Baldwin Bicycles

ACTG 313 ± O¶ Brien Team NUMBER SIX Eric Falk Jacob Griego Vincent Sermona Belle Wang ShihShih-hao Wang

8M) but have decreased in the past 2 years. ‡ Baldwin¶s product image: Above average. ‡ 1982 Sales were 98.791 bikes ($10. 2/12/2012 ACTG 313.Baldwin Bicycle Company 3132 . ‡ Baldwin¶s sales are through independently owned retailers and bicycle shops. ‡ Currently. Not top-of-the-line. Baldwin operates its plant at about 75% of one-shift capacity.BALDWIN¶S HISTORY ‡ American bicycle industry was volatile in 70¶s.

000 units annually ‡ Hi-Valu will pay for a bike when it¶s shipped from the warehouse to retail store ‡ ‡ ‡ ‡ 2/12/2012 ACTG 313.29 (Average) Volume: 25.000 Unit Price for Baldwin: $92.Hi-Valu¶s PROPOSAL HiOne-time Design Costs: $5.Baldwin Bicycle Company 313- 3 .000 bikes a year Impact on Baldwin¶s Sale: Lose 3.

50 Total $ 83.90 *: 40% of total production overhead cost is variable.80 $ 69.20 2/12/2012 ACTG 313.80 $ 19.MANUFACTURING COSTS Estimated 1st-Year Costs Total Materials $ 39.60 Overhead (@125% of labor) * $ 24.60 $ 9.80 Labor $ 19.Baldwin Bicycle Company 313- 4 . Relevant $ 39.

WORKING CAPITAL INVESTMENT COST ‡ Average Inventory Assumptions: Raw Materials Inventory (two month supply) =25.Baldwin Bicycle Company 313- 5 .83 $2.5% of the total average value.60/2 + 24.80 + 19. ‡ Relevant Working Capital Investment Cost = $269.633.363.5% = $63.833.90 = $41.33 * 23.80 = $165.5/2) = $61.633.950 Average Inventory = $269.33 ‡ The costs associated with carrying this average inventory is 23.850 Finished Goods Inventory = 500 * 83.000/6 * $39.53 / bicycle 2/12/2012 ACTG 313.33 WIP Inventory =1000 * (39.

045.62/bike $85.000/98. we did not consider the Selling & Administrative or the Income tax expense.EROSION COST ‡ If Baldwin decides to produce Challenger bicycles.791 $110.43/bike $28.000 sales of their current business. ‡ The relevant cost of erosion of the existing market is: 1982 Bike Sales = 1982 Revenue = 10.791 = 1982 COGS = 8.05 ± 81.Baldwin Bicycle Company 313- 6 .05/bike $81.860 *In this calculation.872.62 * 3000 = 98.791 = 1982 gross Profit = 110. we predict that Baldwin could lose 3. 2/12/2012 ACTG 313.000/98.43 = Erosion Cost = $28.

860 $1.29) Revenues: Sales: $92.RETURN ON INVESTMENT ‡ Return on Investment (based on 25.364 $85.224 per year ($1.000 = Costs: Manufacturing: $69.026 $428.026 $428.730. 2/12/2012 ACTG 313.000 (year 1 only) $63.026 ‡ Deal looks profitable even at a lower margin.Baldwin Bicycle Company 3137 .307.000 = Drawing/Supplier Non-Recurring Cost: Working Capital Investment: Erosion Cost: Total Costs: $2.000 sold @ $92.884.250 $1.879.000 $5.29 * 25.224 in year 1) The return on investment can be shown by the table below: Year 1 Year 2 Year 3 « $423.20 * 25.

FINANCIAL POSITION Baldwin Bicycle Company Balance Sheet As of Dec. $ 342 1.990 3. 1982 (Thousands of Dollars) Assets Cash AR Inventories Plant/Equipment (Net) $ $ $ $ .635 Liabilities and Owners Equity AP Accrued Expenses Short-term Bank Loans Long-term Note Payable Total Liabilities Owners' Equity 8. 31.512 4.359 2.092 $ $ $ $ $ $ $ 512 340 2.092 2/12/2012 ACTG 313.Baldwin Bicycle Company 313- 8 .102 8.756 3.626 1.

1982 Sales Revenues COGS GM Selling & Admin.827 2.FINANCIAL POSITION Income Statement (Thousands of Dollars) For the Year Ended Dec.Baldwin Bicycle Company 313- 9 . 31. Expenses Income Before Taxes Income Tax Expense Net Income $ $ $ $ $ $ $ 10.045 2.354 473 218 255 2/12/2012 ACTG 313.872 8.

478M = $0.FINANCIAL POSITION SOLVENCY PERFORMANCE Current Ratio = Current Assets / Current Liabilities = $4.478M = 1.457M .49 2/12/2012 ACTG 313.Baldwin Bicycle Company 31310 .457M / $3.$3.979M Quick Ratio = (Cash + Short Term Investments + Receivables) / Current Liabilities = $1.28 Working Capital = Current Assets ± Current Liabilities = $4.478M = 0.701M / $3.

473M / $10.08 ROS = Net Income (Before Interest and Tax) / Sales = $0.872M = 0.61 2/12/2012 ACTG 313.102M = 0.FINANCIAL POSITION PROFITABILITY ROE = Net Income / Owners¶ Equity = $0.102M = 1.04 DEBT MEASURES Debt / Equity Ratio= Total Liabilities / Owner¶s Equity = $4.990M / $3.255M / $3.Baldwin Bicycle Company 313- 11 .

375 2/12/2012 ACTG 313.): Days of Inventory in the Pipeline without payment = 60 days (avg.CASH FLOW ‡ Cash Timeline (Avg. Cash outflow associated with Pipeline Inventory: = ¼ year * 25.Baldwin Bicycle Company 313- 12 .) + 30 day to receive payment = 90 days.000 * $83.90 = $524.

Baldwin Bicycle Company 31313 . ± Product Strategy ± Baldwin¶s own brand may suffer: ‡ Current sales will be lost to Challenger sales ‡ Retailers may drop the Baldwin line ‡ Fewer resources to market and develop their own Baldwin name-brand products 2/12/2012 ACTG 313. ± Diversification ± expands product portfolio ‡ Con-Arguments for the Challenger Deal: ± Cash Flow ± The Baldwin Bicycle doesn¶t have the cash to make the deal.Challenger deal would guarantee additional revenue.STRATEGIC POSITION ‡ Pro-Arguments for the Challenger Deal: ± Revenue .

‡ Review internally to strengthen financial position. ‡ Renegotiate inventory requirement and payment schedule.RECOMMENDATION ‡ Can not complete the deal due to cash flow and financial constraints. 2/12/2012 ACTG 313.Baldwin Bicycle Company 313- 14 .

Variable ‡ Begins with customer and ends with customer ‡ All about the Benjamin's ( cash flow ) 2/12/2012 ACTG 313.4 ON THE FLOOR ‡ Quantitative alone is not sufficient ‡ Relevant Costs .Baldwin Bicycle Company 313- 15 .

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