Fin 131 Case 1

FIN 131

Dr. R. Yazdipour

CASE: Midwest Lighting, Inc

1. Evaluate the company. How much do you believe it is worth?

After reviewing MLIs financial statements, I have a firm understanding of MLIs history and inner workings. Looking at bank and personal leverage, one can estimate that 50% shares of MLI would cost $1 – 1.25 million. So one can conclude that MLI is worth $2 – 2.5 million dollars.

2. What should they do to resolve the ownership situation?

I believe that the ownership situation should be handled by way of buyout of either party. It is clear that both David Scott and Jack Peterson are unable to work side by side in the best interest of the company. The only problem lies with who should buy out whom. From the information presented Peterson seems to be more financially and personally fit to buyout Scott and run MLI. Although, MLI is all David Scott had ever known, it will be difficult for Jack to “rid” David of his future and livelihood. Having his MBA and plenty of experience, it may be a more ethical decision for Jack to be bought out and seek other opportunities.

3. How would you finance the purchase of the company?

Depending on which party gets bought out, financing the buyout can have various avenues. If Jack were to buy out David, Jack would be able to finance the purchase of the company using a combination of company and personal assets. Being Jack has $815,000 of personal assets to leverage and company assets that include $64,060 in Cash and 75% of accounts receivables, roughly $562,838, to total $1,441,898. If David were to buyout, it would be a much different story; David does not have the support of the Bank to leverage Company Assets. So David is going to have to finance the purchase by other means. As before, Jack is in a better Financial and Personal position to purchase the company.

4. Assume you do purchase the company: What specific actions would you plan to take on the first day? By the end of the first week? By the...