Analysis and recommendation on the capital structure of Hill Country Snack Foods Co.
EXECUTIVE SUMMARY
This report discusses the current operational and financial strategies of Hill Country Snack Foods Co. and analyses the proposed capital structure for it. Part I of the report reviews the company’s strategies and its latest financial performance. Part II illustrates a detailed valuation of the proposed capital structure. Valuation methods involved includes Dividend Discount Model and Discount Cash Flow valuation (the Hamada approach). It is recommended that the company adopt a 40% debt-to-capital structure to fully use its capital and benefit from the external funding.

PART I THE OVERVIEW OF HILL COUNTRY SNACK FOODS CO.
Background of Hill Country Snack Foods Co.
Hill Country Snack Foods Co. is a middle-size snack food company located in Austin, Texas in the U.S.. The snack food industry is very competitive. The main competitors of Hill Country are industry giant PepsiCo and smaller companies like Synder’s-Lance.
The current CEO Howard Keener, who is 62 years old and worked in the company for over 15 years, is approaching retirement. He has a very strong personal influence on the company culture and the way it is operated. He is passionate about maximizing shareholder value, believes in keeping tight control over costs, and is very risk adverse in the operation strategy as well as the financing decisions. Considering his near retirement, many investors think there will be a series of change in Hill Country.
Operating strategy and associated risks
Hill Country has unique operating strategy, which contribute a lot to its success. Firstly, it has a lean and aggressive budgets control. The CEO himself is actively involved in the control procedures and the management has a strong commit to solve the unfavourable cost variance. This can be reflected by the