Week 2 Hill Country Snack Foods Essay
Hill Country Snack Food is a U.S. company involving business of manufacturing, marketing and distributing a variety of snacks. Having three components in its corporate culture, namely shareholder value-creation, cost efficiency and control and risk-avoidance, Hill Country’s growth was steady and debt was avoided.
However, the company’s cash position and conservative capital structure has a negative impact on its financial performance measure, which is indicated by a lower ROE and ROA rate. Also compared with other U.S companies in the industry, the zero-debt-capital structure is unusual. Therefore, Hill Country start to consider is it the time to change its capital structure, and if so, what …show more content…
As can be seen, the company can benefit most from the 40% debt structure. Debt is less expensive than equity due to its contractual nature and priority claim, and interest payment are deductable for income tax purpose. Specifically, the main sources of the benefit are listed below.
Tax Shield: Interest payment are deductable from income tax purpose.