Fin 335 - Entrepreneurial Finance

CASE STUDY: The Valuation and Financing of Lady M Confections

(12% of final grade)

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After reading the case, “The Valuation and Financing of Lady M Confection”, found in the HBP Coursepack, analyze a

Questions 1-5 should be written up and submitted formally through the TurnItIn link in “The Valuation and Financin
You must use this Excel template to solve and to submit or your submission will not be graded.

1. For the WTC location, Romaniszyn and Tom need to decide what the break-even number of cakes is. Using the gi
Write the equation that produces this result.

Break-even number of cakes:

Equation:
Break Even # of cakes:
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HBP Coursepack, analyze and answer the following questions (one question per tab).

The Valuation and Financing of Lady M Confection” Content folder in Unit 2 on BBLearn.

er of cakes is. Using the given estimates for price and rent, utilities and labor costs (found in the case study), find the operatin
e study), find the operating Break-Even number of cakes.
2. Assuming sales in the 1st year are breakeven, what is the growth rate of sales required to pay the start up costs f
Use the template below to complete.

Growth Rate Calculation

2015 2016
Year One Year Two
Rent
Utilities
Labor
COGS
Total Cost
Gross Sales
Average Retail per Cake
Cakes Sold per year
Cakes Sold per day

Net Income

Start-up Cost Left

red to pay the start up costs for the WTC location within 5 years?

wth Rate Calculation

Growth Rate

2017 2018 2019

Year Three Year Four Year Five
3. Using the data provided in the financial statements for Lady M, calculate the historical (2014) and projected FCFs
Partial data is provided below. Remaining data will come from the case study.
Use the template below to complete.

Ca

000s Historical
2012 2013
Sales $4,132.5 $7,491.2
COGS (excluding depr.) $1,303.4 $1,632.7
Gross Profit $2,829.1 $5,858.5

SG&A $2,449.2 $4,342.5

R&D Exp. $0.0 $0.0
EBITDA

Depreciation $41.8 $149.0

Amortization $0.0 $0.0
EBIT
Taxes
Tax-effected EBIT

Depreciation and Amortization $41.8 $149.0

Capital Expenditures $142.2 $1,194.4
Additions to Intangibles $0.0 $0.0
Change in working capital $10.8 $271.2
Free Cash Flow

Operating Assumptions
Sales Growth
COGS (% of sales)
SG&A (% of sales)
R&D Exp. (% of sales)

Primary Expenditure Assumptions

CapEx (% of sales)
Depreciation (% of CapEx)
Change in Working Capital (% of ∆ sales)
orical (2014) and projected FCFs for years 2015 - 2019

Cash Flow Calculation

Historical Projected
2014 2015 2016 2017 2018 2019
4. Calculate the value of the company based on the FCF method.
Use the template below to complete.

FCF Valuation Method

Perpetuity Growth Method

WACC
Terminal Growth Rate

Year 2015 2016 2017 2018

Years into the future 1 2 3 4
FCF

NPV of 5-years FCF

Terminal Value of FCF
PV of TV

Enterprise Value
2019
5
5. Sensitivity Analysis
Perform a sensitivity analysis and compare and comment on the effect on valuation for each of the following 2 scen
a.       The weighted average cost of capital = 18%
b.      The forecasted annual increase in capital expenditures is 6% of sales for 2016 and beyond
c. Explain why the outcomes you arrived at make sense from a theoretical standpoint.
Use the template below to complete.

WACC =18%

Perpetuity Growth Method

WACC
Terminal Growth Rate

Year 2015 2016 2017 2018

Years into the future 1 2 3 4
FCF
NPV
NPV of 5-years FCF
Terminal Value of FCF
PV of TV

Enterprise Value

Explanation:
for each of the following 2 scenarios:

ales for 2016 and beyond

oretical standpoint.

Capex = 6%

Perpetuity Growth Method

WACC
Terminal Growth Rate

2019 Year 2015 2016 2017 2018 2019

5 Years into the future 1 2 3 4 5
FCF
NPV
NPV of 5-years FCF
Terminal Value of FCF
PV of TV

Enterprise Value

Explanation: