Nicole Arends, Jenny Feng, Laura Tromp & Zilha Wever
University of Aruba
Mr. Don Taylor
March 26, 2013
This Corporate Finance paper focuses on analyzing the challenges that Northampton Group Inc. (NGI) is facing as it tries to increase shareholder value. In the case study it is stated by the firm’s major shareholders, that they believe NGI is currently undervalued. In connection with this, the management of NGI is considering several means of increasing the shareholders value. Due to difficult economic conditions resulting from the Global Economic Crisis, there are both …show more content…
Company Problem Northampton’s share price has dropped over the past few years, as a consequence of the Global Economic Crisis. Because of this, NGI management and shareholders are concerned that the company was undervalued. NGI’s Chief Financial Officer has to decide how to unlock some of the value he knew existed in NGI. Furthermore he needs to quantify the size of the undervaluation and weigh the pros and cons of each alternative that has been identified. NGI’s Management has spoken about whether the same strategy that was used to build the company from a single property was still applicable taking into consideration the size and diversity of its current portfolio in the evolving Canadian industry. Other opportunities might be available to improve NGI’s performance. The Chief Financial Officer will need to focus on the strategic changes that needs to be made in order to position the business for long-term growth and to evaluate what structural changes can be made to increase shareholders value.
Assets valuation methods
In the hospitality industry, the most common method for valuing assets was to use capitalization rates (cap rates) (Patel, 2011). The capitalization rate is used to help determine the rate of return, or how fast an asset pays for itself and begins to make a profit (Farlex Financial Dictionary, 2012). The capitalization rate is the ratio of