Nikhil Jindal

B19030
Financial Management

Case: The Valuation and Financing of Lady M Confections

Pre-reading Assignment

Lady M is a specialty cake bakery chain that has been rapidly expanding in the recent past. It is
run by Ken Romaniszyn and Daisy Tom is the CFO. The firm has been receiving multiple
investment offers and is also planning to expand. The two options being considered by Ken and
Daisy are:
1. Whether to open a new boutique in the new World Trade Center in New York City.
2. Whether to accept a 10 million dollars and a line of credit offer from China in exchange
for an equity stake and exclusive franchising rights in China.

Decision 1:
Cost of typically opening a new boutique costs = $600,000
Cost of opening the boutique in new World Trade Center = $1,000,000
● Substantially higher rent = $310,600 with a 3% annual escalation
● Annual utility costs = $38,644 with a 3% annual escalation
● Annual labour costs = $594,750 with a 5% annual escalation
Annual revenue estimates = $1,152,000 (similar to Bryant Park location)
Hence we will need to calculate and analyze the break-even analysis, at what price to sell,
quantity required to be sold, profit margins required, required growth rate.

Decision 2:
Investment: $10 million + a line of credit
For: an equity stake + exclusive franchise rights for China
Valuation of Lady M for 2014:
Sales = $11 million, Capital expenses = 0.3% of sales, tax rate = 35%, WC Increase = $68,000
5-year forecast:
Annual sales growth 20%, 40%, 25% and 4% in perpetuity
Cost of goods sold = 25%, R&D = 0.1% of sales, Capital expenses = $1 million + 0.3% of sales
Tax rate = 35%, WACC = 12%, they choose a 12x EBITDA multiple.

Conclusion:
Ken and Daisey need to figure out how how to take advantage of the investor attention and
whether to open a new location in the World Trade Center. If yes how would they fund it, and
whether to accept the $10 million + credit line offer or not.