7Project Evaluation: Tortuga Fishing EquipmentCompanyJudson W. RussellAbstractThis case study on project evaluation is applicable forbeginning courses in corporate finance or finance strategy. Twoalternative investment options are available to evaluate.Challenges are presented with the inclusion of equity, bank debt,and bonds in the capital structure. Each investment option need tobe evaluated carefully and decision should be made on the basis ofthorough analysis of the data available using various capitalstructure and capital budgeting techniques.Keywords: Beta, Corporate Finance, Cost ofCapital, Internal Rate of Return, Net Present Value JELCode: C10, G31, G32IntroductionBrooks Hamilton recently accepted a job with Tortuga FishingEquipment Company[1] (Tortuga) in thecompanyAc€?cs finance department. His first few assignments were fairlystraightforward and Brooks relied on his background in bothaccounting and finance to get his career off to a great start. Hismanager, the companyAc€?cs Chief Financial Officer (CFO) was impressedwith his work and decided to put Brooks on a new assignment. Thefirm was embarking on a new project which would define its futureover the upcoming years. Given the importance of the project andhigh degree of visibility with the firmAc€?cs senior management, Brookswas flattered to be asked to assist and eager to show that he wasup to the task. The finance department was tasked with preparing ananalysis to make a decision between two competing project planswhich could very well decide the future of Tortuga in thecompetitive fishing equipment industry. The Chief Executive Officer(CEO) wants to have an answer from finance and expects a thoroughanalysis very quickly.The CompanyTortuga is an Islamorada, Florida based company specializing inmanufacturing high-end fishing rods and reels. Tortuga was foundedby a retired university professor who fished all of his life andwanted to create the best equipment possible to handle a variety offishing conditions and fish species. He partnered with an engineerwho ran a machine shop to produce some prototype reels and suppliedthese to commercial fishing captains as test market research. Theequipment produced by Tortuga was a significant improvement overthe current line available and orders were strong. Through theyears, the company made some modest improvements to their originalprototype and had become an industry leader. TortugaAc€?cs products are used by tournament fishing teams aroundthe world. Over the past decade, tournament fishing has grown tobecome a big business with corporate endorsements and prize money.This growth has made what was once a recreational vocation into afull-time profession for some anglers. The company recently launched an extensive research anddevelopment effort focused on a new flyrod and reel designed forone particular species of fish, the Atlantic Tarpon (Megalopsatlanticus). Tarpon are long-lived fishes that migrate in thewarmer climes of the Caribbean Sea, Gulf of Mexico, and along theAtlantic Ocean coastlines. Although the fish can reach lengths ofeight feet (~2.4 meters) and weights of 280 pounds (127 kilograms),they inhabit the shallow flats and exhibit acrobatic leaps whenhooked. These traits make tarpon a popular game fish for anglers.Fishing gear needs to be sturdy to handle the power of these fishand Tortuga had developed products for this niche market which wereallowing anglers to be successful in their angling pursuits.Recently, several sponsors had come together to launchcompetitive angling events called tournaments, where the bestanglers vie to catch, and then release, the most and largesttarpon. Winners may receive up to $50,000 in a single weekendtournament and the difference between winning and losing could be afew pounds. With so much money at stake, tournament teams purchasethe best gear available and are always looking for any competitiveadvantage with their equipment. Tortuga is looking to capitalize onthis t…

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