Chestnut Corporation Harvard Case Solution & Analysis

Introduction:                                                 

In this case, the company, Chestnut, has to make a decision regarding an acquisition, which is crucial for remaining competitive in the relevant industry. Van Muir is asking control of Chestnut to operate. In this matter, he has tosuggestafull thinking process for a sufficient report whichwould enable him to make a decision. As per consideration of the data, Chestnut is working in the food industry and machinery industry as a public listed company and has impressive worth in therunning industry.

Comparison of Chestnut and Food Industry:

The company has shown animpressivelyhigh image of Beta and Capital Assets Pricing Model as comparedto food production, which is too risky to make invest for any investor. As per calculation, the food industry has a beta of 1.006. However, the company has a beta 1.767, and the Capital Assets Pricing Model has the figures of 8.84% and 13.41% in the food industry and Chestnut respectively. This figure shows that the company is running in thehazardous medium. Van Muirhas to take this issue in his consideration to take control. In some sense, the company is providing a high fluctuation which is good for those who are playing as scalper in the stock market and forex. But frontally it is profoundly inconvenient to grab sufficient investment in long terms. The investor is looking forreliability of the company and consecutive points on which they will invest in long term.

Chestnut Corporation Harvard Case Solution & Analysis

Comparison of the Machinery Industry and Chestnut:

The comparison of the machinery industry’s beta and Capital Asset Pricing Model gives the impression that it is beatable by the company as shown by the figures of 0.94 and 1.77 of beta and 8.43% and 13.41% of the capital asset pricing model respectively. Respected valuesare showing that the company is suffering from high risk to make aninvestment. This risk management is a vital point to attract any investor, to make his investment, in this manner, he wants to make the investment in those points which has minimal fluctuation and does not have much risk for him. The company has to make its beta to single according to market which is currently lying on the double rate of the machinery industry roundly.Van Muirhas to do hard work to manage this beta factor to grab the investment for theproper behavior of the company.

Comparison of the Other Food Company to Chestnut:

Van Muir has to consider running his other company at an extremely efficient level as well, so as to  be able to compete with other companies in the food industry. With this respect, the other company has a beta factor of0.64, which wascalculated on anaverage basis but the company’s beta is showing 1.77, whichlooks like it hastripled in the current working market.The Capital Asset Pricing  Model is showing a percentage of 6.64%, on the average basis of the other company. The company has a 13.41%, which is a little bit up in comparison.

This ismore unsafe for the company because if aninvestor wants to invest as per comparison of the other company, the investor will not go to spendin theenterprise, and theinvestor will adequately investin others because another food group has a lower risk rate to invest than the company..................

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