Polaroid Essay examples -- GCSE Business Marketing Coursework

PolaroidIn March 1996, Ralph Norwood, treasurer of Polaroid Corporation, was asked to consider refinancing proposals from investment bankers of $cl million of debt due to mature in January 1997. Gary DiCamillo, freshly appointed CEO of the firm,in reaction to the companys lagging share price, had set forth a new visualize to agressively expoit the existing Polaroid brand, introduce product extensions, and enter new emerging markets. Before Norwood can choose a refinancing proposal, he must consider the funding involve of DiCamillos new corporate strategy and the capital structure which would provide the lowest cost of capital and most financial flexibility. Norwood also needed to consider the maturity date structure of debt.COMPANY PROFILENature of productPolaroid Corporation has been engaged primarily in the business of designing, manufacturing, and selling consequence photographic imaging products worldwide. Since 1948, this flush has led them to develop minute black-and-whi te motion picture in 1954, instant color film in 1960, and the SX-70 camera in 1972 which no longer essential users to coat the developing picture. However, most revenues generated from the instant photography market were not through camera sales. Cameras were often sold on low margins to encourage film sales. By increasing the base of instant camera users the company increased file sales, its primary margin product. However, the advent of digital photography in the nineties threatened to erode Polaroids base of instant film camera users.Demand for Instant Photographic ServicesIn the consumer market, demand for film on newly purchased cameras tended to be highest and then tappered off to somewhat predictable patterns. Therefore film demand often correlated to camera sales. In the commercial market, demand was derived from instant photography for indentification purposes such as I.D. badges, as well as various applications in medicine and law enforcement.The market for instant fi lm photography in the U.S. had matured. Sales in 1994 and 1995 had fallen 2 percent and 12 percent respectively. International sales, on the other hand, offered strong growth potential. With rising standards of living and no infrastructure to process 35 mm film in many emerging market countries, there was a large untapped market for instant photography. Polaroids cameras were in high demand. Growth in int... ...over, the companys EBIT reportage ratio would shift downward.If Norwood, were to reduce the companys debt requirement to under $690.47, Polaroid would maintain its investment-grade bond rating and benefit not only from a lower cost of debt, but also from a lower cost of total captial as shown in Appendix B. In addition, Polaroids EBIT would stay above 2 over the next 5 years.Norwood could also raise the bond rating to A if he were to reduce the required debt quantity to $574.47 million. At this level of debt, the companys EBIT coverage ratio would shift upward even more a nd remain above 4 over the next 5 years. Yet, lowering the amount of debt used would also raise the companys WACC.RECOMMENDATIONSNorwood should choose to maintain the companys current bond rating of BBB. Allowing Polaroids bond rating to drop to BB could not only cause rail at to the firms brand name, but it would also increase the companys total cost of capital. Polaroids current level of debt financing surpasses the benefits of debt. Although it increases the companys credit worthiness as measured by their EBIT coverage ratio, it also raises their WACC do to the increased risk of default.