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The valuation and Financing of Lady M Confections Case 3. Lady M Confectionaries

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The valuation and Financing of Lady M Confections Case 3. Lady M ConfectionariesNAME NAJWAATHIRAH BINTI AZRIN EMILY ONG HUI LEE AIN SHAFIKA BINTI HASBI HAIYUSNIZA BINTI HAIRI MATRIC CARD A... 14HA0205 A13HA0023 A14HA0198 A14HA0274 MOHAMAD ZAKRI BIN KARIM A13HA0057 ANIS AFFIQAH BINTI MOHAMAD NOR A14HA0271Stuvia.com - The Marketplace to Buy and Sell your Study Material SUMMARY Lady M Confections is a cake wholesale business company. Founded in May 2001. Open their second bakery in 2012 inThe Plaza Food Hall in NewYork City. Sold cakes to upscale restaurants and luxury hotels in NewYork City. Opened a third shop in NewYork City and one in LosAngeles. Had licensed in both Singapore and South Korea. Signature dessert are called as‘Mille Crepe’Stuvia.com - The Marketplace to Buy and Sell your Study Material Downloaded by: all_academic | [email protected] Distribution of this document is illegalStuvia.com - The Marketplace to Buy and Sell your Study Material SUMMARY Featured in Oprah Magazine twice in one year and attracted the attention of many celebrities. Investors want expand the Lady M brand to Asia and the Middle East. Offered $10M dollars line of credit in exchange for an equity stake in the company. Exclusive franchising rights in China. Romaniszyn consider to opening a new boutique in the new World TradeCenter. Annual rent for that location was $310,600. Decide to choose whether World Trade Center locationor Chinese investor’s offer. In terms of breakeven analysis, profit and all related to the growth and benefits of the company.Stuvia.com - The Marketplace to Buy and Sell your Study Material CONSIDERATIONS TO OPEN NEW BOUTIQUE AT WORLDTRADE CENTER IN NEWYORK.Stuvia.com - The Marketplace to Buy and Sell your Study Material HOWMANYCAKEWOULD LADYMNEED TOSELL IN A YEARIN ORDER TOBREAKEVEN? 23,600 CAKE PER YEARStuvia.com - The Marketplace to Buy and Sell your Study MaterialStuvia.com - The Marketplace to Buy and Sell your Study Material DOES THE NUMBERSEEMFEASIBLE? YES, FEASIBLEStuvia.com - The Marketplace to Buy and Sell your Study Material THE REASONS BECAUSE... The surrounding area have a many of business building. The area was the focal point to people from elite group. Lady M is a one BIG name in New York.Stuvia.com - The Marketplace to Buy and Sell your Study Material Assuming sales in year one are break-even, h o w quickly would sales need to grow after the first year to pay the start-up costs within 5 years?Stuvia.com - The Marketplace to Buy and Sell your Study Material • Lady M needs to increase their sales to 13.2% for the next years after Year1 - So that they able to pay back all their starting cost within five years. • Year 1 is break-even,therefore Lady M’s - Gross Sales :$1,887,988 - Net Income :$0YES, it is feasible considering from several aspects.  Lady M has been establish its good name & infamous in house Mille Crepe  Just need to boost up some initiatives to attract more customers and increase sales  The space was set to be 560 sq ft, food hall of 1,000 seats • Huge space to accommodate large number of customers  The location (WTC) itself is an elite location to gain customers from business people  Since 2010, Lady M had experienced considerable Is this growth ragtroewtfhe–asasleisbgrloewi?ng at high of 81% (2013)Stuvia.com - The Marketplace to Buy and Sell your Study Material WTC location would have similar patterns to Bryant Park Whole cake purchases from businessmen on their way home Individual slices cakes during lunch break & want to have a meeting in a different location Meaning that Lady M in WTC location still need additional 26 to atleast reach break-even Lady M should not solely make a prediction based on Bryant Park’s revenue because the sales pattern in WTC might be different dependingon how : Differences in customer style and preferences Effort & initiatives WTC location to promote and attract theirtarget market Bryant Park Revenue :$1,152,001 Cakes Sold = $1,152,001/$80 =14,400 Cake Sold per day = 14,400/365 = 39.45 @ 39 WTC Cakes Sales per day (to reach breakeven) = 65 cakes Stuvia.com - The Marketplace to Buy and Sell your Study MaterialStuvia.com - The Marketplace to Buy and Sell your Study Material Should Romaniszyn open the n e w location in the World Trade Center?Stuvia.com - The Marketplace to Buy and Sell your Study Material STRATEGIC PLACE One of the iconic location in New York City There is a lot of peoples doing their business there. This would attracts more people to come. Business market larger or wider.Stuvia.com - The Marketplace to Buy and Sell your Study Material SALES PATTERN Same as the other boutique of Lady M Confections in Bryant Park. The customers or businessman did not only purchase whole-cake after work. Also purchased individual slices. New location would also open the business up to corporate catering because it would be in such a large office complex there.Stuvia.com - The Marketplace to Buy and Sell your Study Material RECOMMENDATIONSStuvia.com - The Marketplace to Buy and Sell your Study Material MARKETING STRATEGY Advertise their product through various mediums. Offers their customers with coupons and some reward. Draw more customers as well as improving their sales. applying some technology methods. For example,“In-Apps and Online Ordering”. Makes their customer to be able to order their favorite cakes whenever and wherever they want. Customers also feel less rushed when ordering through an app. Help the customers to cut down on lines and wait times.Stuvia.com - The Marketplace to Buy and Sell your Study Material CONSIDERATIONS ONTHE OFFER FROM THE CHINESEINVESTORS. Downloaded by: all_academic | [email protected] Distribution of this document is illegalStuvia.com - The Marketplace to Buy and Sell your Study Material QUESTIONS??? Portionofthecompany would begivinguptothe Chinese Company would lose their franchising rights to the China equity-stake Chinese Downloaded by: all_academic | [email protected] Distribution of this document is illegal $10 million offer from investors Was this offer worth it? Would Lady M accept theoffer? Stuvia.com - The Marketplace to Buy and Sell your Study MaterialStuvia.com - The Marketplace to Buy and Sell your Study Material PROJECTED CASHFLOWStuvia.com - The Marketplace to Buy and Sell your Study Material PROJECTED CASHFLOW Stuvia.com - The Marketplace to Buy and Sell your Study MaterialStuvia.com - The Marketplace to Buy and Sell your Study Material ENTERPRISE VALUE(EV) =NPV +PV ofTV PERPETUITYGROWTH Downloaded by: all_academic | [email protected] Distribution of this document is illegal 12XEBITDAMULTIPLE PERPETUITY MULTIPLE (PM)= (1+TERMINAL GROWTHRATE)/ (WACC –TERMINAL GROWTHRATE) TERMINAL VALUE= CASH FLOWof 2019 xPM TERMINAL VALUE = EBITDA of 2019 x12Stuvia.com - The Marketplace to Buy and Sell your Study Material ENTERPRISE VALUE(EV)Stuvia.com - The Marketplace to Buy and Sell your Study Material Stuvia.com - The Marketplace to Buy and Sell your Study MaterialStuvia.com - The Marketplace to Buy and Sell your Study Material Discussion that the baseline assumption may be unrealistic BaselineAssumption WA C C =12% May be too low for an illiquid venture deal Capital Expenditure May be too low after 2015 at 0.3% Downloaded by: all_academic | [email protected] Distribution of this document is illegalStuvia.com - The Marketplace to Buy and Sell your Study Material WACC assumption may be toolow Downloaded by: all_academic | [email protected] Distribution of this document is illegal The lower the WACC, the higher the enterprise value, as a result of underestimate on assumption of WACC to be 12%, the enterprise value appears to be high and the value give up to investors is low, where make the investment in WTC attractive. By increasing the WACC, free cash flow for future years discounted at a higher rate and therefore enterprise value is lower.This lowers enterprise value of the company and raises the investor’s equity stake in the company.Stuvia.com - The Marketplace to Buy and Sell your Study Material What if WACCis 20? TV decrease by half Change in WACC doesn’t affect TV ofEBITDA Change in PV factor (20%,5) EBITDA is less reliable in calculating terminal value Less affected by WACC EBITDA multiple change over time. Stuvia.com - The Marketplace to Buy and Sell your Study MaterialStuvia.com - The Marketplace to Buy and Sell your Study Material Unrealistic capital expenditures so low after2015Stuvia.com - The Marketplace to Buy and Sell your Study Material Do you think they should take the Chinese investors’ offer? Why/why not? Downloaded by: all_academic | [email protected] Distribution of this document is illegalStuvia.com - The Marketplace to Buy and Sell your Study Material Should not accept the $10 million equitystake offer,because: Managed by the investors, instead of the Lady M headquarters. Can change the business culture of Lady M, causing the lose identity of Lady M. It will cause the company to lose their franchising rights to China Downloaded by: all_academic | [email protected] Distribution of this document is illegalStuvia.com - The Marketplace to Buy and Sell your Study Material If Lady M accepted the offer of $10 million the company as a whole would give up the enterprise value between 13.53% and 17.83% Downloaded by: all_academic | [email protected] Distribution of this document is illegalStuvia.com - The Marketplace to Buy and Sell your Study Material Conclusion Downloaded by: all_academic | [email protected] Distribution of this document is illegal Lady M should decide to open a new boutique at World Trade Center(WTC). It is recommended for them to choose to take out a bank loan instead from taking fund from the investors. With the interest rates so low, it is an advantage to the company to take a bank loan.Stuvia.com - The Marketplace to Buy and Sell your Study Material The company do not have to pay high interest on the principal Downloaded by: all_academic | [email protected] Distribution of this document is illegal that the company loanT. he company also can pay the principal without having any problem because the company is forecasted to have a good cash flow.Stuvia.com - The Marketplace to Buy and Sell your Study Material THANK YOU Downloaded by: all_academic | [email protected] Distribution of this document is illega [Show More]