Create Excel file with Lady M confections projected cash flow for the years up to 2019 and include the answers to the questions below using the case study listed above.
- What are the assumptions of the five-year forecast?
- What are the capital costs associated with the store?
- Should he open the new boutique?
- Calculate Free Cash Flow for Lady M from 2014 - 2019
- What is the value of Lady M? Calculate using a DCF valuation
- Should they take the Chinese offer? What changes, if any, should be made to the deal?
Full Answer Section
- Inflation: The five-year forecast assumes that inflation will remain at a moderate level. This will help to keep the cost of goods and services stable.
- Interest rates: The five-year forecast assumes that interest rates will remain at a low level. This will make it easier for the company to borrow money and invest in growth.
- Competition: The five-year forecast assumes that the company's competitive landscape will remain stable. This means that the company will not face any new or major competitors in the coming years.
- Customer demand: The five-year forecast assumes that customer demand for the company's products or services will remain strong. This will lead to increased sales and revenue.
Capital Costs Associated with Opening a New Boutique
The capital costs associated with opening a new boutique can vary depending on the location, size, and type of boutique. However, some of the typical capital costs include:
- Rent or lease: The cost of rent or lease for the boutique space will be one of the largest capital costs.
- Fixtures and equipment: The cost of fixtures and equipment, such as clothing racks, cash registers, and point-of-sale systems, can be significant.
- Inventory: The cost of inventory, such as clothing, accessories, and jewelry, can also be significant.
- Marketing and advertising: The cost of marketing and advertising to promote the new boutique can be important for generating awareness and attracting customers.
- Professional fees: The cost of professional fees, such as legal fees and accounting fees, can also be associated with opening a new business.
Should He Open the New Boutique?
The decision of whether or not to open a new boutique is a complex one that should be based on a careful analysis of the potential risks and rewards. Some factors to consider include:
- The demand for the company's products or services in the new location.
- The competition in the new location.
- The cost of opening and operating the new boutique.
- The potential return on investment (ROI) for the new boutique.
If the entrepreneur is confident that there is a strong demand for the boutique's products or services in the new location, that the competition is manageable, and that the ROI is positive, then opening the new boutique may be a sound investment. However, if any of these factors are uncertain, then the entrepreneur should proceed with caution and consider conducting further research or seeking professional advice.
Sample Answer
Assumptions of the Five-Year Forecast
A five-year forecast is a financial projection that estimates a company's revenue, expenses, and profits over a five-year period. Five-year forecasts are used to make business decisions, such as whether to open a new store, expand into a new market, or invest in new equipment.
Key assumptions of a five-year forecast: