Instructions for the ALAC International Case

In your report, you should address the following questions:

1. How profitable is the DINP opportunity for ALAC? (You can assume the DINP is the major difference betw
2009 and 2010P results). Alac imported 8,000 metric tons of DINP in 2010 and is expected to triple that numbe
2011.
2. How much working capital does ALAC need to support 6 shipments of DINP annually, each of which is 2,0
metric tons? How about 12 equally spaced cycles per year?
3. How risky are the DINP shipments? How much money could they lose on a single shipment?
4. Why is ALAC finding it difficult to fund its working capital? What financing options exist?
5. What course of action would you advise Alan Frishman in this matter and why?

Your report should read like an evaluation of the situation. The grading key below will give you some idea
how
each area of analysis will be scored. You do not require “1 point for 1 point”.
There are no specific preferences for spacing, font-size, margins, etc but I estimate that reports should total 10
pages of text, excluding any charts, diagrams, tables, or other ways you choose to present necessary data (pleas
do not include items you do not refence “just in case”). All reports should include a half page executive summa

GRADING KEY FOR BLUNTLY MEDIA CASE – 100 marks

LAYOUT, FORMATTING, LANGUAGE (10)
ASSESSED DINP PROFITABILITY (10)
ESTIMATED REQUIRED WORKING CAPITAL FOR 6 (AND 12) SHIPMENTS (30)
ASSESSMENT OF DINP AS A BUSINESS OPPORTUNITY (15)
ASSESSMENT OF WORKING CAPITAL CHALLENGES (15)
RECOMMENDATION AND ACTION PLAN (20)
 NP is the major difference between
d is expected to triple that number in

P annually, each of which is 2,000

single shipment?
g options exist?
hy?

y below will give you some idea of

mate that reports should total 10

to present necessary data (please
ude a half page executive summary.

NTS (30)
Bal Sheet September 30, 2010
Assets Inventory (approx)
Cash $2,592,000 DINP in transit from Taiwan $ 4,200,000.00
Accounts Receivable $3,143,000 DINP in WH $ 400,000.00
Inventory $5,458,000 Other chem in WH $ 900,000.00
Advance on Purchase $2,063,000 Total Inventory $ 5,500,000.00
Other $85,000
Total Assets $13,341,000
Liabilities
Accounts Payable $641,000
Customer Advances $186,000
Loan $9,247,000
Other Liabilities $113,000
Total Liabilities $10,187,000
Equity Total Equity $3,154,000
Liabilities & Equity Total Liabilities & Equity $13,341,000

Fin Results and Projections

Year 2007 2008 2009 Jan-Sept, 2010 2010P 2010P' (before DINP2011P
Sales $ 5,991,000.00 $ 10,863,000.00 $ 14,244,000.00 $ 26,234,000.00 $ 34,979,000.00 $ 23,958,219.18 $ 69,958,000.00
Cost of Goods Sold $ 5,095,000.00 $ 9,922,000.00 $ 12,877,000.00 $ 21,806,000.00 $ 29,075,000.00 $ 11,075,000.00 $ 58,151,000.00
Gross Profit $ 896,000.00 $ 941,000.00 $ 1,367,000.00 $ 4,428,000.00 $ 5,904,000.00 $ 12,883,219.18 $ 11,807,000.00
SGA (w interest expense) $ 814,000.00 $ 743,000.00 $ 945,000.00 $ 2,026,000.00 $ 2,702,000.00 $ 2,702,000.00 $ 4,172,000.00
Other Expenses $ 2,000.00 $ 5,000.00 $ 112,000.00 $ 65,000.00 $ 87,000.00 $ 87,000.00 $ 85,000.00
Profit Before Taxes $ 80,000.00 $ 193,000.00 $ 310,000.00 $ 2,337,000.00 $ 3,115,000.00 $ 10,094,219.18 $ 7,550,000.00

Q1. How profitable is the DINP opportunity for ALAC?(You can assume the DINP is the major difference between 2009 and 2010P results). Alac imported 8,000 metric tons of DINP in 2010 and is expected to triple that number in 2011.

ANSWER 1
Profitability when considering 2010P vs 2009 and 2011P vs 2010P
2010P 2011P
YoY Profit % increase in Net Profit 904.84% 142.38%
YoY Profit % increase in Gross Profit 331.89% 99.98%

Profitability when considering 2010P vs 2010P' (Projection if DINP was not in the picture)
2010P vs 2010P' 2010 2011P
% increase in net profit from choosing DIMP -69.14% not enof data for proj imported DINP 8000 24000
% increase in gross profit from choosing DI -54.17% cost of DINP $ 18,000,000.00 $ 54,000,000.00

Profitability Ratios Jan-Sept, 2010 2010P 2011P

Gross Profit Margin 16.88% 16.88% 16.88%
Net Profit Margin 8.91% 8.91% 10.79%
ROA 33.19% - -
ROE 74.10% - -
Bal Sheet September 30, 2010
Assets
Cash $2,592,000
Accounts Receivable $3,143,000
Inventory $5,458,000
Advance on Purchase $2,063,000
Other $85,000
Total Assets $13,341,000
Liabilities
Accounts Payable $641,000
Customer Advances $186,000
Loan $9,247,000
Other Liabilities $113,000
Total Liabilities $10,187,000
Equity Total Equity $3,154,000
Liabilities & Equity Total Liabilities & Equity $13,341,000

Q2. How much working capital does ALAC need to support 6 shipments of DINP annually, each of which is 2,000 m

2010
Months 1 2 3
Sales
Cash inflow (financing)
Cash outflow (payments)
current sales
inventory
Operating cash
start cash
end cash
required cash
surplus/deficit

Shipment | Month Jan Feb Mar

1 Ordered | Dispatch Arrives
2 Ordered | Dispatch
3
4
5
6

2011
Shipment | Month Jan Feb Mar
1 -4500000
2 -4500000
3
4
5
6

WC for 6 mo
Year 2011
Months 1 2 3

MTs
Cost
COGS
Cash inflow (receivables being paid)
 Fin Results and Projections
Year 2007 2008 2009 Jan-Sept, 2010
Sales $ 5,991,000.00 $ 10,863,000.00 $ 14,244,000.00 $ 26,234,000.00
Cost of Goods Sold $ 5,095,000.00 $ 9,922,000.00 $ 12,877,000.00 $ 21,806,000.00
Gross Profit $ 896,000.00 $ 941,000.00 $ 1,367,000.00 $ 4,428,000.00
SGA (w interest expe $ 814,000.00 $ 743,000.00 $ 945,000.00 $ 2,026,000.00
Other Expenses $ 2,000.00 $ 5,000.00 $ 112,000.00 $ 65,000.00
Profit Before Taxes $ 80,000.00 $ 193,000.00 $ 310,000.00 $ 2,337,000.00

f DINP annually, each of which is 2,000 metric tons? How about 12 equally spaced cycles per year?

4 5 6 7 8

Apr May Jun Jul Aug

Sold Receivables collected
dered | Dispatch Arrives Sold Receivables collected
Ordered | Dispatch Arrives Sold
Ordered | Dispatch
Apr May Jun Jul Aug
-5535000
-5535000
-4500000
-4500000

4 5 6 7 8
2010P 2011P
$ 34,979,000.00 $ 69,958,000.00
$ 29,075,000.00 $ 58,151,000.00
$ 5,904,000.00 $ 11,807,000.00
$ 2,702,000.00 $ 4,172,000.00
$ 87,000.00 $ 85,000.00
$ 3,115,000.00 $ 7,550,000.00

9 10 11 12

2011
Sep Oct Nov Dec Jan Feb

Receivables collected
Arrives Sold Receivables collected
Ordered | Dispatch Arrives Sold Receivables collected
Ordered | Dispatch Arrives Sold

2012
Sep Oct Nov Dec Jan Feb

-5535000
-5535000
-4500000 -5535000
-4500000

9 10 11 12
Mar

Receivables collected
Mar

-5535000
 Y1
1 2 3 4 5
1
2
3
4
5
6

Cash out $ (4,500,000.00) $ (4,500,000.00) $ (4,500,000.00)

Cash in $ 4,500,000.00
Net Cash $ (4,500,000.00) $ - $ (4,500,000.00) $ - $ -
Cash Deficit $ 9,000,000.00

Y1
1 2 3 4 5
1
2
3
4
5
6
7
8
9
10
11
12

Cash out $ (4,500,000.00) $ (4,500,000.00) $ (4,500,000.00) $ (4,500,000.00) $ (4,500,000.00)

Cash in $ 4,500,000.00
Net Cash $ (4,500,000.00) $ (4,500,000.00) $ (4,500,000.00) $ (4,500,000.00) $ -
Cash Deficit $ (18,000,000.00)
 6 7 8 9 10

$ (4,500,000.00) $ (4,500,000.00)
$ 4,500,000.00 $ 4,500,000.00
$ - $ - $ - $ - $ -

6 7 8 9 10

$ (4,500,000.00) $ (4,500,000.00) $ (4,500,000.00) $ (4,500,000.00) $ (4,500,000.00)

$ 4,500,000.00 $ 4,500,000.00 $ 4,500,000.00 $ 4,500,000.00 $ 4,500,000.00
$ - $ - $ - $ - $ -
 Y2
11 12 1 2 3

$ (4,500,000.00)
$ 4,500,000.00 $ 4,500,000.00 $ 4,500,000.00
$ - $ - $ 4,500,000.00 $ - $ 4,500,000.00

Y2
11 12 1 2 3

$ (4,500,000.00) $ (4,500,000.00)
$ 4,500,000.00 $ 4,500,000.00 $ 4,500,000.00 $ 4,500,000.00 $ 4,500,000.00 $ 4,500,000.00
$ - $ - $ 4,500,000.00 $ 4,500,000.00 $ 4,500,000.00 $ 4,500,000.00
2010,
Working capital = Current Assets – Current Liabilities
= Existing Working Capital= (Cash+Accounts Receivable+Inventory+Advance on Purchase+Other) − (Accoun
Payable+Customer Advances+Other Liabilities)
= ($2,592,000+$3,143,000+$5,458,000+$2,063,000+$85,000) −($641,000+$186,000+$113,000)
= ($2,592,000+$3,143,000+$5,458,000+$2,063,000+$85,000)−($641,000+$186,000+$113,000)
=$12401000

------------------------------------------------
The total cost of 12 shipments will be under current Liabilities.
Additional Working Capital required = 12 Shipment Cost – Working Capital
= $54,000,000−$12,401,000 = $41,599,000
urchase+Other) − (Accounts

0+$113,000)
0+$113,000)