CUMBERLAND WORLDWIDE CORPORATION Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

CUMBERLAND WORLDWIDE CORPORATION Case Study Solution

Analysis

Cumberland Worldwide Corporation has been facing serious financial problems due to which company’s debt position has led it to file for bankruptcy. However, company’s management had developed an exchange offer. If this exchange offer would not be successful, company would have to file itself under chapter 11.

The problems faced by the company includes urgent need of cash as it is facing loss from last few quarters which have been reached to aggregate $300 million. Moreover the worth of the company is turning negative. The cash requirement is to pay off debt and to make some operations in the company. In addition to the problems faced by the company, payment of debts has also been included in it. The company has been depending upon its subsidiaries cash flow in order to operate its operations.

However, the sources of problems being faced by the company are its poor decisions and other related factors. One of the factor is the operation deficiency and structure of the company which led to conflicts within departments. As a result, people were resigning, due to which, employee’s turnover rate increased.

Based on current situations, financial markets are not reflecting the current prospects of the company. As the company is generating its cash flows from its subsidiary, which is the market leader in its own industry. However, the subsidiary of the company may be successful in the long run, but the company’s financial condition is not correctly pictured by the financial markets.

As the company has been facing serious financial crises, it is not the time to make investment in its securities. Moreover, the company has not paid to its stockholdersfor the few last quarters and the projections shows that it won’t get better in the future due to its scarce resources.

Analysis of balance sheet has shown that it has not been showing the liquidating value of the assets. The assets have been cost at their previous value. However, there is no effect of depreciation and impairment is shown, which will derive its true and fair market value.

CUMBERLAND WORLDWIDE CORPORATION Harvard Case Solution & Analysis

Considering about the investment that has to be placed in Cross River Company in order to increase its cash flows. The success of this plan would help the parent company to increase its cash flows which would generate higher cash and help the company to pay off its debt along with running necessary operations. However, the calculation of WACC by using given data helps the company to determine either it would generate higher value. As a result, the WACC of 10.2% compared to current WACC of 10% analyzes that higher IRR would be generated. Consequently, higher IRR would require higher cash flows which is not being generated in the future. Moreover, requiring higher cash flows would also require higher investment which would be finance by the debt. Therefore, it would also increase the level of risks compare to current risks associated....................

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