Hasson Private Label Case

Hasson Private Label Case

1.  Hansson Private Label already has a 28% share of the private label personal care products.  So they are a pretty big player in the industry.  
2. In 2008 the FCF will be -57817 followed by -12378 in 2009. Then in 2010 the FCF will finally be positive at 5939. The free cash flow will slowly increase so that in 2018 the free cash flow will be 12783. The free cash flows for all the years will be included in a table in the appendix. We think that his projections are realistic for a variety of reasons. The first reason they only plan to generate an additional $84,960,000 in the first year which is only 2.124% of the current private label industry. Given Hansson Private Label’s current position in the private label industry we think this number is attainable.  This $84,960,000 is also only about 7.59% of their current sales in the industry. So an additional $84,960,000 in the first year is a very reasonable number. The second reason we think his projections are reasonable is because his capacity utilization is reasonable because it start at a modest 60% and never grows by more than 5% in a year.  Additionally he never lets the capacity utilization get over 85% which also seems very modest.
3. We took the estimated new debt/value of 20.9% and tried to find where in the table it fit the best.   It would fall somewhere in the middle of the second to last and the last entry in the WACC table. This leaves us with a value in the middle of 9.38% and 9.31%. The 20.9% falls closer to the debt/value associated with the WACC of 9.38% so we decided to use the WACC of 9.38%.  We also felt like using the higher of the two discount rates would give us a more modest and safe NPV.

The first flaw is that Dowling says the 7.75% rate used for the cost of debt was only reasonable for debt/value levels below 25%. So if her assumption of 20.9% debt/value is too low than they will be using the wrong value for cost of debt and the WACC will be incorrect. The next flaw that is inherent in using the WACC is that it uses the components cost of equity and cost of debt.  At least one of the values used for these components is an estimate.  This means that the WACC value will vary depending on the estimate.