Summary

The economy in which ready mix industry is operating is currently experiencing a slowdown and the most notable trend in the industry was the increase in the cement costs. Moreover, the significant growth of China has added to the worldwide demand. The rising energy prices had also increased the cost of manufacturing the cement. Alliance Concrete was one of the small ready mix concrete producers owned by Martin Harris. The company was planning to generate the financial forecasts for the year 2006. Despite the recent growth and success of the company, Harris was facing a difficult decision and he had to make a decision from a number of options. He had to choose between postponing the long overdue capital improvement, renegotiating the debt obligations and reducing the dividend payment to National, the parent company of Alliance. The obligation of the company, being a ready mix concrete company, is to deliver its products to the customers on time and if the company does not invest in CAPEX by investment in $ 2.6 million plant then the company would face long-term shutdown and unexpected future costs. Therefore, Alliance and its management should not be negligent in improving the performance of its plants and thus it is recommended for the company to make investment in the new plant to improve the operational performance of the company and enhance its reputation in the eyes of the customers.

Introduction

Alliance Concrete was one of the small ready mix concrete producers in the Michigan’s northern lower peninsula. The company owned a fleet of 240 mixing trucks and it operated14 mixing plants. The company has been successful because of significant income and revenue growth over the past few years and this huge growth was driven by the strong real estate residential market. The company continued to operate as a separate legal entity despite the fact that it has been purchased by a Canadian construction conglomerate, National Industrial Supplies a year before.

Alliance Concrete Harvard Case Solution & Analysis

The CFO of the company, Martin Harris was now tasked with putting together the 2006 financial forecasts for the company and he was understandably nervous to do that for two main reasons. First, the head office of National had made it quite clear that the accuracy of the forecasts was a significant concern. Second, the company was looking forward to reduce the level of the debt and pay the principle payment. However, the projects showed that despite recent success, the investment in capital expenditure in 2006 would make it impossible to repay the debt and pay a dividend of $ 3 million to National’s investors. Someone was bound to be disappointed.

Problem Statement

The main problem which is now being faced by Harris is that he must choose between postponing the long overdue capital improvements and this will prevent more costly future repairs, renegotiate debt obligations with the bank and reducing the debt payment to the investors of National. A slowdown of the economy and the pressure from the board of National has added additional layers of complexity to the decision of Alliance Concrete management..................

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