Briefing paper for the initial meeting with new client

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Reference no: EM132126640

Please give me a useful clue as to the following case study.

The Managing Partner of the corporate advisory firm in which you work was very pleased with your work in preparing a briefing paper for the initial meeting with a new client - Health High Precision Tools Pty Ltd is (HHTP).

Hiro-san, the management team and the Board at HTTP have taken heed of your advice. At the moment the board has decided to stay as a private limited liability company – and to facilitate the expected growth raise the extra capital as a combination of debt and equity (by inviting some new investors to provide the new capital, and replace the existing shareholder who wants to withdraw). The board has also confirmed that it will take on the lease rather than commit to the substantial increase in debt that would come with purchasing a property. The board discussed your advice, and is not prepared to take on the property market risk – as property markets are an area it does not have expertise in.

Hiro-san has asked your managing partner now to provide advice with respect to a number of specific issues.

After discussion with a range of potential clients, Hiro-san has confirmed that on top of current activities, the company has in his view a real opportunity to pick up regularly an additional 3-4 projects per year, all done within a year, and averaging between ¥75-100 million in turnover per project. He is therefore proposing that the company will need to spend ¥135 million in terms of equipment (which has a 4 year depreciation life) and new employee training of ¥35 million to facilitate the provision of the services, to occur in the first year of operations. He has liaised with various suppliers, and paid a consultant ¥8 million to establish the specifications of the equipment (and source suppliers), and subsequently a non refundable deposit of ¥15 million to the training provider to commence preparation of the materials. The Board discussed your observations in the previous advice with respect to the how much “growth” in activity this represents for the company, and the associated risk in managing it, and therefore it expects to have to increase the size of the management team - it expects to hire 3 additional high level and experienced managers – at 15% more per manager than it currently does, and 3 administrative support (with average salaries 2/3 the current management team. With Hiro-san’s less direct involvement, it is expected that the ability of the production team will need to be lifted, and as such the average wages in this context will need to be increased (also perhaps by 10%). The number of production people you would need is expected to increase proportionally (new revenue relative to current revenue). Using this information and some other assumptions, how much would you expect this outlooking changing the value of the company. Is this growth worthwhile for the existing shareholders in the company (and does it change your opinion about the buy out value for the shareholder who wants to withdraw).

Reference no: EM132126640

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