Solved by verified expert :Finance
Professor: Juan Aitor
Lago Moneo
Business Case
HARRIS LABORATORIES
First years
Robert Harris opened his laboratory in
Cambridge, Massachussets, in 1946, after serving in the US Marine Corps in Asia
– Pacific. Robert decided to create white label cosmetics for major French
companies that were very popular at the moment, even though the economic
situation wasn’t definitively the best.
The Boom
By 1965, Harris Laboratories created its own
brand as a strategy to survive, since, at that time, white label products
didn’t work in the market. Harris cosmetics became soon very popular for the
middle classes in the East Coast of USA, selling mainly make up.
The Financial
Statements and a possible new product
In 1968, Robert had to decide if launching a
new lipstick or not. He wasn’t sure and had to take a decision based on
financial data. He asked his Production Director of the suitability of the
operation and he provided David Miller, with the following information to
prepare a report and advise a decision
The initial investment was to be paid in 1968.
Robert was as well thinking of launching a new
face cream with the following financial expectations:
The initial investment would as well be paid in
1968.
Robert was offered a deposit that would pay a
9,5% annual interest rate if the money was blocked in the bank between 1969 and
1973.
The Balance Sheet in 1968 looked as follows:
ASSETS
Current Assets
Cash
80.000
Short – term investments
6.000
Accounts receivable
11.000
Merchandise inventory
8.500
Total current assets
105.500
Fixed Assets
Equipment
275.000
Buildings
5.000
Land
4.000
Total fixed assets
284.000
Total Assets
389.500
LIABILITIES
Current liabilities
Accounts payable
42.500
Taxes payable
7.500
Total current liabilities
50.000
Long – Term liabilities
Long – Term Bank Loan
51.200
Total liabilities
101.200
EQUITY
Stockholder’s equity
288.300
The same year, 1968, Robert was offered the
possibility of acquiring Lucas Labs, for 95,000$.
The financial statements of Lucas Labs. are the
following:
Expected P&L is as follows:
Please answer the following questions:
1. Could you please give your opinion about
cosmetics as a sector?
2. What would you do if you were Robert? You
can launch the lipstick, the face cream or the deposit, please choose only one
option and explain why
3. Would you buy Lucas Labs for 95,000$? How
would you finance the operation? Please explain your answer.
4. What is the financial situation of Harris
Laboratories?
