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Introduction

Armstrong Production Company was famous in between a plastic manufacturer and a building materials outlet chain. Their product’s durability and the economical cost of plastic allow it to replace wood for many building purposes.

They were obtained low interest economic development loans from the state of Illinois. IPO issued with 15million shares which is 20% for corporate executive and members of the board of directors and 13% for employee.

The company’s growth was extraordinary, because of construction was booming in1980s. When Bob Enderson as Chief Financial Officer of the company, he persuaded the company to develop a new line of products for outdoor item which can diversification would financially strengthen the company. They were happy to using debt to corporate takeovers which is purchase profitable companies with high equity capitalization. Bob also like use new debt to expansion in this period.

By 1990, earnings reach a peak of $115 million, Debt levels had been reduced and reinvested incomes had allowed the company to grow. But the next year the construction boom ended. Demand for building materials was reduced. Diversification provided a buffer against the construction downturn effect. However consumer purchases power reduced sharply. Their EBIT return to $85million recently and $110 million debt with 25% of the company’s capital structure.

Several board members were met Bob to urge a reduction in the debt level. Then he was offer few plan to achievement.

1.

(a)Business Risk

Business risk reflects the uncertainty of the company's return on assets. It can be calculated as the net income divided by the company's total investment or the return to investors divided by the business's total assets. It measures the overall risk of doing business.

Factors In Business Risk

Factors than affect business risk include variations in demand, sales price and costs; the rate of developing new products; the freedom to...