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Timothy Hodges
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Hop In Foods Strategy Paper

Hop in foods is a Virginia based convenient store like 7 eleven. Hop in foods have been acquiring stores and assets at a rate that will require additional working capital. The company also wants to reduce the level short term debt so they can borrow at a better rate should the need arise. Furthermore Hop In also wants to provide additional capital using an initial public offering equity funds. Hop in foods is also wants to determine the proper stock price for this offering if the new stock is overpriced there is a possibility that the demand may be lower and halt market development. If underpriced Hop in has the risk of not obtaining the full value of the company. One of the first things we can determine is the cost debt for this type of company. Using the Altman Z scoring formula I can assess the credit worthiness of the firm. This will also help me determine the likely hood of a company going bankrupt in the next two years. Z scores greater than 2.99 are usually considered safe so that will be the bench mark. Next is to determine the weighted average cost of capital using the given beta, the expected market return dating from the 1960s to 1976 and 5 year Treasury bill rates. Next is to determine the capital structure of the company. The data provided about the acquisitions of different stores and the cost of the assets gives us a basis for projecting the future revenues. Looking at the additional revenue streams each store will bring we can now project revenues. I would use the percentage of sales method to determine the cost of goods SG&A etc. After that we discount the cash flows at the appropriate rate. Valuing an IPO is no different than valuing an existing public company. Consider the cash flows, balance sheet and profitability of the business in relation to the

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