Harmonic Hearing Co. Assignment Questions
Based purely on quantitative analysis, which financing is preferred and why?
Based on the level of debt funding required, how much additional debt might be available to Harmonic and why is this important?
How is the expansion opportunity impacted by the debt option? the equity option? Does this help or hurt the value of the company?
What discount rate would you recommend for the debt option? the equity option? Should these be the same or different and why?
What types of cash and other liquidity problems present with debt that do not present with equity financing?
If the company chooses all-debt option, how does that impact their ability to access more debt in the marketplace? How are they impacted if they access the equity market after an all-debt finance? What if this were reversed, i.e. they choose all-equity then approach the debt market?
Which financing scenario is more/less risky and why?
How does all-debt affect post-acquisition company value? all-equity? Is this important and should post-acquisition value be considered when making the financing decision? Why or why not?
What is the terminal value of the company with debt financing? equity financing?
At what price must Harmonic repurchase the building and land from Frank Thomas to produce his required 15% after-tax return? 20% after-tax return? Who bears interest rate risk exposure?
What proportion of terminal value must be distributed to Comet Capital to produce its 25% before-tax return? 30% before-tax return? Who bears this interest rate risk?
What are the positive and negatives of each financing option?
Which option would you recommend and why?
