Gabriella Kassman (​gdk38@cornell.edu​) Mariana Gomariz (​mg953@cornell.edu​) Lady M Confections Is Lady M worth enough to afford not taking any new investors? ● Valuing Lady M ○ 2014 ■ Sales ~$11 million (growth of 81.3% in 2013) ■ CGS, SG&A, and R&D expenditures (all as a percent of sales) behave similarly to 2013 ● Bryant Park revenue was $1,152,001 in 2013 ■ Fixed costs are 0.3% of sales ■ Tax rate 35% ■ Working capital expected to increase by $68,000 in 2014 (increase of $10,800 in 2012, $271,200 in 2013) ■ Profit margin of 11.4% in 2013. If they open the new WTC location, how would they fund it-- $10 million plus a line of credit from Chinese investors or a bank loan? ● Construction costs of WTC location could reach $1,000,000 ● Annual rent for WTC location: $310,600 ● Annual labor costs for WTC location: $594,750 (annual escalation of 5%) ● Annual utility costs: $38,644 (annual escalation of 3%) How much of Lady M would they be giving up if they do decide to take on the Chinese investment? (based on NPV) Break-even analysis​ = fixed costs / (revenue/unit) - (cost/unit) 310,600 + 38,644 + 594,750 = 943,994 / (80 - 40) = (943,994 / 40) / 365 = ~65 cakes per day In the new location, Lady M would have to sell more than 65 cakes per day in their first year to make a profit. Net Present Value (NPV) for Valuation of Lady M: 2015 $1,135,000.00 2016 $2,700,000.00 2017 $3,500,000.00 2018 $4,600,000.00 2019 $6,000,000.00 2020 $78,000,000.00 NPV (2014) $51,502,218.94 Five-Year Sales Revenue Forecast for Lady M: 2015 $13,200,000.00 2016 $18,480,000.00 2017 $23,100,000.00 2018 $28,875,000.00 2019 $36,093,750.00 Five-Year Fixed Costs Forecast for the World Trade Center Location: 5 Year Fixed Costs Rent (3% annual escalation) Utility (3% annual escalation) Labor (5% annual escalation) Total Cost 2015 $310,600.00 $38,644.00 $594,750.00 $943,994.00 2016 $319,918.00 $39,803.32 $624,487.50 $984,208.82 2017 $329,515.54 $40,997.42 $655,711.88 $1,026,224.83 2018 $339,401.01 $42,227.34 $688,497.47 $1,070,125.82 2019 $349,583.04 $43,494.16 $722,922.34 $1,115,999.54 NOTES: Don’t take investment​: do calculations for NPV and the value of the company would be lower because they didn’t take $10 million but if they did that would “inflate”/grow the value of the company (if they get a $10 million investment, they’d clearly seem to have a higher value - but would seem like that value of the company is higher than it actually is because of extra $10 million) BUT also paying off equity shares to investor and lost franchising rights in a huge market (China) (and possibly also take into account the expense of the WTC location) Thus, probably shouldn’t take the investment. Whether or not they can pay back in 5 years, investment or not, they should open it. (conditional if they can pay it off, not if they should take the investment) Whether they should take investment or not: need to find the ceiling, if he asks for anything more than the investment is off because you already know that your company will be profitable regardless Step 1: break-even analysis, can you pay back the million dollar investment (bank or line of credit from investor) in 5 or less years? ​Yes to both. Step 2: valuation of the whole company ($11 million halfway through 2014) sales growth, 20%, 40%, 25%, 25%, 25% (2015-2019) Step 3: calculate cost of goods per yr: 25% of sales for each yr Step 4: labor costs: They’re doing well, they don’t need an “angel investor loan” to open up a new location and be lucrative and profitable If NPV is positive after calculation, then they make a profit regardless, without having to pay the investor back and losing Chinese market Assume WTC location will make AT LEAST what they make at Bryant Park location, if not more. To evaluate the company (for the next 5 years - each year individually using chart on prompt), need to do an NPV for the sales growth of (NEED TO KNOW HOW MUCH IT’S INCREASING BY) (i) Rate of return/discount rate: 12% (t) Time: 5 years (Rt) : chart on prompt ​ 2015 2016 2017 2018 2019 Terminal (2020 - ++) $1,135,000 $2,700,000 $3,500,000 $4,600,000 $6,000,000 $6,000,000* ((1+ 0.04) / (0.12 – 0.04)) = $51,502,218.94 https://www.investopedia.com/ask/answers/032615/what-formula-calculating-net-present-valuenpv.asp
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