Harvard Case Analysis 1
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ScribdTranslationsHarvard Case Analysis 1
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ScribdTranslationsHarvard Case Analysis.
Laurinburg Precision Engineering.
Introduction:
Laurinburg Precision Engineering, founded by Oliver MacKinnon and Beacham.
McDougald in 1997, is dedicated to the manufacture of molded precision parts.
for injection for use in medical instruments. After a start
uncertain, the company obtained contracts with several manufacturers and thrived thanks to
its specialized machinery and its capabilities in injection molding of
special plastics. However, in early 2004, the company faced
a cash flow crisis due to its rapid growth and the need for
acquire new molding machines.
Problem:
Cash flow crisis: Laurinburg Precision Engineering faced a crisis of
cash flow due to its accelerated growth and the need to invest in
new molding machines. The founders, MacKinnon and McDougald,
they lacked additional capital and were not selling shares. The loan
banking was not a viable option due to interest rates and the duration of
loan. They needed a financial solution to keep the business afloat.
functioning.
Solutions:
Issuance of bonds with interest:
A proposed solution was the issuance of bonds guaranteed by the new
machinery and placed among private investors. Sheila Cox, from a firm
investment banking, suggested a bond issuance of one million dollars with
a term of five years and an interest rate of 10%. The interest payments are
would be done biannually, and the capital would be paid at the end of the fifth year. This
option would provide the necessary capital for the company's growth and
would allow the gradual payment of interest.
Zero coupon bond issuance:
In light of MacKinnon and McDougal's concern about the semiannual payments
interest during the first years, Cox suggested a second alternative. The
the company could issue zero-coupon bonds with the same interest rate and
terms. These bonds did not require interest payments during the five years of
circulation, and all the interest and principal would be paid at maturity of the
bonds. This option would allow Laurinburg to prepare for five years to
pay the interest and the principal, either with the operating cash flows or
through additional financing.
Conclusion:
Laurinburg Precision Engineering encountered a cash flow crisis due to
its rapid growth and the need to invest in new machines
molders. In light of this situation, two financial solutions were presented: the
bond issuance with interest and the issuance of zero coupon bonds. Both
options had their advantages and challenges, but they provided the opportunity to
obtain the necessary capital for the growth of the company. The choice between
the two options would depend on Laurinburg's ability to manage the
interest and capital payments based on their operating cash flows and
the prospects for additional financing. The final decision will have an impact
significant in the company's ability to overcome the crisis and continue
growing into the future.
Possible solutions:
Cost analysis and budget:
An initial solution would be to conduct a thorough analysis of the costs and the
budget of Laurinburg Precision Engineering. This would help to identify
areas where necessary expenses can be reduced or efficiency improved
operational. By having stricter control over costs, the company can
release additional capital to address the cash flow crisis.
Search for investors or strategic partners:
Instead of issuing bonds or seeking bank loans, the company could explore
the possibility of seeking investors or strategic partners. These investors
they could provide additional capital and business knowledge that would help to
strengthen the financial situation and operation of Laurinburg Precision
Engineering.
Renegotiation of payment terms:
Another solution could be to renegotiate payment terms with suppliers and customers.
Agreements could be sought that allow the company to extend the deadlines of
payment of supplier invoices and, at the same time, agree on payment terms
shorter with clients. This would help relieve cash flow pressure
in the short term.
1. How do you think this case relates to our class?
financial markets?
As we can see in this case, the company was experiencing a crisis.
cash flow due to rapid growth and its interest in
increase capacity and as we know the first thing that comes to mind when
we hear cash flow crisis is either to acquire external financing or
issuance of shares or bonds, which is precisely what we are playing in the module
Four from the class, as we see, fits perfectly with the theme of the class.
2. Who were Oliver and Beacham?
Oliver MacKinnon and Beachan McDougalf were the founders of Laurinburg Precision
Engineering in 1997, who dedicated themselves to the manufacturing of precision parts
injection molded for use in medical instruments.
3. Who was Sheila Cox and what was her personality like?
Sheila Cox was a partner at a small investment banking firm in Charlotte, North
Carolina and according to what I can see in Sheila's case, she was an approachable person since
he sought the alternatives that best suited the solution to the gentlemen's Problem
Oliver and Beacham.
4. What does the local banking recommend to this company?
I recommend a bond issuance of one million dollars with a term of five years.
years, the emission would be guaranteed by the new machinery and would be placed between
private investors, assuming that the bonds were sold so that there would be a
approximate yield with a 10% interest, with semiannual interest payments and the
maturity of the principal at the end of the fifth year.
5. What was the industry environment?
We can say that it was a profitable industry since, in its beginnings, after a
uncertain initial period, the company obtained contracts from several manufacturers and prospered
thanks to the use of special machinery and its molding capabilities
injection of special plastics.
What worried Oliver and Beacham so much?
What worried Oliver and Beacham were the semi-annual interest payments.
during the first years, what they expected was that the operating cash flows would
were kept tight while Laurinburg Precision Engineering continued
growing.
7. What do you think of zero coupon bonds?
I think zero coupon bonds were a good option for them since these bonds
they did not require the payment of interest during the five years they were in circulation and
All interest and principal will be due on January 15, 2009, at maturity.
from the bonds, the principal amount of zero-coupon bonds would be greater than that of the
10% bonds, but the company would have five years to pay the interests and principal.
both with the product of the operations and through additional financing.
