Analysis Of Crown Corporation Essay
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According to the text, Crown will need $30 million in 1969, $22 million in 1970, and $30 million in 1972. This is a result of heavy projected capital expenditures in the same years. Table 2 represents the data of projected capital expenditures and external funds needed for '69-'72. The table shows that in 1971 Crown will not need external financing, the corporation will be able to finance the capital expenditures on their own. The pattern shown is of heavy financing in the first two years then a break year, then another heavy year in '72. The large projected capital expenditures in 1969 and 1970 are a result of the Eastalco project. In 1972 the heavy capital expenditures are for the expansion of the Eastalco project. Table 2a Total Projected Capital Expenditures and External Funds Needed 1969-1972. In Millions of Dollars. 1969 1970 1971 1972Total Capital Exp. 39 32 7 50External Funds Needed 30 22 0 30Source: Case Problems in Finance 11th edition, P. 208 (b).1. An increase in aluminum prices.2. A shortage of aluminum.3. Projected sales increases of 6-8% could be overestimated.4. Aluminum consumption could go down.5. The industry rate of expansion (14%) could be too much for the increase in the rate of demand (9%).6. A large common stock increase could dillute dividends and stock price (holding the dividend rate at $0.70 was a major goal of Mr. Bennett).7. The term loan offered may be too difficult to pay even in the event of normal earnings in years '70 and '72 due to large capital expenditures.8. Recession9. Competition from the large steel industry may effect the much smaller aluminum industry's sales. These are some of the things that could go wrong for the Crown corporation. The events that would affect Crown the most would be overestimated sales estimates or inability to make debt payments caused by any of the following; drop in consumption, too much industry expansion, recession, mining operations are unable to produce enough to meet production needs, etc.. Other than these problems that could occur Crown's new projects could fail to meet expectations. Crown is in an extremely volitile and sensative industry. The degree of business risk attributable to this industry is relatively high.
As Crown expands, they will leave themselves more vulnerable to risk. An equity issue can dillute dividends to below Mr. Bennett's $0.70 dividend rate. This in turn could cause stock price to drop to...
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