Consider this situation You are on the leadership team for a company that is the primary employer in a small town. The company?s founder, your friend and mentor, owns this private corp in partnership with an ESOP. The ESOP is the major component of a significant number of the employees? retirement plans. The firm?s net worth makes up a very large portion of the founder?s net worth. The founder relies almost exclusively on dividends from the company for his retirement income. Since the founder hired you 22 years ago, you have climbed the leadership ladder and you are well compensated; salary and bonus (based on EBITDA and cash flow). You are entering the most cash intense portion of your life. Three of your five kids will enter college in the next six years. The company as $100mm in assets, $50mm in debt, and consequently $50mm in net worth. Recent profits have suffered as the company?s manufacturing equipment is dated and should be re-placed. Intense study reveals that $30mm would replace the equipment with like technology; $80mm would upgrade the equipment to ?state of the art? technology. You are leading a team that will make a recommendation to the president and the founder as to what path to choose.
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