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Formulation and Evaluation of Alternatives

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Formulation and Evaluation of Alternatives


For Lady M, we think it now has the following 3 alternatives:

1. Do not accept the equity offer of Chinese investors, but still open a boutique located in the World Trade Center. Raise funds from other sources such as banks.

2. Accepted a US$10 million equity takeover offer from Chinese investors and opened a boutique in the World Trade Center.

3. Do not open a boutique located in the World Trade Center and choose a conservative development strategy. Because of the low cash flow pressure, Lady M does not need to adopt new financing methods in this case.


For the first two options, must first estimate the operation and financial situation of Lady M in 2014 before you can specifically evaluate the feasibility of opening a World Trade Center boutique. In the article, Lady M's CEO and CFO predicted a sales revenue of $11 million in 2014. I think the amount of $11 million is an acceptable forecast based on the current sales growth rate of Lady M. According to other minor terms predicted by Romaniszyn and Tom, net income in 2014 will be approximately $1.1 million.

But just the cost of building a new boutique has reached $1 million. Other expenses brought by the new store will also put more pressure on Lady M. If you do not accept quotes from Chinese investors, Lady M needs to sell more cakes in 2015 to cover the financial costs of borrowing. This means a higher risk.

Our valuation for Lady M is $40,863,361. If the investor's valuation is close to this value, then Lady M will sell about 25% of the shares. We think this is acceptable. Because this investment from China not only allows Lady M to build a new World Trade Center store, but also accelerates the globalization of Lady M. Now Lady M is in a niche market, but that doesn't mean it will have no direct competitors in the future. Therefore, accepting this investment and opening a new boutique in the World Trade Center is a necessary means for Lady M to maintain its high appropriability. On the other hand, the article does not give other information on this $10 million equity investment. For example, Lady M and the investor's initial negotiation agreement, the investor's expected return on investment, the terms and conditions given by the investor. So, if Lady M accepts the investment, then Romaniszyn and Tom need to speed up negotiations with investors and reach a deal as soon as possible. They need to set aside enough construction time for the new store at the World Trade Center.

If Lady M chooses a conservative development strategy, she will not open a new store at the World Trade Center. Then they do not need large amounts of financing. The construction cost of boutiques in other locations is $600,000. We believe that Lady M's own profits and small loans are enough to enable them to maintain their current profitability. But choosing this option will make Lady M lose the opportunity to grow at a high speed and make it incapable of developing a global business.

Therefore, we believe that Lady M's best solution is to accept investment and open a new store at the World Trade Center.



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