Corporate Finance in the U.S.

A. Do you think Adam Lee should develop a strategic plan for the company? Why? What

are the central elements of such a plan? What is the role of finance in a strategic plan?

Yes. The goal of companies is to create more wealth for the owners and for financial

managers to make their company more valuable and without well designed strategic and

tactical plans in place it is impossible to do. The central elements of a strategic plan are:

(1) statement for mission (2) corporate scope (3) corporate objectives (4) strategies

(5) the operating plan and (5) the financial plan.

The role of finance in a strategic plan is to add more value to the company.

B. Given the data in Figure MC-1, how well run would you say Hatfield appears to be in

comparison with other firms in its industry? What are its primary strengths and weaknesses?

Be specific in your answer, and point to various ratios that support your position. Also, use

the Du Pont equation (see Chapter 3) as one part of your analysis.

Du Pont Equation

Profit Margin x Sales/Assets x Assets/Equity ROE

Hatfield 1.2 1.67 2.40 4.80

Industry 2.74 2.0 2.13 11.67

Hatfield's weaknesses appear to be in their inventory/sales which is higher than the industry

average this could mean that they are holding onto inventory too long. Their payables are

higher than the industry average which suggests that they are carrying a high amount of debt.

The receivables are also higher than the industry average which could mean the period

between getting paid for their services and the time they provided them are too far apart or

they are not getting paid at all. The operating costs are also high so Hatfield's may have a

high amount of fixed costs.

Their strengths seem to be their payout ratio it is higher than the industry average.

C. Use the AFN equation to estimate Hatfield's required new external capital for 2011 if