foods proceed with the project? Why or why not?