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Harmonic Hearing Co. Case Solution

Solution Id Length Case Author Case Publisher
752 358 Words (2 Pages) Howard H. Stevenson, Craig Stephenson Harvard Business School : 4271
This solution includes: A Word File A Word File

Harriet Burns and Richard Irvine have decided to Purchase Harmonic Hearing Company. They are considering two considerable options of financing, all debt financing and all equity financing. In debt financing, 25 million would be financed. In equity financing, 30 million would be financed by comet capital with 0.2 million financed by Burns and Irvine.

Number of tools can be used to check which financing alternative is better.

Forecasted Revenues

In debt financing only, the company would not be able to begin the production of new hearing aid for one year, due to high fixed interest payment. As a result, the forecasted revenues in debt financing are way less than debt financing in first two years.

Following questions are answered in this case study solution

  1. Which financing alternative (all-equity or all-debt) to favor, and why (indicate tools to use / values to check or calculate)?

Case Analysis for Harmonic Hearing Co.


Selling and General Expenses are fixed percent of Revenues earned. Although, as a result of high level of sales, selling and general expenditures are greater in equity financing, however, the fixed rent and lease payments in all debt financing alternative would result in higher overall expenses. 

Net Income

Projected Net income is a key tool to be used while evaluating both alternatives. Higher projected Net Incomes of one alternative make it suitable to choose. It can be easily estimated that fixed rent and lease payment, in debt financing, would cause vast difference in the net income of both alternatives. Projected Net Income in Debt financing is far less than all-equity financing.

Forecasted Free Cash Flow

As a result of higher net income in all-equity financing scenario, Forecasted free cash flows are greater in all-equity than all-debt financing alternative. 

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