(Answered) Write my case study help on the topic ''The Valuation and Financing of Lady M Confections'' - Essay Prowess

(Answered) Write my case study help on the topic ”The Valuation and Financing of Lady M Confections”

(Answered) Write my case study help on the topic ”The Valuation and Financing of Lady M Confections”

  

Paper instructions:
A:Questions/Considerations for Lady M Confections:
1. What is important to succeed in the foodservice industry?
2. How unique is their model? Could it be replicated?
3. What are the barriers to entry? What is the limit on growth?
4. How many cakes would Lady M need to sell in a year in order to break even?
5. Assuming sales in year-one are break-even, how quickly would sales need to grow after the first year to pay for the start-up costs within five years? Is this growth rate feasible?
6. What is your recommendation? Should Romaniszyn open the new location in the World Trade Center?
7. What is Lady M’s enterprise value? Does it matter if one uses an EBITDA multiple or a perpetuity growth formula for a terminal value? How much of an equity stake should they be giving up to the Chinese investors?
8. What do you think of Romaniszyn’s and Tom’s baseline assumptions? Are they realistic?
9. Do you think they should take the Chinese investor’s offer? Why or why not?
B: Provide a bibliography and reference all facts/quotes

Answer Preview(3pages/750 words) APA format.

“Valuation and Financing of Lady M Confections”

Case Summary

            Lady M confection is one of the successful cake wholesale business instituted in May 2011. The increased growth and profitability of Lady M was presented in public magazines; Vogue, Harper’s-Bazaar, and Oprah (Desai & Meyer, 2015). Due to the considerable market share, the restaurant wishes to expand its operations to the Middle East and Asia. Investors have offered $10 million credit for the equity of this organization and lose franchising privileges in China. Lady M contemplates instituting a boutique in the WTC. The yearly rent for the new periphery ranges is approximately $310,600. The restaurant should now decide whether to adopt the Chinese offer or World Trade Center. For the breakeven analysis, the profits relate to the organization’s benefits and growth (Desai & Meyer, 2015).

Question1: Foodservice industry Success

            To succeed in the foodservice industry, the restaurants should work to position their brand based on the customer’s requirement. The firm should have customized and appealing products that customers prioritize from other competitors’ products (Fuller, 2016). The differentiation to quality and healthier foods can help in maximizing the customer relevancy and competitive distinctiveness. The second strategy is making its services convenient to increase the accessibility and reliability of the food. This is attained by establishing distribution channels to a new location (Fuller, 2016). Based on Lady M, the firm should also offer effective leadership to run the product sourcing, co-ordinate advertising, decision making, among other management activities. Leadership plays a significant role in the expansion and growth of the foodservice industry.

Question 2: Lady M. Model

            Lady M confections utilize the differentiation model to outdo other bakeries competitors. The company emulates the Japanese cakes rather than the ordinary sugar-laden loaves that are familiar to American consumers. Romaniszyn focuses on Japanese cakes that offer less-sweet delicate taste and aesthetics-pleasing foods.  The design of the Mille Crepe makes their model more productive and customer-attracting.  The Lady M model cannot be replicated. According to the case, numerous foodservice companies have tried replicating the Mille-Crepe, but they fail to meet the scale of cakes and quality produced in Lady M. Company.

Question 3: Entry Barriers

            There numerous barriers for the Lady M. company towards investment entry and expansion in the WTC. For Romanisyzn to set the new boutique in the new location, approximately $600,000 are predicted to be used for construction activities. At this location, the rent is $310,600 higher than other regions, with an escalation of 3% annually (Desai & Meyer, 2015). The annual labor cost has a 5% yearly escalation in $594, 750. Therefore, this is an extra cost that is very expensive for Lady M to ascertain. Romanisyzn acceptance of the Chinese investor’s offers to the company would make the company lose franchising privileges to china. Lack of sufficient funds and fear of franchising rights loss are the two limiting factors for Lady M growth (Ageropoulos & McGee, 2015).

Question 4: Cakes Required to Break-Even

The Net Revenue = (Total Sales- Total Cost)

The Total Expenses = Companies Utilities+ Cost of Goods sold+ Labor + Rent

The COGs Sold = 50% of Total sales

Therefore, for the restaurant to break even, it needs to;

In the Year One

Amount in Dollars

The labor cost (escalation 3%)

594,750

The Utilities (escalation 3%)

38,644

The rent (escalation 3%)

310,600

The labor cost (3% escalation)

594,750

COGs (50% gross sales)

943, 994

Total sales

1,887,998

Cake Price

80

Cakes to be sold in a day

23, 600

Average cakes in a day

65 cakes

 

The Net revenue = 1,887, 998-1,887, 998= 0

The Start-up cost is $1,000,000

Therefore, to break even the company need to produce and sell 23, 600 cakes within the first year.

Question 5: Sales Growth to Pay Start-up Expense

Year

1

2

3

4

5

The Utilities (escalation 3%)

38,644.00

39,803.32

40,997.42

42,227.34

43,494.16

The rent (escalation 3%)

310, 600.00

319,918.00

329,515.54

339,401.01

349,583.04

COGs sold (50% total sales)

943,994.00

1,068,601.21

1,209,656.57

1,369,331.23

1,550,082.96

The Labor Cost (Escalation 3%)

594,750.00

624,487.50

655,711.88

688,497.47

1,550,082.96

 Total Cost

1,887,988.00

2,052,810.03

2,235,881.40

2,439,457.05

2,666,082.50

Total sales

1,887,988.00

2,137,202.42

2,419,313.13

2,738,662.47

3,100,165.91

Cake price

80

80

80

80

80

Annual cakes produced

23600

26,715

30,241

34,233

38,752

Daily cake production

65

73

83

94

106

%margin

0

4.11

8.2

12.3

16.3

Net revenue

0

84,392.39

183,431.73

299, 205.42

434,083.42

Start-up

1,000,000

915,607.61

732,175.88

432,970.46

-1,112.95

The firm should increase the total sales with 13.2% from the first year to pay back the starting cost.

            Yes, pre-determined growth is feasible. This is because this restaurant’s surrounding area has numerous business buildings that will offer market to the produced cakes. Second, Lady M has an exceptional brand name, which attracts new customers due to its reputation (Baker & Hart, 2016). The new location is also a focal point for the individual from the elite group. Last, the company space can accommodate numerous consumers.

Question 6: Recommendation

            Romaniszyn should deliberate establishing a new setting within the WTC. WTC is an iconic location with a lot of individuals working and running businesses in the area. This location is a strategic place that would attract more people because of the broader business market. Therefore, Romaniszyn should incorporate measures to advertise the products by offering

customers with rewards and coupons (Baker & Hart, 2016). To draw more new customers, Lady M should utilize social networks, including online ordering and in-Apps, to cut congestions and waiting time.

Question 7: Company Value

The Enterprise value begins with the calculation for projected Cash Flow from the assumptions provided in the question.

The Predicted Cash flow

 

2013

2014

2015

2016

2017

2018

2019

COGs

1,632,722.0

2,397,359.63

2,876,831.555

4,027,564.18

5,034,455.22

6,293,069.02

7,866,336.28

Sales

7,491,187

10,997,062.52

13,196,475.02

18,475,065.03

23,093,831.28

28,867,289.1

36,084,111.38

Tt. Profit

5,858,465

8,599,702.89

10,319,643.47

14,447,500.85

18,059,376.06

22,574,220,08

28,217,775.10

 

 

 

 

 

 

 

 

R&D

0

0

0

0

0

0

0

SG&A

4,342,500

6,378,296.26

7,521,990.76

10,346,036.42

12,701,607.21

15,588,336.12

19,124,579.03

EBITDA

1,515,965

2,221,406.63

2,797,652.70

4,101,464.44

5,357,768.86

6,985,883.96

9,093,196.07

%Margin

20.24

20.2

21.2

22.2

23.2

24.2

25.2

 

 

 

 

 

 

 

 

Amortization

0

0

0

0

0

0

0

Depreciation

149,007

24,743.39

802,345.68

47,111.42

62,353.34

82,271.77

108,252.33

EBIT

1,366,958

2,196,663.24

1,995,307.02

4,101,464.44

5,295,415.51

6,903,612.19

898,843.73

Taxes

74,191

768,832.13

698,357.46

1,419,023.60

1,853,395.43

2,416,264.27

3,144,730.31

Disposal earnings

1,292,767

1,427,831.11

1,296,949.56

2,235,329.46

3,442,020.08

4,487,347.92

5,840,213.43

 

 

 

 

 

 

 

 

Amortization and depreciation

149,007

24,743.39

802,345.68

47,111.42

62,353.34

82,271.77

108,252.33

Other intangible

0

0

0

0

0

0

0

Capital expenditure

1,194,393

32,991.19

1,002,932.10

55,425.20

69,281.49

86,601.87

108,252.33

Working capital change

271, 200

66,611.63

41,788.84

100,293.21

87,756.56

109,695.70

137,119.62

Net cash flow

518,581

1,486,194.95

1,138,151.98

2,727,308.89

3,522,713.53

4,592,713.53

5,977,333,05

 

 

 

 

 

 

 

 

(12%n) PV

 

 

0.8929

0.7972

0.7118

0.6355

0.5674

NPV

 

 

1,016,210.38

2,174,183.38

2,507,493.10

2,918,761.30

3,391,718.09

The enterprise value = to the NPV + PV(TV)

TV in perpetuity growth is; Perpetuity multiple = (1+ the terminal rate)/ (WACC- the terminal growth rate)

TV in 12x EBITDA is; Terminal value EBITDA (2019) x 12

TV= Cash flow (2019) x Perpetuity multiple 

Perpetuity Growth Method (TV)

Cash Flow 2019

5,977,333.05

Terminal rate

4%

WACC

12%

PM

13

TV

77,705,329.65

 

12xEBITDA Multiple Method (TV)

EBITDA (2019)

9,093,196.07

EBITDA Multiple

12

TV

109,118,352.82

 

Lady M Enterprise Value

 

12xEBITDA

Perpetuity

TV

109,118,352.82

77,705,329.65

NPV

12,008,366.25

12,008,366.25

PV of (TV)

61,917,026.94

44,092,335.20

PV(12%n)

0.5674

0.5674s

Company Value

73,925,393.19

56,100,701.46

Credit for investors

10,000,000.00

10,000,000

% Share of investors

13.53

17.83

 

Question 8: Tom and Romanizing’s Assumption

            The baseline assumption is unrealistic. The baseline assumes that Capital expenditure after 2015 to be 0.3%, which is very low and WACC to be 12 %, which is also less for an illiquid scheme. The lower the outlined WACC, the enterprise value becomes higher (Jeston & Nelis, 2014). As a result, the underestimated 12% WACC makes the company value high, and the investor’s share is low, making WTC investment attractive.

Question 9: Chinese Offer

            Lady M should not accept the promised 10 million dollars for an equity stake. This may cause the Lady M enterprise to be managed by investors rather than headquarters (Jeston & Nelis, 2014). Also, this can erode Lady M’s business culture through the loss of identity. If they accept the offer, the enterprise will give 17.83 and 13.53% to the investors. Therefore, the management should consider opening a new boutique and borrow bank loan with less interest rates.

References

Avgeropoulos, S., & McGee, J. (2015). Barriers to entry and exit. Wiley Encyclopedia of Management, 1-3.

Baker, M. J., & Hart, S. (Eds.). (2016). The marketing book. Routledge.

Desai, M. A., & Meyer, E. A. (2015). The Valuation and Financing of Lady M Confections.

Fuller, G. W. (2016). New food product development: from concept to marketplace. CRC Press.

Jeston, J., & Nelis, J. (2014). Business process management. Routledge.