Pl.find below the discussion questions for the case on LADY M Confections for your reference...

1. Number of cakes to be sold in the first year by Lady M to get break-even? Find out the BEP in sales re

2. Assuming sales in year 1 are break even , how quickly would sales need to grow after the first year to

3. Should Lady M open the shop in the new location in WTC?

4. What is Lady M's Enterprise Value? Does it matter if one uses EBITDA multiple or Perpetuity Growth

5. Do you think that they should take the chinese investor's offer ? Why or Why not?

6. Perform the sensitivity analysis under the perpetuity growth and EBITDA Multiple
(a) If WACC= 20% (b) if capex is 5% of sales from Year 2 -Year 5 (c) if WACC=20% & CAPEX is 5% of sales

7. Assuming Lady M China is worth 1/3 of the EV of Lady M, find out the value and % of stake given up
(b) Lady M retains 25% of LMC
(c) Lady M retains 50% of LMC
ons for your reference...

ven? Find out the BEP in sales revenue? Is it feasible for Lady M to achieve the BEP ?

eed to grow after the first year to pay the start up costs within 5 years?Is this growth rate feasible?

A multiple or Perpetuity Growth Formula for computing the Terminal Value? How much of the equity stake should they be givin

y or Why not?

TDA Multiple
ACC=20% & CAPEX is 5% of sales from Year 2 -Year 5

e value and % of stake given up to investor in Lady M under the following scenarios (a) Lady M retains 0% of LMC
quity stake should they be giving up to the chinese investor?

etains 0% of LMC
 2. Assuming sales in year 1 are break even , how quickly would sales need to grow after the fir

At g = 10%
Particulars Y1 Y2 Y3 Y4 Y5
Sales Revenue 2288000 2516800 2768480 3045328 3349861
(COGS) 50% of sales 1144000 1258400 1384240 1522664 1674930
(Labor) 5% escalation ra 594750 624488 655712 688497 722922
(Utilities) 3% escalation 38644 39803 40997 42227 43494
(Rent) 3% escalation 310600 319918 329516 339401 349583
(Dep) 200000 200000 200000 200000 200000
Surplus 6 74191 158015 252538 358931

At g = 5%
Particulars Y1 Y2 Y3 Y4 Y5
Sales Revenue 2288000 2402400 2522520 2648646 2781078
(COGS) 50% of sales 1144000 1201200 1261260 1324323 1390539
(Labor) 5% escalation ra 594750 624488 655712 688497 722922
(Utilities) 3% escalation 38644 39803 40997 42227 43494
(Rent) 3% escalation 310600 319918 329516 339401 349583
(Dep) 200000 200000 200000 200000 200000
Surplus 6 16991 35035 54197 74540 180769

At g = 3.55%
Particulars Y1 Y2 Y3 Y4 Y5
Sales Revenue 2288000 2369224 2453331 2540425 2630610
(COGS) 50% of sales 1144000 1184612 1226666 1270212 1315305
(Labor) 5% escalation ra 594750 624488 655712 688497 722922
(Utilities) 3% escalation 38644 39803 40997 42227 43494
(Rent) 3% escalation 310600 319918 329516 339401 349583
(Dep) 200000 200000 200000 200000 200000
Surplus 6 403 441 87 -695
ed to grow after the first year to pay the start up costs within 5 years?Is this growth rate feasible?
?
Depreciation 75.00% 80.00% 85.00% 90.00% 95.00%
Values in 000
Pariculars 2014 2015 2016 2017 2018
Sales Revenue 11000 13200 18480 23100 28875
(COGS) 2397 2877 4028 5035 6293
(SGA) 6376 7524 10349 12705 15593
(R&D) 0 13 18 23 29
EBITDA 2226 2786 4085 5337 6960
(D&A) 25 32 47 62 82
EBIT 2201 2754 4038 5275 6878
Tax (35%) 770.4483739
EBIAT 1431 1790 2625 3429 4471
D&A 25 32 47 62 82
(Delta Capex) 33 40 55 69 87
(Delta NWC) -68 -43 -102 -90 -112
FCFF 1355 1740 2514 3332 4354
PVIF 0.89 0.80 0.71 0.64
PVCF 1355 1553 2004 2372 2767

EV 55158.231527358 =
=
Mkt val of equity =

If we take terminal value as 12x EBITDA, TV = 9060x12 = 108720

Revised EV = 72940
Which implies, revised equity value = 72634
 100%

2019
36094
7867
19130
36
9061
108
8953

5819
108
108
-140
79494
0.57
45107

Mkt val of equity + mkt value of debt -cash

Mkt val of equity + 100+918 - 712 Assuming borrowing and cash of 2013 is expected to be the sa
54317
 COGS percent 21.80%
SGA percent 58%
Tax 35%
Delta NWC/Delta Sales 1.94%

TV 73814

wing and cash of 2013 is expected to be the same in 2014

Vaues in 000
Perpetuity Model
Lady M equity value = 54317*(1/3) = 18105.66667

a) Don't give stake in LMUS

b) LMUS retains 25% in LMC = 13579.25
Don’t give stake in LMUS
c) LMUS retains 50% in LMC = 9052.833333
Should give (10000-9053)/54315 = 1.70%

Maximum stake that can be given = (10000/18106=

Using equity value based on EBITDA

72634 x (1/3) 24211.33333
Maximum stake 41.30%
55.23%