Decision Making

ntroduction Coat4Life is facing critical downturn situation that booking is slumping in fiscal year of 2013 due to terrorist attack, therefore, “…to prepare for the worst while focusing their companies on what they do best.1” . All alternatives have to satisfy after tax return of 16%. This report is to explain appropriate solutions through 4 alternatives to reinforce its core business to achieve goal of remaining profitable during the downturn. Identification the issues (Exhibit 1) 1. Financial of $3.6 million requirement to fix Coastal Native before May 2013 2. Cash ratio of 1.53 in 2012 and working capital of $5.14 million indicate internal financial resources should be able to in downturn 3. Debt to assets ratio shows that about 60% of funds in Coast4life are financed by debt to the results of high interest expense 4. Gross profit are stable at 60%, return on sales has been increasing from 25% to 29% over past 4 years; however if sales is declining, operating income will be a problem due to high amortization and interest expense 5. Degree of Operating Leverage is 2.07, 2.25 and 2.5 in 2012, 2011 2010 respectively, which shows EBIT will increase about 20% if sales revenue increases 10%, vise versa 6. Under downturn of 2013, there is Identification and Prioritization of Issues and Alternatives Alternative 1: Divesting the Fraser dry dock Pros: 1. Generate negative incremental cash of $208,000 in 2013 (Exhibit ) Cons: 1. Increase employees‟ turn over, 2. damage relationship with government, 3. loss convenience to load and unload passengers, crew and supplies 4. Unavoidable $2 million maintenance every year 5. Unknown costs change and quality control of outsourcing Alternative 2: Targeting a more profitable market segment